Friday, November 24, 2006

Rental houses - tough to make them work, but...

Try calculating the GRM (gross rent multiplier) on a single family rental house in the Bay Area. Staggering numbers near 30 are reached. Let's not even start with the cap rate. So it seems that buying a house to rent out is inconceivable in this market. But there is a trend that is important to consider. Over the last few years, much of the single family rental house stock has disappeared. This is due to the dramatic rise in the house values and the relatively low rents they commanded. Many long time owners of these homes decided to reap their bonus equity while the going was good. The buyers were primarily families who were to owner occupy the houses. So, the overall number of these available rentals declined dramatically. And with the financial barrier to have more rental houses so steep, those with the luxury of owning a rental house will benefit. Rent pressure is steepest in this sector of the rental market. There are many options for single or couple tenants in the apartment complexes built in the past and recently. But, the options for a family being transferred in to the Bay Area are slim. If you require a backyard and a garage, you will be paying a significantly higher rent. And your choices will be limited.
Especially in the South Bay and the Peninsula, builders are not building the SFR on a 6,000 square foot lot. Most new development is either a townhouse or a condo.
Being able to hold on to a rental house will be a very secure asset in the Bay Area for the future.

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