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> rental properties must provide a positive return on capital To new investors. GP's point is that the causality is from rent to sale price. In any year any o
by iguy 8y ago
> rental properties must provide a positive return on capital
To new investors.
GP's point is that the causality is from rent to sale price. In any year any owner (or agent) more or less tries to charge the rent they can get. If this declines, there's nothing an individual owner can do about it. Badly wanting more doesn't open up any new channels to charge more rent (and may even lead you to play your hand sub-optimally).
But a prospective new owner certainly looks at the return, and won't bother to invest if T-bills would pay as well, and hence the sale price will adjust. (And of course buyers may pay for things other than rent, like a belief that prices will rise.)
- zaroth 8y agoI am definitely not saying that it’s impossible to lose money renting. But if you can’t charge enough rent to cover your costs, then eventually you sell and go buy a unit somewhere else that is profitable, or stop renting entirely, or declare bankruptcy, or.... This puts downward pressure on real estate prices in areas which are unprofitable by increasing inventory and decreasing investor demand for rental property. Market equilibrium will tend to drive prices to the point where units can be profitably rented, and rent will be higher in areas that are depreciating rather than appreciating. This is not a law in the sense of a inviolable law of physics, but I believe it is generally accepted macroeconomic theory.
- iguy 8y agoYes absolutely. My objection is only to people claiming the opposite causality; apologies if I misread you earlier.
- pytester 8y ago>This puts downward pressure on real estate prices in areas which are unprofitable by increasing inventory and decreasing investor demand for rental property. Yep, and when this happens it opens up a new market - prior renters who were priced out of the mortgage market before can now become homeowners. There's no economic law stating that middlemen have to take a large cut.