I have a theory...No One Else Gets It Though!

[Molly K.]

Ok, Savannah, GA, is a big town, small city. The historic area (where I live/invest) is 6 square miles. The buildings are very old or they are new but created to look very old.

Due to a private college located in town, the rental business is phenomenal.

When I am asked about my rental properties, investing in RE, I am happy to talk about what I know.

I prefer to invest in duplexes because it is 1 managable building, 1 roof, 1 foundation, 1 outer structure, 1 set of taxes, 1 mortgage and 2 incomes. There is 1 big expensive structure, with 2 incomes coming from it.

When I explain that, it makes sense to people...sort of. They like the "Maximizing what you have" idea and try to take it farther than it should go.

They start looking at properties and telling me about taking a big duplex and turning it into a triplex or a quadplex. They want to take a 4 bedroom/4 bath duplex and divide it into 1 bedroom/1 bath quadplex.

Or they want to take a duplex with some land and build a carriage house behind it to rent out as well. "1 piece of land...3 incomes!" They say.

Here is my MINI theory on why thats a bad idea, then I will tell you my BIG theory on why that is a bad idea.

They are adding in the most expensive parts to a house. Kitchens and possibly baths. If you divide up a building you must add a kitchen which is the most expensive room in the house. The goal is to have the least number of kitchens you can get away with so you dont have to replace all those appliances and update it...forget adding more of them!

Carbon footprint. Am I the only real estate investor that cringes at what this industry does to the earth? Why cant we recycle what is out there rather than build new all the time?

Big Theory now:

Why do you want to ADD rentals into the market? Supply and Demand! XX number of rentals in the city. XXX number of people needing to rent. Less rentals means more demand. Higher rents.

Adding more rental properties by dividing structures or building on empty space, you are only hurting your own future profits.

As more rentals become available, rent prices go down.

I saw it in the foreclosure boom when everyone was trying to rent out their home/2nd home/vacation house before losing it to the bank. Rent decreased about $150 a month because there was a flood of available rentals. I'm just now getting my 2008 rental prices again!

STOP BUILDING IN MY CITY!

Anyways, I try and explain that and no one gets it. They only see it as having more properties and therefore more rental income. They dont see the big picture and that it ultimately will hurt their own profits.

Luckily, none of these people that propose these ideas actually follow through. But it is not because of my Supply/Demand talk, I' m not sure why they dont pull the trigger and get into RE. But I can tell I have never gotten that message through to someone.

Do you guys agree with my theory?