When Was Rental Parity Possible?

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Failedagent_IHB

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Living in the Bay Area from 1982-2002 I never once penned a deal where a single family home could be purchased for less than the rental amount. Every SFR rental investment depended on having a large down payment to achieve positive cash flow. Once I factored in the realistic cost of maintenance, the situation got even worse. Did I miss something here in Orange County? When could a person purchase a home and actually rent it out for positive cash flow? What type of housing was it and where was it located?
 
See the thread <a href="http://www.irvinehousingblog.com/forums/viewthread/839/">Flashback to 1997 Real Estate</a>



And the follow-up Blog Entry <a href="http://www.irvinehousingblog.com/blog/comments/the-market-bottom/">The Market Bottom</a>
 
Reading these articles seems to imply that that rental parity is very short lived, having only existed for 1997. I have to remain suspicious that waiting for rental parity in SFR prices would make sense. It looks like rental parity is more like the market overshooting to the bottom for SFR property. Apartments, oh excuse me, condos can achieve rental parity for sustained periods of time.



If there is one thing that has teed me off with the bubble, it was the number of apartment complexes converted to condos. Apartment complexes just do not have the parking and storage space that the older condos were required to have. Once owners start stuffing all their accumulated belongings into a converted "condo", the neighborhood seems to take a turn for the worse. This is one area where citizens need to be very vocal to our city councils about the zoning requirements.
 
[quote author="Failedagent" date=1218764180]Reading these articles seems to imply that that rental parity is very short lived, having only existed for 1997. I have to remain suspicious that waiting for rental parity in SFR prices would make sense. It looks like rental parity is more like the market overshooting to the bottom for SFR property.</blockquote>
Historically it has been short lived.


Ok, you will remain suspicious. I will remain invested.


Overshooting would seem to be an appropriate term IMO.
 
[quote author="awgee" date=1218764732][quote author="Failedagent" date=1218764180]Reading these articles seems to imply that that rental parity is very short lived, having only existed for 1997. I have to remain suspicious that waiting for rental parity in SFR prices would make sense. It looks like rental parity is more like the market overshooting to the bottom for SFR property.</blockquote>
Historically it has been short lived.


Ok, you will remain suspicious. I will remain invested.


Overshooting would seem to be an appropriate term IMO.</blockquote>


Huh?



Rental parity was around last time from 1994 to about 1999. The problem was starting 1994, rents started decreasing keeping it closer to par instead massively cheaper to own.



Even up to 2000/2001, owning versus renting was much closer in alignment and really was the noise level and frankly, given rental quality versus owning quality probably was actually at par. Since the market started getting juiced by Greenspan, I'd say rental parity is about 50% of the time.
 
[quote author="Failedagent" date=1218509459]Living in the Bay Area from 1982-2002 I never once penned a deal where a single family home could be purchased for less than the rental amount. Every SFR rental investment depended on having a large down payment to achieve positive cash flow. Once I factored in the realistic cost of maintenance, the situation got even worse. Did I miss something here in Orange County? When could a person purchase a home and actually rent it out for positive cash flow? What type of housing was it and where was it located?</blockquote>


My memory isn't the best, but I think the yardstick recommended here was not rental parity, but rental x 1.6.



<blockquote>When could a person purchase a home and actually rent it out for positive cash flow? </blockquote>


Again, I may be wrong, but I think this states the proposition backwards. For example, when a friend bought a 1/1 condo in RSM in '01 or '02, he moved into it and saved money over paying rent at a 1/1 in a nearby Avalon community. The mortgage interest tax deduction may have played into that calculation.



As for me, I bought in '02 and, if one takes depreciation into account, I might break even renting my place out. I would run about -$200/mo, otherwise. The people that bought a similar model in a similar neighborhood in '01 would likely break even, using IAC apartments as comps (plus a small premium for more square footage and attached garage).
 
[quote author="No_Such_Reality" date=1218768393][quote author="awgee" date=1218764732][quote author="Failedagent" date=1218764180]Reading these articles seems to imply that that rental parity is very short lived, having only existed for 1997. I have to remain suspicious that waiting for rental parity in SFR prices would make sense. It looks like rental parity is more like the market overshooting to the bottom for SFR property.</blockquote>
Historically it has been short lived.


Ok, you will remain suspicious. I will remain invested.


Overshooting would seem to be an appropriate term IMO.</blockquote>


Huh?



Rental parity was around last time from 1994 to about 1999. The problem was starting 1994, rents started decreasing keeping it closer to par instead massively cheaper to own.



Even up to 2000/2001, owning versus renting was much closer in alignment and really was the noise level and frankly, given rental quality versus owning quality probably was actually at par. Since the market started getting juiced by Greenspan, I'd say rental parity is about 50% of the time.</blockquote>


NSR - Where are we talking about here? California? I think of rental parity as being a rarity. (like that?) And in most of the places I have lived, I do not think rental parity is ever actually achieved.
 
[quote author="awgee" date=1218769644][quote author="No_Such_Reality" date=1218768393][quote author="awgee" date=1218764732][quote author="Failedagent" date=1218764180]Reading these articles seems to imply that that rental parity is very short lived, having only existed for 1997. I have to remain suspicious that waiting for rental parity in SFR prices would make sense. It looks like rental parity is more like the market overshooting to the bottom for SFR property.</blockquote>
Historically it has been short lived.


Ok, you will remain suspicious. I will remain invested.


Overshooting would seem to be an appropriate term IMO.</blockquote>


Huh?



Rental parity was around last time from 1994 to about 1999. The problem was starting 1994, rents started decreasing keeping it closer to par instead massively cheaper to own.



Even up to 2000/2001, owning versus renting was much closer in alignment and really was the noise level and frankly, given rental quality versus owning quality probably was actually at par. Since the market started getting juiced by Greenspan, I'd say rental parity is about 50% of the time.</blockquote>


NSR - Where are we talking about here? California? I think of rental parity as being a rarity. (like that?) And in most of the places I have lived, I do not think rental parity is ever actually achieved.</blockquote>
The 3bd condo that I bought in Huntington Beach beach back in 1998 for $119k was cheaper to own then rent even before the tax benefits of ownership. Prices of those units peaked in early 2006 in the $450k range and have fallen to the $350k range today. I believe that the prices would have to fall back down to about $275k range (2002/2003 prices) before it reaches rental parity (based upon the $1,850 rent I get each month for it now).
 
In the last 2 decades, some areas Like SF, La Jolla, Del Mar or Turtle Ridge for that matter will NEVER has nor will they see rental parity...too much demand from aging population with money....you have to wait until all the baby boomers die off. BUT, places on the outskirts WILL. Those are the ones to snatch up to rent out.
 
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