How THIS Is Making the Housing Crisis Worse

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It’s happened several times in the last couple of months – someone approaches me, clipboard in hand, and asks if I’m a California voter. Then, barely waiting for my response, they start asking me to sign a petition related to rent control.

The first time it happened, at my local organic market in Santa Barbara, I just politely said “no thanks.”

The most recent time, at a professional women’s surfing contest in San Diego last week, I couldn’t hold back and ended up saying a bit more to the solicitor.

And now, after hearing Bernie Sanders mention the idea during last Tuesday’s primary debate, I want to tell you a more expanded version of where I stand on the topic (and why)…

My Grandparent’s Experience

Let me first say that, like Bernie Sanders and other proponents of rent control, I’m very familiar with the plight of poor families that rent all of their lives …

My mom’s parents rented the same apartment in downtown Wilkes-Barre, Pennsylvania for more than 50 years.

Her father grew up in such poverty that he had to drop out of high school to go work in the coal mines.

Her mother graduated from high school but stayed home to take care of the kids.

They were Depression-era people, conservative with what little money they had, and they never made the leap to home ownership.

After leaving the mines, my grandfather made his living doing all kinds of odd jobs – car mechanic, electrical work, etc. – including helping out his landlord whenever needed. His rent still went up on a regular basis. Even when my grandmother was living in the apartment alone in her early 90s, the landlord was talking about another increase.

Would it have been nice if their rent, established in the 1950s, could have only gone up 3% or 4% a year so long as they stayed in that apartment? Absolutely.

Still, they never complained. They knew prices for things went up over time. They cited a few times in the past when they might have been able to buy a house in the neighborhood but just couldn’t mentally commit to the idea. Nor did they like borrowing large sums from banks.

My grandmother died in that small apartment, with not very much to her name.

Now, let me tell you another story…

Where Rent Control Goes Bad

As my grandmother was into her 80s, I was moving into New York City and looking for apartments.

I was working for Standard & Poor’s and making a good salary, but hardly anything exorbitant. My one-bedroom apartment just off Wall Street was $2,300 and was subject to market rate increases going forward.

My boss, perhaps 30 years older than me, lived a couple neighborhoods away. He obviously made more than me but he’d been in New York for a long time and his apartment – twice the size of mine – was under rent control. I don’t know exactly how much he paid but I would guess a third of my rent for twice as many bedrooms. He also owned a vacation home outside the city.

Meanwhile, there were plenty of rent-controlled people charging large amounts of money to let someone move into a vacant bedroom while their landlord received nothing.

I also knew someone who lived in another state almost all of the year but maintained a rent-controlled NYC apartment as a little getaway (lying about residency in the process).

This is just a little taste of what I saw, but the big-picture was pretty easy to see – rent control largely rewarded people who got there first, regardless of their financial status … it was easily abused … and it did very little to help newcomers or anyone looking to move from one place to another.

There is also no doubt that many landlords do everything in their power to screw over tenants, especially in a place like New York City. And from what I saw, rent control didn’t help that situation either … it merely discouraged building owners from improving their rent-controlled properties any more than was absolutely necessary.

Indeed, New York City just changed a bunch of rules related to rent control and we’re already hearing about landlords bailing on big capital investments.

But you don’t have to accept my personal experience or anecdotal evidence.

The academic research is pretty decisive that rent control doesn’t work, whether you’re talking about New York or Paris.

As Reason noted in a recent article:

“Brookings Institute associate professor of economics Rebecca Diamond did a recent review of the literature on rent control, finding that ‘Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood.’ The reason is simple and boils down to the law of supply and demand. While some of the people renting may benefit from rent control by removing some of their risk, it also gives landlords an incentive to alter their supply of rental property.

“They have several options based on the circumstances. First, they may withdraw their properties from the rental market to sell them as condos. Former George Mason University Chairman of the Department of Economics Donald Boudreaux summed it up nicely in a 2006 letter to the editor of The New York Times: ‘By decreasing the profitability of supplying units occupied by renters, these controls spawn condo conversions and prompt builders to construct fewer rental units and more units for sale to owner-occupiers. People who can’t afford to buy housing are unnecessarily disadvantaged.’ Landlords may also stop investing in maintenance, which, over time, may lead to neighborhoods with many run-down properties. The bottom line is that rent control never increases the supply of affordable rented housing.”

What about this legislation they’re trying to pass in California?

Well, after I explained that I recently purchased a million-dollar home and would never want to cap my own future rental potential, the solicitor at the competition assured me that it would only apply to landlords who own three or more properties.

At that point, I didn’t bother to explain that I also recommend investing in companies like Real Estate Investment Trusts (REITS) that are essentially corporate landlords.

It was clear we simply had different ideas about capitalism and free markets.

If Rent Control Doesn’t Work, What Will?

From my perspective, the person who took a chance on New York City back in the 1970s – when it was a far cry from its current look and feel – deserves to get market rates for that money invested and risk undertaken.

As did my grandparents’ landlord…

As do I for working hard, and saving enough to buy a house in Santa Barbara.

