Apr 09

As an industry, rental housing providers must be present to PREVENT harmful legislation, because it is much more difficult to be made whole after the fact.

If the government does something that causes a large number of owners to fail, those owners will not have financial resources to fight back. They will be merely trying to feed their families.

This is not just bad for the owners that lost, but bad for tenants as well. In the years after the 2008 crash, there was a significant consolidation of rental ownership in Milwaukee. The city went from around 36,000 individual owners down to ~23,000 at a time that homeownership plummeted. Today Milwaukee has 41.8% owner occupancy. Nationwide that number is 65.1%.

Consolidation and owners doing what they could to survive the ’08 crisis has driven rents up significantly.

Those owners that come out of 2020 intact will likely be stronger than today. But not necessarily as municipalities will suffer more financially this go-round than in 08.

Owners that don’t fare well in the next few months will continuously be looking over their shoulders, hoping Jeff Bezos’ latest robot doesn’t take their job at the Amazon warehouse.

Or our government can keep printing trillions of dollars of new money and when end up like Venezuela where a quart of milk costs 4,200 bolivares, 11% of the monthly minimum wage. In 1990, a VEN bolivar was nearly equal to USD.

Hyperinflation, while bad for working folks, is good for those who enter it with assets and debt. Your debt remains in old dollars that you are paying off with new, cheaper dollars. Your assets acquired before the inflationary cycle will rise in value.

Look at what happened in the US during the late seventies and early eighties with annual inflation and interest rates on standard bank loans hit 18% in 1980. I was buying everything I could get my hands on. It was a risky, but good play when interest rates corrected and I could refinance at low rates like 12% APR. Yes, you can make money on rentals financed 90% at 18% APR. But you do have to pay almost nothing.

Look at average new home prices Dec 1977, when I started in real estate, $52,700 to Dec 1987 at $111,800.

Then look at historic interest rates. They were “cheap” in 1975 at 8.8% and cheap again in 1986 at 9.3% with a belly of 18.6% early 1981.

Yes, I do laugh when I hear investors fretting over half percent fluctuations in rates.

I’ll end this overly long post with there will be a huge risk to some, but also huge opportunities for others in this economy that we’ve never seen before and have no idea how it will turn out.

2 Responses to “My current thoughts on the future and the past”

  1. Jim says:

    Comparing the United States ability to print money with inflation in Venezuela is wildly misleading and not grounded in reality. The US is not at any risk of becoming Venezuela.

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