The Market Is Changing - Part 2 - Historic Rental Returns
June 1, 2009, Writen by: Chris Anderson, Ph.D
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In our last post, we talked about bidding wars occurring for properties, at least from the professional investor community.
I know that seems strange to many but it is really occurring.
As we progress in this series of blog posts to really show you what is happening behind the scenes, the next consideration is the unbelieveable change in cash flow that people can get from properties. While this is occurring around the country, we will discuss a case study in Tampa, Florida where we have been spending a lot of our time.
Tampa, Florida Case Study
Let’s consider a simple, 3 bedroom house located about 5 minutes from downtown Tampa. This is just a bread & butter type home we love for our own portfolios. We will take a look at what has happened as we have gone from the peak of the market in 2005 to where it is today.
First, let’s get to the punchline which is shown in the figure below: THE EXACT SAME HOUSE HAS HAD A CASHFLOW CHANGE OF $700 PER MONTH!
As we will see in a moment, the current house can be purchased for $92,000. When you factor in vacancies, etc., this still results in a 15%+ cashflow based on a 20% down purchase. Back in 2005, you would have lost several thousand dollars a year in cashflow.
Why Is The Cash Flow So Much Better?
- Are rents better? Not really, the rental market has been pretty flat as can be seen in the figure below
2. The principal & interests is MUCH LOWER because of pricing
In this particular example, there was a $430 difference just in principal & interest between 2005 and today.
3. Taxes & Insurance Are Much Lower As Well
When all is factored in right now, on the EXACT SAME HOUSE, we go from something that is a bad investment in 2005 to something that is a great investment today.
But Is Now The Right Time - Maybe It Will Get Better?
In tomorrow’s blog post, we are going to look at what is happening in the cash buyers market….. which is comprised of mostly local and national professionals. As you will see, there is tremendous movement there right now which is very likely to stabalize, and then increase, pricing levels for properties.
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