Real Estate Industry in the Rental Market
“Real estate is land, all of the natural parts of land such as trees and water, and all permanently attached improvements such as fences and buildings. People use real estate for a wide variety of purposes, including retailing, offices, manufacturing, housing, ranching, farming, recreation, worship, and entertainment.” (Answers.com) In order to more specifically focus on a specific area of real estate this discussion will deal with the housing industry of real estate. In this discussion, when housing is analyzed it will be in the realm of rental real estate.
Uses of Land
Like with any other commodity or resource the market for rental property is affected by supply and demand. “When we break the market for land into markets for uses of land, then the supplies are not fixed, and prices and profits function as they do in any other market.” (Microeconomics 396) When analyzing the housing bubble it is important to understand that the rental real estate market is not necessarily affected in a negative way. “The term bubble means that the price of an asset is being bid up through speculation or gambling rather than because of the value of the services the asset returns.” (Microeconomics 396) Often times the housing bubble deals with speculative real estate which is in a fluctuating market. For example, housing which is located close to resort areas will change value dramatically with the change of the affects of the bubble. One of the constant factors of the real estate market becomes the average price rental market which may actually see an increase in demand when higher priced real estate becomes unattainable.
Investing in Rental Real Estate
When investing in rental real estate one must weigh the economics of the cost of repair, labor cost of maintaining the materials involved in bringing to code the rental property, and the demand for rental properties in the relevant market. In interviewing real estate owner Thomas Seeley it became evident that one of the most important decisions prior to purchasing a rental property was the cost of purchase along with the cost of bringing the property up to code weighed against the amount of rent that could be charged for the property. Thomas Seeley explained, “I am always looking for a property in major disrepair because the amount of resources it takes for my company to bring the property within acceptable housing codes is often justified by the amount of time it takes to pay for these repairs with the rents that are collected.” (Seeley) Even in the most difficult times of the real estate market which shows signs of recession it appears that the rental market is not affected in the same way. “There are many uses of land, and how much land is allocated to each use depends on the demand for and supply of land...