Is the market drowning in newbies?

[Robert Steele]

I have been getting the impression over the past two years that more and more people are entering the world of REI.

When I started a decade ago I was somewhat of a pariah amongst friends, family and work colleges. Now days it seems that every man and his dog are jumping on the REI band wagon.

Just this past year I've seen work colleges buying them, neighbors buying them, friends of friends buying them. I even overhear people talking around the water cooler about how so-and-so are getting into the landlord bushiness. Just look at the number of new member introductions popping up here on BP everyday - it's getting hard to wade through them.

Is this the impression you are also getting and if so why do you think it is occurring?

And if you are one of these newbies why are you jumping in?

[Account Closed]

To me, it doesn't feel any different than 2003-2006. Lots of friends and neighbors who previously had no interest in RE used their good credit and savings to buy "rental" property back then, some with all cash. They all said they were in it for the long term. Buying an out-of-area property for $300K that rents for $1300 made no sense. It was obvious to me that they were betting on a few years appreciation. Some of my farms had 30% in one year back then. Almost everyone I know who did that let the properties go back to the back or sold for a loss (some had paid cash). Those same properties are mostly in the $150K range now, but prices are on the rise, with at least 1% appreciation monthly. And I'm seeing the same type of buyer wanting in again.

It's very difficult to discuss rental cash flow with this type of buyer. If I point out that PITI aren't the only costs, they cite the property condition and location. They really believe/hope they will have no repairs and no vacancies. If they agree with me that the property doesn't/won't cash flow, they'll admit that they are expecting the property to go up in value. But most can't crunch the numbers for ROI. It's kind of depressing.