Can you imagine what it would be like if we suddenly capped the amount of dividends that stocks could pay to their investors?

Well, that’s exactly what rent control does with real estate.

Perhaps the biggest irony is that some of the same people here in California who cry for more affordable housing are the very same people who don’t want garages converted into auxiliary dwelling units, Airbnb listings allowed in residential neighborhoods, or high-rise buildings in land-constrained areas.

Look, housing affordability is a complicated issue. In highly desirable locations with little room for further development, it’s doubly complicated.

But I would much rather see solutions that start with increasing supply, even if it’s something small like simply allowing existing homes to be partitioned into several micro houses. At least it’s a start to fixing a long term problem and not a band-aid that will fester given enough time.

Thinking we can wave a magic wand and keep prices in check through artificial rent controls isn’t going to cut it.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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I’m a Terrible Landlord… But Even I Can Make Money in Today’s Real Estate Market!

This post I’m a Terrible Landlord… But Even I Can Make Money in Today’s Real Estate Market! appeared first on Daily Reckoning.

I’ve got a confession to make: I’m a terrible landlord.

No, I don’t own a run-down apartment complex where people have to deal with poor living conditions. Quite the opposite in fact!

When we outgrew our old home when our fourth child was born, I kept the house intending to make some extra income by renting it out. I thought it would be easy money!

Boy was I in for a surprise…

As I found out, my personality just isn’t cut out for being a landlord.

But it’s OK! Because the lessons I’ve learned along the way could help you fare much better than I did. So today, I want to talk about how you might be able to tap into today’s red-hot real estate market to generate reliable income for your family!

The Problem with Being a “Nice Guy”

The first family I rented our house to looked good on paper. The couple had a new child, and the husband worked as a pilot for an airline. His income left him with plenty of cash to pay their rent and everything went well for a few months.

Then the pilot had an affair and left his family. The mom and her baby had no income. And of course I couldn’t put them out on the street.

So I let them stay in the house for several months while the divorce proceedings took place. And of course, I paid the mortgage out of my own pocket while they lived in my house.

Not a great first experience for this landlord!

The second set of tenants wasn’t much better.

Again, I rented the house out to a young family that had enough income with jobs that appeared to be stable.

But the husband lost his job and the family could only afford to pay for basic groceries and utilities with the mom’s income. So once again, I found myself paying the mortgage out of my own pocket with no income from my rental home.

I literally took a side job delivering wings that year, just to keep my own family’s finances intact.

In talking the situation over with a friend, I was told that I was being too nice.

“Zach, I hate to say it, but you’re just getting taken advantage of. Maybe this isn’t the best income strategy for you.”

My friend was right. I’m not cut out to be a landlord.

Fortunately, I now rent the property out to my brother who takes great care of the place and always pays his rent on time. Of course, I cut him an exceptionally good deal. But I’d rather get less income from the house and know that I can count on the check every month.

One day when my brother decides to move out, I’ll take an entirely different approach to being a landlord…

Better Options for “Nice Guy” Landlords

This week, I had a conversation with a friend who is in the market to buy rental property. He’s looking forward to generating passive income from property he owns, while watching that property increase in value over the years.

When I told him my story about being a horrible landlord, he laughed.

“I’m not going to be the one collecting the checks, Zach. And if someone doesn’t pay, I don’t have to be the one handling the eviction process.”

Brandon told me about a service — Roofstock — that allows you to shop for rental property in many different markets around America while helping you with the actual business of renting to tenants.

For instance, the site can help you find a property that already has a tenant in place, and tell you how many months are left on the lease agreement.

Roofstock can also put you in touch with local property managers who can take over the process of renting out your property once it becomes vacant. This is the type of service I could have used years ago, because I was too easy when it came to people’s stories about why they couldn’t pay to live in my house.

Deciding on managing your property with Roofstock will be different for everybody’s individual situation. But I wanted to pass the information along to you because it looks like the kind of opportunity that could really help you if you’re interested in generating income from real estate.

An Excellent Time to Own Rental Property

Despite my personal challenges with being a landlord, the rental business is actually an excellent way to generate income!

And today, the opportunity to make money in this area is especially good.

That’s because mortgage interest rates are actually declining. The Fed has paused its campaign of interest rate hikes, and some economic concerns are causing interest rates to fall.

Lower interest rates make it a lot more affordable to get a mortgage for purchasing property that you can rent out.

At the same time, demand for housing is picking up as a new generation of young adults looks for a place to live.

After the financial crisis 10 years ago, many young adults delayed moving out of their parents homes. A recent Barron’s article noted that about 15% of 25-35 year old adults still live with their parents.1

But now that unemployment has dropped to the lowest point in decades and wages are steadily moving higher, more of these young adults can move out.

This demand for housing has started to drive home prices and rental rates higher.

That means you might have to pay a bit more than you expected to purchase a rental house.

But this trend should continue as more and more adults move out and look for a place to live, which means you can charge higher rental rates — and eventually sell your house for a higher price — as the real estate market heats up.

