https://mises.org/library/time-its-bubble-rentals

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Not surprisingly, Fannie Mae and Freddie Mac are financing this rental housing boom. I wrote recently, the GSEs made 53% of all apartment loans in 2016, down from their combined 68% market share in 2012. "So, their conservator, The Federal Housing Finance Agency (FHFA), recently eased the GSE's lending caps so they can crank out even more loans."

Mary Salmonsen writes for multifamilyexecutive.com, "Currently, Fannie and Freddie are particularly dominant in garden apartments [and] in student housing, with 62% and 61% shares, respectively. The two remain the largest mid-/high-rise lenders but hold only 35% of the market."

Mr. Richter warns us, "Government Sponsored Enterprises such as Fannie Mae guarantee commercial mortgages on apartment buildings and package them in Commercial Mortgage-Backed Securities. So taxpayers are on the hook. Banks are on the hook too."

But, for the moment, it's build them and they will come; first renters, then complex buyers. Wall Street giant "The Blackstone Group acquired three Las Vegas Valley apartment complexes for $170 million, property records show," writes Eli Segall for the Las Vegas Review Journal. "Overall, it bought 972 units for an average of $174,900 each."

Sales like this has developers going as fast as they can. I heard an apartment developer say Vegas has at least four more good years left in this cycle and is scrambling for new sites. In the land of Starbucks, Microsoft and Amazon, it's thought the boom will never end. Richter writes, "the new supply of apartment units hitting the market in 2018 and 2019 will even be larger. In Seattle, for example, there are 67,507 new apartment units in the pipeline."

However, while no one was paying attention, "the prices of apartment buildings nationally, after seven dizzying boom years, peaked last summer and have declined 3% since," Richter writes. "Transaction volume of apartment buildings has plunged. And asking rents, the crux because they pay for the whole construct, have now flattened."

As usual, cheap money entices developers to over do it, and the fall will be just as painful.

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Very interesting article. In my single family / duplex world ...

I have no doubt we will see a collapse in the rental market someday soon. It will not be because of lack of demand...IMO it will be from people buying properties w poor returns just for the sake of "getting into rentals before values get higher."

We see it all over right now. Someone willing to buy a 210k house that will rent at 1900 during peak. Have a economic pullback and that rent drops to 1750. Meanwhile the investor has a 1500-1700 note. Demand for the house is there, but the price adjustment just ruined the investors game. Oh yeah...and now the house is worth 180k instead of 240k like the investor had projected.

i am not qualified to talk about apartments and I couldn't open the article (disclaimer)

if "demand is there", why the "economic pullback" and why did our theoretical property plummet in value?

IMHO, the best way to predict a bubble is to follow dumb money. When average Joe decides he wants to get in the game and just pays "market" for everything, then you have a problem coming.

evestor1 said:

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Very interesting article. In my single family / duplex world ...

I have no doubt we will see a collapse in the rental market someday soon. It will not be because of lack of demand...IMO it will be from people buying properties w poor returns just for the sake of "getting into rentals before values get higher."

We see it all over right now. Someone willing to buy a 210k house that will rent at 1900 during peak. Have a economic pullback and that rent drops to 1750. Meanwhile the investor has a 1500-1700 note. Demand for the house is there, but the price adjustment just ruined the investors game. Oh yeah...and now the house is worth 180k instead of 240k like the investor had projected.

i am not qualified to talk about apartments and I couldn't open the article (disclaimer)

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People here would kill for those numbers. You'd be looking at spending $400-$450K to get that much in rent per month.

If your rental is below $1000, is clean and you have even a modest marketing plan you should have no problem finding a renter. However, get much above $1000/mo and the glut of new rentals entering the market place could put a slow down on finding renters. I've got my 8 units all rented, my brother has all 8 of his and a close friend has his 10 units all rented. To top it off ALL of these units are in Bryan which most would consider harder to rent, especially to students. Modest duplex/4plexes and rents currently under $1000. Good luck Ags.

Yikes. I ultimately decided to put some 401 (k) money in an REIT and let somebody else mortgage themselves up to their eyeballs while cleaning cat urine out of the carpet in a meth lab at 3 a.m.

A rental bubble is bursting in BCS as we speak!!!!

Way too many rental properties coming in line plus all the new apartments that are new this year plus at least 5 more yet to be built

It's ****ing madness!!!

The next couple of years (unless A&M decides to add 10,000 more students) are going to be very very painful

andyv94 said:

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A rental bubble is bursting in BCS as we speak!!!!

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Noticed a small complex today near campus that had changed their "receive a $500 gift card for lease signing" to "$1000". The apartments have definitely been hit the hardest and I'd expect it to only get worse. I'd also expect to see future weakness in luxury student 4 and 5 bedroom houses/duplexes and properties marketed as student rentals that aren't close to campus. I'd expect demand to stay solid in 2 bedroom duplexes/ houses, cheaper student houses close to campus, South CS and Bryan houses marketed to families(propped up by the low supply/ high price of starter homes).

Most of the owners I know that also do their own management were able to get leased pretty easily. In the next couple years, keeping things in your hands and making sure they are done right will be the largest buffer to this market. Quality property management, treating your properties as a business, and treating your tenants with respect will be huge. The reputation of property management companies in this town is terrible for a reason. It doesn't take much effort to beat them out and provide a superior product/ experience for your tenants. Without calculating it, I had about an 80% renewal rate this year. That sure makes leasing easy. Keep your renewal rate up and the coming years should be tolerable.

$1700/month for a 2br townhome? You could get a 3br single family home for that much for the past few years

Someone once told me "A rental house made of gold but empty is worthless to a buy and hold investor". All these luxury apts coming on line is ridiculous. Isn't college cost expensive enough. Yeah, there always be those few Ags that have to put their spoiled children in the best quarters available.

But that ship will sail with a little country wide recession. When will that happen, who in the hell knows?
But when it does there will be a big adjustment to LUXURY rental properties. Eventually it may even flow down to us lowly low income 2 bedroom 1 bath duplex owners, but it will be a while for us. In my 15 years as a real estate investor, the most I have adjusted rents downward was one rental unit, one time for $50. Someone just mentioned lowering from 1700 to 1400. Is this a sign of things to come.....I think yes as this problem is self inflicted by Institutional "Speculators". Add in a little real time market induced stress and we have a big problem brewing.

I love renting to students, especially grad students or vet school students. They have experienced enough with the high price of education, and they appreciate low income, clean but small 2/1s or 3/2s that can be had for under $400 a room. I love it when I advertise a 2/1 duplex for $800 and they ask "is that for 1 room?" thats when I know it is a slam dunk!

For you investors looking for cash flow don't forget what you are looking for......cash flow. The duplexes or 4 plexes I buy are not ones I would live in now but looking back they are far better than the Corp dorms I did live in 45 years ago! Perfect for penny pinching students.......and parents! Stay focus my friends, remember it is a College Town(s).

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