Many commentators (myself included) have been saying that single-family rental property is a well-priced “asset class” that deserves attention. Below is an excerpt from a recent Warren Buffett interview on CNBC:
If I had a way of buying a couple hundred thousand single-family homes… I would load up on them… it’s a very attractive asset class now. I could buy…them at distressed prices and find renters and … [take a] mortgage, it’s a leveraged way of owning a very cheap asset and I think that’s as attractive of an investment as you can make.
Warren Buffett, CNBC’s Squawk Box, Monday, February 27, 2012
Buffett’s not the only investor who sees this opportunity. Oliver Chang quit his job as head of housing strategy at Morgan Stanley last year to follow his own advice and invest in distressed homes to rent. He’s since become one of the largest landlords in Atlanta.
But to take advantage of the opportunity to purchase homes well below replacement cost, with attractive current income of 7% or more, someone needs to be willing to oversee the renovation and to be the landlord. That means fixing the plumbing and getting the roof repaired when necessary. In a word, this is why Warren Buffett hasn’t loaded up on single family homes. He isn’t interested in dealing with these issues and he can’t find a way to invest on a scale that moves the needle for him, even by leveraging other people’s time and talents.
For the rest of us mere mortals, it doesn’t take a billion dollars to move the needle. Even a small number of good acquisitions can provide solid income and potentially a significant profit over a 5-10 year holding period.
I’ve created an Excel spreadsheet which analyzes rental property opportunities.
Whether it’s stocks, bonds or rental property, don’t buy on hope – you should KNOW your rates of return, tax benefits, and cash flows BEFORE you buy. I believe that’s exactly what Warren Buffet would do so that he could calculate the optimal offer price – Analyze several loan options – and Compare different rental investment opportunities. Rental real estate is a major investment of time and money. You should invest the effort into a 10-year cash flow analysis before you buy a headache property. The program I created runs thru an Excel spreadsheet. Screenshots are provided in the accompanying article. The spreadsheet and article are available from my Research Offers page.