Are We Causing the next Bust?

[Michael O.]

Earlier today, on the way to work, I was listening to the BP Podcast #285 as per my usual routine (another great podcast by the way). But after hearing some of the guest's comments about building multi-family and renting units for $13/sq-ft in a small town in North Dakota and making a killing from it, which was much higher than what is expected in that market, it got me to thinking: 

Are we contributing to the next economic bust?

By "we" I mean real estate investors, both small and large. While I only have one duplex under my belt, I have used the techniques on this community and through the books I've read (thanks @Brandon Turner) to buy a value-add property, rehab it, and raise the rents by ~$200/mo compared to what it was before. I don't plan on stopping the BRRRR process any time soon.

I started digging in to the statistics and I found some frightening numbers:

• over 11 million Americans are spending 50% or more of their paycheck on rent
• over 21 million are spending over 30% of their paycheck on rent
• over 60% of Americans have less than $1,000 in their savings account
• over 20% don't even have a savings!
• student loan debt is not slowing down at all - the average graduate now has $40,000 in debt (up 6% in one year!)

Now granted, most of the time I am an advocate believer in the capitalistic society and that every person is in control of their own situation and they wouldn't find themselves with this much debt if they had planned accordingly, etc etc etc.. 

What concerns me is the rate of debt (rent included) increasing at a faster pace than most Americans' income levels. I live in Detroit and have seen rents literally skyrocket over a short period of time. Units that used to rent for $1,100/mo in the Central Business District just 3-4 years ago are now fetching upwards of $1,750-$1,900/mo. 

When I hear multi-family investors talk about how hard it is to find good deals today I can only imagine they are trying to squeeze every dollar they can out of their refurbished buildings to generate higher cap rates. 

All of this leads me to wonder; will we eventually hit a "cap" and see rents start to relax in price, or will people start defaulting on other debt to afford their living situations thus starting a domino effect similar to the housing crisis (on a smaller scale).

Would love to hear everyone's thoughts!

Thanks,

Mike