When Rent Lowers, So Does Your Income!

I recently read an article from MSN that had me a little worried at first. The article talked about the top 10 US cities with declining rents. As a future landlord that scared me because one thing that every landlord knows is that when your rents lower, so does your income!

1. Seattle, Washington: Average rent/mo = $1,023. Rent decreased last year a total of 13.85% with vacancy rates jumping from 5-6.4%. One of the main causes for this huge decrease was due to increased unemployment that went from 6-9% in one year. That's a whopping 133,300 people that lost their jobs!


2. Reno, Nevada: Average rent/mo =$753. Rent decreased 13% last year since one-fourth of gaming revenues were lost and unemployment rose from 8.8-12.7%.


3. Las Vegas, Nevada= Average rent/mo=$766. Rent decreased 12.4% in the last year. It's no wonder since unemployment went from 8.7% a year ago to 13.1% in December. Vacancy rates are at a HUGE 9.9% and foreclosures are at 12.04%; the largest level for all US cities.


4. Tacoma, Washington: Average rent/mo= $840. Monthly rents decreased 12.3% in all. The major contributing factor for this was again, unemployment which went from 7.1-9.5% in one year.


5. San Jose, California: Average rent/mo= $1,590. Annual drop in rents was 12.3%. What's interesting is that unemployment which went from 7.8% in 2008 to the current 11.5% only increased the vacancy rates in the apartment market to 5.3%, however the office space vacancy rate is now almost 25%! Looks like silicon valley and its 11.5% (103,300 people) are looking for work elsewhere.


6. Phoenix, Arizona: Average rent/mo= $667. Rent decreased 11.2% with a vacancy rate for apartments reaching 11.3%! What are landlords doing to battle those numbers? Giving tenants all sorts of concessions for staying with them or getting new tenants to move in.


7. Salinas, California: Average rent/mo= $1,044. Last years drop in rent was 11.1%, but vacancy rates are not bad at 5.3%. Since this is an agricultural area unemployment is usually around 10% in the winter. This year's winter, however, was drastically higher at 16.7%.


8. Salt Lake City, Utah: Average rent/mo= $727. Rent dropped 10.3% last year. Unemployment isn't nearly as bad as other metros at only 6.2%, but that's a far cry higher than it was in 2008 at 3.8%. Vacancy rates jumped higher than the unemployment did when it went from 2.9% in 2007 to 7.6% last year.


9. Oakland, California: Average rent/mo $1,356. Decreased rents were 9.7% last year. Vacancy rates are still decent at only 5.3%, but unemployment is at 10.9% compared to a year ago when it was 7.7%. Also, retail sales dropped 27.8% in this recession while other cities were only around an 8% decline in sales.


10. Palm Bay, Florida: Average rent/mo= $611. Rents decreased last year a total of 9.5% as did employment which hit 12.1% (triple what it was in 2007). The vacancy rate is the highest in the 88 metros surveyed for this article at 14.4%.

I didn't share this to alarm anyone interested in becoming a landlord. If you set up your investments properly you can shelter yourself from times such as these and maybe even come out ahead. Plus!!! There is good news. According to Marcus and Millichap (a large real estate research firm) there should be "strong rent growth in 2011" due to the large size of the echo-boom generation and the decrease in construction. Not to mention the many people displaced from foreclosures, short sales, or the need to downsize.

Things may look a little scary at times, but there are many opportunities out there; especially in these seemingly scary times.

MSN Article

Marcus & Millichap 2010 Apartment report

The Importance of Setting Up Your Business RIGHT!

Want to know just how destructive setting up the wrong entity for your business can be? After getting sued by a business partner Terry Hoskins of Ohio didn't just face sale and foreclosure of his business, but of his house too! He only owed $160,000 of the total $350,000 the house was worth AND NEVER MISSED A PAYMENT!! So, instead of letting the bank take his home from him, he bulldozed it to the ground.

"I'll tear it down before I let you take it....I plan on giving back what was on
this hill exactly (as) it was....I brought it out of the ground and I plan on
putting it back in the ground."

If Mr. Hoskins had instead correctly set up all his businesses so that his personal assets (his home) were protected this never would have happened. Sure, he would have lost his businesses, but at least his home would have been safe.

From the looks of it Hoskins owed money to the government and to his brother after the lawsuit. It was his businesses, not his home that owed the money. One thing that I have learned a lot about in the last couple of months is that you need to set up each of your businesses properly in order to prevent exactly this kind of situation. How exactly do you do that? Get a good lawyer to help you. It's as easy as that.

What do you think? Was the bank justified in going after his home?

MSN Article

News 5 Article

Watch this short video for more of what happened.

Buffet's Tips to New Investors

One of the things I really like about signing out of my hotmail account is going to the MSN homepage and taking a look at the top stories. Every once in a while I happen upon something that catches my interest, now-a-days it's usually something about real estate or investing.

In this article by Brett Arends of the Wall Street Journal Buffett gives new investors 6 great tips. Below are a few highlights of those tips.

1. Stay liquid. "We will never become dependent on the kindess of strangers," he wrote. "We will always arrange our affairs so that any requirements for cash we may conceivable have will be dwarfed by our ouwn liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earning from our many and diverse businesses."


2. Buy when everyone else is selling. "We've put a lot of money to work during the chaos of the last two years. I's been an ideal period for investors: A climate of fear is their best friend...Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."


3. Don't buy when everyone else is buying. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance," Buffett wrote. "The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying."


4. Value, value, value. "In the end, what counts in investing is what you pay for a business -- throught the purchase of a small piece of it in the stock market -- and what that business earns in the succeeding decade or two."


5. Understand what you own. "Investors who buy and sell based upon media or analyst commentary are not for us, "Buffett wrote.


6. Defense beats offense. "Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the 11 years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue."

Click here to see the full article.

For the letter Buffett wrote to his shareholders that this article was written from, click here.