The reluctant landlords

Underwriting standards went away. They couldn't go away twice. You can't pay over 20-25x rent and expect to make a reasonable return. How is this guys mortgage payment come to $5000??? Did he pay $900k-$1mm for this place with 0-10% down.

Renting just doesn't seem like it's yours. Any time I visit someone who owns, especially for a long long time they just have made the place theirs in a way you can't do with a rental unless you are Stabilized or Controlled and therefore guaranteed a good rental price year-in-year-out and a renewal.

22x or should it be 15x. Maybe it is 15x but with the discount for your temporaryness it gets cheaper to 22x. That's the way I think about it. The home may be worth $790K but if I'm going to rent it, I want a discount because it's only for a year or two or a few years at best. And then pack up, move, move the kids, possible new schools, constraints based on commute to work, inability to set down roots in the community etc.

Its not yours. It feels better to buy, of course. Problem is the credit bubble made it too expensive. The risk of owning is what we see right now. This guy is way underwater. Historically, the discount has been to owners for the risk, and also as a reward for accumulating a downpayment. Now we have the oppostite. Understand that the current period, beginning around 2000, is the anomaly. Also, if it were worth $790k someone would have bought it. The problem is he paid $1mm and its intrinsic worth is around $500k. The credit bubble basically pumped and dumped buyers.

Didn't say it is sensible for the owner, just that the renter wants a rental discount because there are limitations on the place's livability for any renter.

I think your premise is flawed because it was never so before 2000. The only reason for a rental discount is a credit bubble and because Americans can't do math. There are a host of reasons why an owner should get a discount on his monthly payment. Transaction costs, risk of down payment, return on down payment. Bottom line is, your only gained popularity after loans became too easy to get. People don't understand what happened. This is why people are sitting on homes asking 20x+ gross rent. They are not going to get their price because there is no longer a greater fool who a bank will lend money to.

I don't know, my family had been in our home for 35 years. We started modest and improved on the property incrementally over the years as our own economic situation improved. But same location, same neighbors, same friends, same school, same dry cleaners, familiarity, community, religious worship etc. To say that's possible with a rental I don't see. So sure, there are economic costs and transaction costs, but that's just friction. You can't pay for the other benefits of owning that I just cited unless you actually own. Not long term, no way.

A lot of "risks" of owning are also negligible if you are owning for the long term. Risk of downpayment is zero if you saved for the downpayment before purchsing and indend to be there long term. Return on downpayment, well, you can't live in a stock, and the theoretical excess returns you can get from a stock, well, you can't buy the benefits of owning with those excess returns unless you actually own.

Yes, the overal price of housing and ownership increased more than usual in the past decade. No argument.

Ability to change your own property to your taste and on your own schedule. Build a pool, redo the kitchen, fix the driveway or don't.

Sure if you buy your last home at a good price and stay there for 35 years you cannot go wrong. 35 years ago, however, you needed to come up with a downpayment and have income. And 35 years ago it was cheaper than renting, I guarantee it. They made it too easy to borrow, and what happened is it become nonsensically expensive to own. Also, buying your 35 year place in Manhattan is achievable for very few.

"They made it too easy to borrow, and what happened is it become nonsensically expensive to own."

EXACTLY!!! People were drinking so much of the "I've got to own kool-aid" that they stopped paying attention to the actual financial costs and risks. They were willing to pay whatever the seller wanted and the banks were willing to lend as much as was needed. There is much more pain to come as our country suffers from this stupidity/greed.

This just in, housing prices aren't going up in an economic environment where unemployment is at generational highs.

"They made it too easy to borrow, and what happened is it become nonsensically expensive to own.

Everyone seems to forget that when it's too easy to borrow the lender doesn't get paid back.
It was never in the true lenders interest for this to happen. Of course Hyman Minsky explains why this occurred. It was refreshing to see the story about the nationally recognized rating agencies not being able to hide behind freedom of the press. If they had not sold out and rated these mortgages "money good" this would not have happened to the extent that it did. There were hundres of lenders, thousands of borrowers, dozens of investment banks yet only two to three rating agencies.

Riversider, and only 1 federal reserve. If debt was crack the federal reserve would be the biggest drug dealer in history.

