I skimmed through the annual report on housing published by Harvard. While I don't necessarily agree with much of their left leaning analysis, some of the root data is interesting. I would be interest in your take on a couple of topics.

A chart that overlays home prices to rents over time (indexed) is most interesting. For the last two years home prices have continued to rise dramatically and rents flattened so there is a much wider gap between these two than in previous years. In real numbers, home prices have risen 47% since 2020 and rents have risen 26%. Factoring in inflation, rents have actually declined this last year.

1) What does that mean for investors of SFH's and their potential future profitability?

Multifamily apartment completions grew by nearly 1/2 million units in 2023 the highest number recorded in over 3 decades and the trend continues through 2024. New units have softened the rental market and significantly outpaced demand. Vacancy rates have gone from 2.5% in 2022 to 5.9% in 2024 and as mentioned above rent increases have flattened. At the same time operating costs have risen 7.1%. Net operating Income fell from 8.1 % in 2023 to 2.8% Q1 2024. These numbers affected valuations and prices are falling 8.8% year over year.

2) What does that mean for investors of Multifamily properties and their future profitability?

There are a lot of other topics in the report. If you are interested, here's the link: www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_The_State_of_the_Nations_Housing_2024.pdf

Interesting data bits, for sure! I'll peruse them later this evening over a just-below-room-temp snifter of barrel aged imperial stout.

MF units is for the big boys. I'm talking the complexes with 100+ units that have a full staff including a PM, maintenance guy, etc.

Mom and Pop investors run on a different set of rules, and we can afford to get more creative than a by-the-books recipe investor like a hedge fund or insurance company with $5 billion they need to park somewhere that throws off safe, reliable returns. They would not be impressed with the $225,000 house I bought last month for $130,000 because it wasn't advertised correctly, and the tenants living in it were unwilling to let anyone it to get a look at it... except for me. *wink My "big deal" is pocket change to them, but to me... it's a BIG DEAL because I get the whole pie, not just a teensy slice.

Also, I really can't beat this drum often enough or loudly enough... small, sub-optimally utilized commercial real estate is an AMAZING opportunity for the Mom and Pop investors out there. There is huge demand for small commercial spaces that require in-person, hands-on service providers like mechanics, counselors, cafes, tattoo artists, and ice cream shops.

Sub-optimal utilization that requires little to no effort or expense includes using outdoor parking for various things, reconfiguring an existing area to get more tenants into the same space (i.e. the 'salon' approach), etc. I've used both to increase income by as much as 20% on some properties, all with zero $$$ out of my pocket.

Harvard misses guys like me because we are not formally organized, polled, or tracked. And there are a lot of us. We don't mind flying below their radar.

Have a mortgage and inflation went up 37%? That means the value of the money you have to pay back is like paying back 37% less spending value.

Here's my take on the data.

First, since sales prices on SFH's have risen faster than rents this will continue to push landlords to sell to homebuyers, cashing in on the cycle. This will reduce the rental inventory further and create a shortage in supply. With a lower supply tenants will be forced to pay more or move into a multi where there is excess capacity. I expect this will continue for 3-5 years until builders respond the the higher demand by producing more SFHs. Rents on SFH's should be trending up as this continues, opportunities to purchase at a discount will be hard to find.

NE, inflation has eaten away 18% of spending power since 2020. So for every dollar you had in loans during this period, you only have to pay back 82 cents in value. The challenge will be if you have ARM's. The interest rates will eat you alive when they reset to the higher rates. This is what happened to many investors in 1980-81, they lost their properties when the ARM's resent at 12%+. Rent was flat but interest expenses went through the roof.

Here is what it does for me when rent stops going up and home prices are climbing like mad: My well qualified, financially smart tenants realize that they are much better off renting, and they stay where they are and do not buy and move out.