For more clarification, I was thinking this over when considering rental properties in my area. A lot of people have complained that it is near impossible to make a profit on a rental property where I live. I think a lot of that is because there is a huge chunk of people who have bought property as an investment based on potential appreciation instead of based on cash flow. If your model is using only cash flow, but another model has a 5% appreciation of principle built in to it, it is going to be near impossible to be able to compete with them on rates. However, what you also see is a ton of people looking to sell their rental properties after the appreciation they were expecting never occurs (potentially due to the glut of properties on the market from other people doing the same thing). The people exiting the market take a loss, and the people who could have actually made a profit based on a cash-flow model never can get a renter to begin with, due to overly competitive rates. However, since new people are willing to invest under the same assumptions as the old investors (imperfect information), the market keeps going strong, and renters can take advantage of cheap rates, though no one is really profiting from it. That’s the type of scenario you can get with an overly competitive marketplace filled with imperfect actors.
Edit: I’m sure people are making money from rentals in my area, or there wouldn’t be so much of it. I’m just also sure that a lot of people are losing a ton of money from it, and driving down prices for everyone else.
For more clarification, I was thinking this over when considering rental properties in my area. A lot of people have complained that it is near impossible to make a profit on a rental property where I live. I think a lot of that is because there is a huge chunk of people who have bought property as an investment based on potential appreciation instead of based on cash flow. If your model is using only cash flow, but another model has a 5% appreciation of principle built in to it, it is going to be near impossible to be able to compete with them on rates. However, what you also see is a ton of people looking to sell their rental properties after the appreciation they were expecting never occurs (potentially due to the glut of properties on the market from other people doing the same thing). The people exiting the market take a loss, and the people who could have actually made a profit based on a cash-flow model never can get a renter to begin with, due to overly competitive rates. However, since new people are willing to invest under the same assumptions as the old investors (imperfect information), the market keeps going strong, and renters can take advantage of cheap rates, though no one is really profiting from it. That’s the type of scenario you can get with an overly competitive marketplace filled with imperfect actors.
Edit: I’m sure people are making money from rentals in my area, or there wouldn’t be so much of it. I’m just also sure that a lot of people are losing a ton of money from it, and driving down prices for everyone else.
I don’t see why do you think this is a problem, and a problem for capitalism in particular.