80sMan,
The Federal reserve doesn't believe that looking at "Credit Availability" is part of their mission. This explains Why the Maestro,"Alan Greenspan" never once raised margin requirements on stocks(which might have had an effect on the 2000 tech bubble) or took a position on leverage in the financial system but did support the 2004 Net Capital Rule change.
Of course why would the Federal Reserve the only regulator institution in the United States where representatives are voted in by the institutions it monitors and supervises have wanted lower leverage requirements on anything.

Home ownership is too expensive today.

But I responded to a discussion about cap rates for higher end suburban homes. I don't think you can look at cap rates in the same way you'd look at a cap rate for a true rental property in an urban area. To me for all the reasons I stated above, the rental experience in the suburban higher end home is lesser than owning and I would always argue that there would be a discount.

The current level of inventory of higher end suburban homes is unprecedented. These homes were never even built with the intention they be for rental purposes. The experience isn't set up that way. And to be repetitive, again this accounts for the low rental cap rate.

Right they were intended to be flipped to math challenged bankers. Oh the bitter irony. Cap rates are always a reference point for an intelligent buyer.

The rental market for suburban homes has always existed. Maybe it's weaker right now. I'll rent and stay invested in short term bonds.

Owning in the burbs was at a discount to renting in the 90s just like manhattan. What you say makes sense it just doesn't comport with history.

I limit my knowledge of suburban homes to the NY Tri-State area.

I don't know of many people who rented a suburban home until the past three years. I'm comparing this again to the backdrop of a 35 year horizon as I stated above.

Always a rental market. You can love to own long term. However you can't use those as reasons to explain the current bubble. I only assume that you would like to know historical truth. This is why I am sharing it with you.

I know westchester and ct.

If a natural number of people who should be renting is, made up number here 3%, and you have 2% of the homes available for rent, then renting rates will be higher. And the opposite.

And yes, although I made up a number of 3%, but I think it was always a low number less than 1 in 20. For the NY Tri-State area suburbs of middle to higher end homes.

You are missing the point. Regardless of your opinion it was usually cheaper to own until underwriting standards were thrown away. All your fuzzy reasons existed before that and it did not matter. Sorry. You can have your preference and opinion but I know history and I am taking you to water. Drink.

Ah, now we get into the part of the discussion where I'm foolish and uneducated and use "fuzzy reasons that did not matter; preference and opinion" and to become wise and educated and get YOUR (i.e. correct) "point" I need to comport to your fact and "history".

I'm out.

Have a nice weekend.

There are nice places you can rent from individual owners but why bother? It isn't a long term solution. Actually it is the opposite and therefore not a good reason to move from where you are coming from.

This is a strawman. For every one reluctant recent landlord there are dozens of long-term very happy landlords.

Lowerdutchess.. go f yourself... dozens of happy "unintentional" LL... caught by the bubble... yep... all these LL are super happy!

Interesting way to disagree with someone w67thstreet.

"this is a strawman".... you too...

Do people think that because so many people are selling that there will be more renters and maybe rental prices go up? what about if local taxes and things go up and raise the costs for the landlords, will that also mean rental prices going up?

fariteen... let me put my softest unicorn hair gloves on.....

Please note even if you "own" an apt in nyc or anywhere on the good ole USA, you are a landlord => to yourself. You just happen to rent to yourself and with your other self take on all the responsibilities of a LL, and that includes RE tax/maintenance.

Please read the following on where rental rates are going:
http://www.streeteasy.com/nyc/talk/discussion/14172-1991-nyc-re-rental-market-a-refresher-course
http://www.streeteasy.com/nyc/talk/discussion/14332-bubble-in-the-nyc-rental-mkt-a-primer
http://www.streeteasy.com/nyc/talk/discussion/14234-2007-bubble-an-option-based-interpretation-of-the-greatest-bubble-in-nyc-re

The Gerrys kids self congratulations for saying nothing was one thing but it's not a party till some drops death panels haha.

We were in our house for 18 years and recently (January) decided to rent it out which we did within 2 months. There are benefits of something to come home too. Rhino86, you've obviously gone berzerk, Jerry's kids and death panels have absolutely nothing to do with owning a home or renting it out and no one even said anything like that. And you should separately reconsider why people might choose to rent out a house. You gave one link to one person who is in a tough situation but like me there are others who do this because it makes good sense to have someone pay off the expenses for a couple years, I have no mortgage, and I and my wife can come back to the house that has been a part of our family for quite a while at this point or our grown kids can take it over. Newerrenter we are allowing our tenant to fully move in and we don't intrude in their life. Of course they can't build an annex to the home but I doubt they've even considered it.