apartment buildings are likely to be a beneficiary of a bad econ

widespread falacy of RE in depressions	tanstaafl	9/9/2007 1:03:59 PM
Ikeep running into a horrible misapprehension about how real estate -and especially APARTMENTS - behave in severe recessions/depressions ofa "deflationary" nature. There is a wives tale, fostered byignorant "experts" that apartment buildings are likely to be abeneficiary of a bad economy - and this housing collapse in particular- as people have to give up their McMansions and move down the foodchain. My professional background is primarily in being theowner/manager of middle class and lower residential real estate. ISURVIVED a Real Estate DEPRESSION during the 1990s when 3 localmilitary bases were all closed over a 3 year period. Jobs tanked,foreclosures zoomed, prices fell ... at least 40%. Prices not just ofhouses, but - even worse - of apartments. The LAST place youwould want to be - contrary to widespread illusion in the bearcommunity - is in residential housing in a depression or severerecession. The LAST place. Contrary to widespread illusion, in arecession rents FALL, vacancies ZOOM, various social programs arepassed (either implicit or explicit) to help balance "welfare" budgetson the backs of rental property owners - ESPECIALLY apartment owners.The local government subsidizes tenant legal advice, tenant subsidiesfor those who get evicted, pass new strict laws tying the hands oflandlords to complete evictions, pass new "service" fees to bolsterfalling property tax revenues. Anyway, I could go into itfurther, if you wish, but I doubt you could FIND *anywhere* on theinternet or real world more of an "expert" than MOI on how apartments, lower end in particular, and residential in general act in a DEPRESSION. Staythe HELL away from apartments going into a bad recession - especiallyTHIS one. What will happen in a bad recession is that families doubleand triple up - and you, the landlord, can do approximately NOTHINGabout it. You can't evict easily, you can't keep them from trashingyour property, you can't raise rents, you can't sell. You can't evenget the police to show up to intervene in a civil disturbance -including one likely to become violent - unless you can tell them you"think you see a gun". I have faced down gang members, had my lifethreatened, personally moved into and taken over the "resident manager"job in a low income building to survive when apartment buildings allaround were being foreclosed. A simple way to find out ifsomeone is a real estate moron is to ask whether apartments would be agood place to be if the housing markets collapse or we have"deflation". I survived by the skin of my teeth, technically bankruptby the collapse in apartment values, and swore - at the bottom - thatif god would only grant me an opportunity to get out intact, I wouldlearn my lesson and never again hold residential through a down cycle.I've learned my lessons the hard way, in too many cases, and I'mpassing on some great wisdom. CAN real estate be a good place toride out a depression? SOME CAN. If you have a strong lease with amajorly strong tenant (government or WalMart) AND you have the abilityto pass on expense increases (triple net) you can do okay, if yourcurrency gets destroyed enough. But, in contrast, farm land andtimberland would be a GREAT place to be - especially farmland given itslong term bear market and the fact that the US can no longer feeditself on domestic food production alone. If you look to S. America andsee who survives and profits from currency collapse it is always thesame story: (1) insiders to the government kleptocracy (2) those whoget out of the currency/country (impossible in a worldwide collapse)and bring it back only at the bottom (3) large land holders / farmers. There, I just gave you a multi-thousand dollar lesson ... for free! :-) Your turn!