Statistically speaking, rentals on paper are a goldmine but there is one problem. Abuse of the asset. It’s great if you have a two bed room unit for rent. The real trouble is the other 4 people you didn’t meet that want to call it home. Basic cleanup repaint and carpeting can run about $12,000. And the neat thing, is if you have someone managing the place, they are going to want another 15 percent for management expenses.
The basic thought premise, is that rentals are a godsend with the low interest rate returns. The reality is that you may wish you had ever thought of the idea. You may have to evict them and that could take about 8 months. And you might have to pay them $1,500 just to move out even though they haven’t paid rent in months.
Rental prices may be high in California, and if you are strapped for cash, you can rent a garage for about $900 -- split 6 ways, that’s about $150 a month. Of course that is illegal, and probably the people living in the garage are also illegals.
Housing prices are going up in California, and the number of cars parked in front of each house is also going up. Kind of makes you wonder what line of work your neighbor is in, to have 6 cars parked outside his house with a three car garage—three cars in the driveway and three at the curb. Of course, he could have three more cars in the garage. I walk by several, every day that have a sofa and TV in the garage or a garage that is packed full to the ceiling.
IMHO if the Federal government had let the real estate bubble crash in California, we would not have everyone moving home to survive. Prices would be realistic to where you could afford to buy a home without sharing it with another couple. 10 years ago, in my area, there were maybe one or two cars parked at the curb. Now days, on trash day, finding a space along the curb for three trash cans can be a real chore.
Just pause for one minute and think when has it been this bad before? If you have a job, life is great, if you don’t have one, life sucks. This is a bad time for a lot of people. This isn’t a depression, everything is just hunky-dory (the government told me so).
From the million dollar home, the owner can see the guy across the street with his car up on jacks trying to get it to run. While that guy can watch the soccer mom back out of their McMansion in their Mercedes SUV. You do have to admit that the guy with his car up on jacks has a better view out his front window than the guy in the McMansion. Two different lifestyles that are worlds apart and on the same block.
Let’s boil this mess down to its basics. If a house rents for $1,250 a month, 2 people need to live in it, $2,500 4 people. If a house is selling for under 250K two adult occupants, 500K 4 adults. What happened in California? The occupancy rate of homes depends on the amount money earned by the average worker. At 9 dollars an hour, you only make $1,440 a month, your max for rent is $800. You'll need a roommate.
The government effort to save housing prices, by supporting the price of housing with the Fannie and Freddie supports, has only increased the number of occupants per residence. The economics of it are a little like squeezing on a balloon. You get one desired effect with several unknown ones.
Of course to the untrained observer, looking at all of the cars parked outside all of the homes out here, auto sales must be booming. But it could be a bunch of kids unemployed, living at home and too poor to pay on their student loans. And we dare not mention car loans.
So let me think, who gets to cut my lawn this week? -- Jose living in the garage, or the neighbor's son Jesse with a BS degree and a student loan? The answer "me," my wife doesn't have to pay me.