So today, as you look for more ways to generate income, consider a rental property! Just don’t be a horrible landlord like me.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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1 How Your Kids Can Ruin Your Retirement — and How to Make Sure They Don’t

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Here’s My #1 Investment

This post Here’s My #1 Investment appeared first on Daily Reckoning.

Our country is facing a retirement crisis. The unfunded liabilities of Social Security and Medicare coupled with the low savings rates and decimated 401(k) large parts of the baby boomer generation not having enough money to retire.

Retirement Funds

Unfortunately, the retirement funds of many boomers are either minimal or nonexistent. The statistics are somewhat grim: 41% of baby boomers between the ages of 55 and 64 have no retirement savings at all, and 25% have saved less than $50,000.

When you consider the possible length of retirement (20 years or longer), a yearly average income based on these figures is nowhere near a livable amount.

I do have one insider who is offering my readers a chance to save their retirement, but only if you click here to watch this video before 2pm today!

I’m starting to see articles here and there on strategies for retirement outside of the standard advice of mutual funds and bonds.

I read an article in The Wall Street Journal called “Want a Job? Become a Landlord.” To summarize, the author writes that for those facing retirement, a valid option is buying a small multi-family building, living in it, and managing it.

He also points out that rents are on the upswing in most states and that the long-term trend in the US looks to be one of renting vs. ownership. All of this bodes well for landlords.

Additionally, he says that having a job as a landlord will “provide something harder to quantify for retirees who have difficulties walking away from a full-time job: a challenge, a purpose and an opportunity for accomplishment.”

I’m happy to see this type of article in the mainstream media because I’ve been preaching for years that cash-flowing real estate is one of the ultimate investments due to the ability to leverage, receive cash in your pocket each month, and the tax benefits.

Perhaps the biggest benefit to owning an investment property is that as long as it is well maintained, it will increase in value over time. Approached carefully, these investments are a good way to prepare for the future and develop generational wealth.

While I agree with the sentiment of the article, one thing I disagreed with was a retiree spending their last years of their life “working” rather than having their money work for them.

Hire A Property Manager

If you’re buying an apartment building, why spend the time and energy renting, managing, and maintaining the building—especially if you don’t know what you’re doing? Who wants to spend their retirement years fixing toilets and changing locks?

To me, it’s short-sighted to find only one building and make managing it your job. Instead, become an investor and find more great deals that you can purchase and have professionally managed. Spend your spare time educating yourself on the market, rounding up investors, finding better deals, and building the value of your portfolio so that you can leverage it into even more deals. That will give you a purpose in retirement and build your wealth.

Property management is probably the most misunderstood simply because you don’t need to be a successful property manager to be a successful real estate investor.

One of the great things about multi-family investing is that you can factor in property management into your calculations when buying an investment property. Find a deal that can provide income while supporting professional property management.

In my experience, a good property manager will know how to improve the value of the property in three general areas: income, expenses, and systems.

1. Income

The number one misconception that can turn a good real estate deal into a bad one is by not understanding that real estate is a business, not just an investment.

As such, the most important aspect of your investment is the bottom line. The success of your deal is the dependent upon how much net operating income it produces. Rent and occupancy are two of the most important factors that determine total income.

2. Expenses

When it comes to property management, expenses are generally the factor you have the least control over. Property taxes, insurance, and utilities will be the biggest expenses a property will face and to a large extent, these are costs you simply can’t control.

There are a few things you can do. A professional management company might have better purchasing power when it comes to insurance premiums and can get a better rate than the average person. A good property manager will utilize a tax consultant to analyze whether he might be able to challenge the property tax for the property.

3. Systems

The easiest way to explain how systems can improve the value of the property is to explain how a lack of systems can devalue a property.

Poor management can lead to things like poor occupancy standards, or deferred maintenance issues. Both of these things can add up to lost income.

Nothing is more important the success of your investment than good, knowledgeable property management. Oftentimes, it is the difference between meeting your investment goals and losing untold amounts of money.

Start Now, No Matter Your Age

Baby Boomers looking for steady income in retirement may want to consider real estate. Historically, it has delivered higher income than traditional fixed-income assets.

Additionally, real estate generally has a low correlation to equities and bonds, helping Boomers diversify their portfolio, and potentially hedge against increased market volatility. Also, in today’s rising rate environment, real estate may provide some downside protection as the fixed-income markets continue to struggle with rising rates.

And even though it’s true that real estate can suffer short-term interest rate shock, what really drives its performance long-term is a healthy, growing economy – similar to the current environment we’re experiencing.

As the old saying goes, “Youth is wasted on the young.” Don’t let your youth be wasted. Rather begin planning for your future by investing in your financial education and building a portfolio of assets that will provide for you and your family when you’re ready to retire.

My wife, Kim, began investing over two decades ago with one two-bedroom house in Portland, OR.

Today, she owns thousands of units in multiple states that bring millions of dollars into her pocket each year. Anyone can do this.

Start small when you’re young and build big for when you’re old.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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