By Paul Howard
The number of news articles lamenting the apocalyptic doom in the real estate market has exploded; and, in a certain sense they are correct. Rising interest rates, overall inflation, and general fears about the US economy are punishing certain sectors of the market. Those most effected are home buyers and sellers and commercial properties including buyers, sellers and especially commercial landlords.
Most residential landlords can laugh it off
The current market downturn is similar to what we experienced in 2003 through 2006. At that time a big money left the Dot.Com boom and ran to real estate resulting in a ton of cash chasing real estate deals. Eventually this led to hyper price inflation and poor investment decisions. Then as now, the only landlords negatively affected were the foolish ones.
The foolish landlords fell in love with rising home prices and low interest rates. A large number of them refinanced in order to grab some quick cash. However, many underestimated the negative effect on cash flows caused by increased mortgage costs. The very worst decisions often followed when, those pinched by negative cash flow simply walked away from their rentals merely expecting a negative report on their credit score. These are the ones who learned the nasty truth about the IRS code covering "recaptured depreciation" and other taxes and costs – often totaling tens of thousands of dollars.
Things are not much different today. Speculators, mostly big banks, began to show up three or four years ago. It seemed they would pay any price to buy rental property … and they did!
Those big cash buyers have all but gone now; and we will soon begin to see the beginning of a buyers market.
The effect of all of this on the residential rental business is either zero or mostly positive. That is sure to continue for some years to come. Here's why:
First, the National average of a home mortgage today is just over $3,000 per month. Ouch! Lots of families who managed to buy a home in the past few years are loosing those homes today. Nationally, foreclosures are way up. Families who once owned their home but loose it become renters, often above average renters. That is great news for landlords, especially those offering lovely single family homes.
Second, and this will begin to materialize a few months from now, all of those foreclosures will soon find their way to the market at a fraction of their original price. Bargain Time! So, landlords these should be great times for you unless you are like the foolish landlord of the 2003-2006 era.
So, here’s some free advice:
Get Smart!
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Paul Howard is the Founder & President of The Florida Landlord Network
He may be reached via email at: Paul@FlaLandLord.Com
Website: www.FlaLandLord.Com