Quote:
Originally Posted by Cowboy89
Really? Wouldn't adding more rental supply further depress rental rates and thus increase the p/r ratio? Or would there be a corresponding drop in housing prices to account for such lower rental rate?
Personally a historically high p/r rate tells me to rent and invest the difference. Those who stress "Buy now or miss the boat", fail to understand that return generated on investments might very well exceed returns on RE and/or pose much less of a risk to your capital base because you can diversify among different asset classes. Investments also offers more flexibility with lower transaction costs than buying houses.
Of course the big issue with the 'rent + invest' vs. buying is that a lot of people do not have the dicipline to invest the extra free cash flow. In that case buying is the superior choice because building equity is far better than wasting money.
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Yes, I suppose my main assumption was that rental demand stays strong.
It really does make one nervous to see high p/r ratios when rent demand is low. There
shouldbe a connection between property value and its ability to generate rent. Is the social value of having your own house really worth that much of a premium over the earning capacity of the asset?
Your second point is that a portfolio can get exposure to real estate in the stock market by investing in REITs, so you can have a bit of both unless there is a specific property class that is desired.
What I don't like about "building equity" is that you pay for your house twice while doing it.