I'm concerned about rental market. You??

[Rich Weese]

I started a thread with an article about rent decreases nationwide. The replies seemed to substantiate the concern with properties taking longer to rent, and reductions in rent as well as other bennies needed to rent up. It made me think a bit.
Here is my concern. I'll use a comparison with commercial property. Currently, there is vacant commercial everywhere. Of the 1.4 BILLION in commercial loans (on mostly new, vacant properties) due to recast or become due in next couple years. 700 million of those loans are now considered "troubled assets", and likely to flood the market soon.
If you are able to purchase these at 50% of loan, would you? Probably not. Why? NO TENANTS. How long will you be able to wait for the market to change and tenants return, and businesses to start up? Yet, you can buy at 50%.
Now residential. A couple years ago, residential imploded and continues to struggle. Smart investors saw the opportunities and swooped in. Properties were purchased, renters were found and good returns were generated. Now, properties are still avaliable at discounted prices, everyone is jumping on the bandwagon and throwing caution to the wind. Is this still smart? Remember the last time everyone jumped on the bandwagon? How has that worked out?
The majority of these sfrs currently (in many areas) are bought for cash by investors. They can afford to reduce rents to find tenants. Less cash on cash return, but no concern with loss of property. The other buyers that are leveraging, and analyzing returns based on rental rates that may be wishful thinking, or need to be adjusted downward. These will need to compete with the cash buyers. How can they?
Law of economics is supply and demand. The supply of rental properties is continuing to increase at an alarming rate due to many reasons. The time needed to rent a vacancy is getting longer, and rates are retreating. Realty Trac has done the projections in rates, and vacancies. It doesn't look good. It appears there are many more rentals available than ever before. Even with all the foreclosed families needing housing, we MIGHT be reaching a saturation point of renters. This will cause further needs to decrease rents. How will this affect your bottom line? If highly leveraged, or overextended, you need to visualize the potential problem and adjust for it now, imo.
I return to my comparison with commercial properties. Would you buy at 50% level , knowing that tenants are few and far between in commercial buildings and strip centers, etc. Might we be approaching the same scenario in many areas with residential? It is something we should probably think about in most areas of the U.S. Everyone thinks this buying process can't fail. I've heard that before... How did that work out for many?
I think cautiousness is the better part of valor, currently. We might have a problem coming down the track that we've NEVER faced before in oversupply of rentals. Sounds like another problem we had recently(foreclosures and 35% decrease in values), that we said could never happen. Boy, were we wrong to think that last time. What about this time??? Rich