Rental Properties - Investment or Junk?

[sushix]

Hi all,

I have to admit that I've been a huge fan of SB and the forum community since 2007... for some reason, I never managed to create a forum account... until now!

My question on hand is essentially this: what's your assessment of rental properties in a down market?

I have a huge stake in this position as I own four houses, all of them are rentals as I moved out last year from my primary residence. I am fairly competent in finance/accounting and I am a RE agent (one of the reason why I wanted/was able to invest in real estate).

From a cashflow standpoint, assuming that housing in Seattle stays flat for the next 5 years (you can argue that it will drop but I think recovery in 2014 back to today's level is possible), my cash outflows = rental income.

My only obligations are partial taxes (some are included in regular outflow) and maintenance which I estimate to be $5,000 to $6,000 a year overall. Overall, my analysis still shows a positive - although somewhat lower ROI in the range of 6-7% using a 2% growth after 2014.

Can anyone give me insight on my strategy and whether this is viable? It really hurts to sell right now considering that I may need some major remodeling before I even think about it.

[sniglet]

[perfectfire]

I think he was talking about rental prices staying flat right? Otherwise why would he say "prices staying flat -> (cash outflows = rental income)". Either way though I would say your assumption of prices staying flat is too optimistic.

[sushix]

What I mean by prices staying flat for the next 5 years is that I expect prices to drop and eventually come back to today's level in 5 years assuming a recovery.

This is a bad way to state that assumption but I guess I am looking at 5 years out and hoping that the recovery will bring housing back to today's level, which I think is possible.

[sniglet]

[davidlosh@davidlosh.com]

You own the properties. I would be very, very nice to the tenents and improve the properties as time and money allow.

I'd keep rents flat even if other people are raising thiers. It depends on where the properties are. If they are prime rental locations you may be in for a ten year hold. If not figure out how to pay down the principle balance, they may end up being your retirement fund.

sniglet did start me thinking about credit markets. The Financial Markets are a mess. When Obama was talking about building lender confidence it sent shivers down my spine.

Phrases like "we need to get credit flowing again" or "businesses need credit to float pay roll" should be a warning signal that something is very wrong.

When the government gave "bail out" money to auto manufacturing that was a sure sign we were in for some very deep and long running hard times.

Kind of a good news portion is that properties will be cheap. There is a thing called averaging. You can average rental incomes or equity. You own four at what length of time? Are they all thirty year fixed mortgages?

You may be able to trade your self into a better position. Talk with other owners, join trade organizations such as Apartment Managers, or CBA. Talk with others who are in the same situation.

I can say with assurance that in the very worst of economic times people will do unusual things. Some people will walk away from perfectly good properties. Stay alert and you may be able to average your way into a better cash flow. If worse comes to worse you can lease option .