Well I haven’t been a very diligent blogger as of late, but my excuse is that I’m now working full time for one of our presidential candidates. I’m told that mixing business and politics is unwise so I won’t specify which candidate - because If I did I would alienate 100% of my Republican readers and almost (but not quite) half of my Democrat readers. So – I won’t say who I’m working for.
But I will say that being on the road non-stop (I’m writing this dispatch on a plane from North Carolina to Puerto Rico) has acquainted me with some of the finer points of being a long distance landlord – a good reminder of why I prefer to invest close to home where I can keep an eye on things. What’s saved me is the fact that I have developed a bullet-proof relationship with an excellent realtor that I trust and with a handyman/contractor that values me as a repeat customer and not an easy mark. So although I like to keep an eye on things I realize that the world isn’t going to come unglued while the cat’s away.Good investors who have developed reliable relationships realize that they’re not indispensable - their businesses continue to run in their absence.
I right now am looking at an article in the Economist that is reviewing the current foreclosure/subprime mess that we’re in. The article considers, among other things, the ratio of rents to property values as an indicator that many regions of the country have farther to fall. This is a metric that I’ve written about before, and one that, in my opinion, is not written about enough in real estate circles. Consider it a P/E ratio for real estate which assumes that the price of a property “reflects the discounted value of future ownership, ether as rental income or as rent saved by an owner who lives in the house.” According to the popular Case-Shiller index property values would have to fall an additional 10-15% over the next year and a half for the ratio to return to the historical average of between 5% and 5.5% (it reached 3.5% at the height of the boom.)
And yes – I do understand that all real estate is local. But this stuff is important – the credit market is a tide that lifts and lowers all boats, so I for one am keeping an eye on the broader market as I think about my next entry point.
