People and companies that have invested in real estate are certainly seeing a nice return at this time. Perhaps in certain areas equity is not building as fast as other areas but one thing for sure is that rents are rising nationwide. In fact rents have gone up at least 25% in the last 2 years and is continuing to rise. As a real estate investor, rising property values and rents might sound great but the truth is it can be just as detrimental.
The coming problems with rising home values
We have been strong on buying real estate since the end of the last bubble for the simple fact that much of the real estate today is bought with cash. Whether it be the hedge funds buying up all the real estate in certain areas and holding in order to decrease inventory. Or the foreign money coming in for cash is really beginning to take effect on certain cities in America. The immediate equity rise is nice for anyone, however unless you plan to sell and get completely out of the real estate game, the issue is simple.
Real estate assessment values will rise and ultimately have a detrimental effect on home taxes. If you are using those properties for income suddenly you must raise rental rates dramatically in order to also make money apart from the tax money. With higher real estate rental rates, there comes a higher default rate and with an economy that is doing nothing but going down for the last 6 solid years, how can high rental rates sustain for any length of time?
They can sustain through foreign renters with cash in hand, they can sustain with some of the few professionals left in certain areas, they can sustain with collective groups renting 5 to a home which is common in the third world.
All of what we are seeing now is the changes of a first world country being driven straight into hell. We are seeing the effects of first world turning to third world so as investors, you simply cannot listen to all the BS on mainstream, you cannot take advice from money managers, and few people will understand as they have never lived or done real estate business in the third world so they clearly have no idea where this market is going.
Those of us who have experience and understand third world living and property values, rental rates and how rentals work will be the best help moving forward possible.
How and why will a guarantor be needed for renting?
The answer is very simple. In socialist economies and socialist geared cities everything favors the bad. So if you don’t pay your rent, there is an organization that will help the non payer stay in the place rent free. When living out of the country for several years I always wondered why it was so hard for me to rent a property, even a cheap property and the answer is this. In a country like Colombia it can take 6 months to a year to perform an eviction for non pay. So even if you offer to pay a whole years rent up front, you will likely be turned down.
What is needed to rent? It’s called a fiador, a guarantor with property backing it. So if you happen to default on the rent, the landlord can and will take control or put a lien on the property that is backing the guarantor agreement.
We live in a world where if you are the business man or the investor you are shit out of luck. When will we start using guarantors with rentals? Very soon in my opinion. As rental price continue to rise and get out of touch for renters, the foreign real estate investors that buy up the housing in certain areas for investments will be the first to implement guarantors for rentals. However as long as we continue to have quick eviction laws in place these will not be needed as of yet. But stay tuned for how long these eviction laws will stay in place in a socialist society.