Agreed with Flip. The fact that Rat's friend is happy to sit on his property and not rent it out shows that he knows he is going to make a good return on his 'risk' in the long run, even without the additional rental income.
Rat's friend 'thinks', not 'know's he's going to get a good return. But that's just pedantics.
Big Ted, I'm not trying to shut you down, but I find this an interesting conversation topic, so with that perspective in mind, here I go…
My use of 'investor' is different to 'speculator'. Someone with either little or no intent to use capital to provide a service is simply a speculator.
While I agree with Flip, and your assessment of the first scenario you present, I'm not sure I agree with your remaining comments.
Any service provider is reliant on income to pay for the costs of providing the service, plus profit, or why would they provide the service? This applies to making iPhones, mowing lawns, and providing rental stock. There are 2 ways for rental stock to be made available. One is social housing provided by the state, and the other is private housing stock owned by investors. The pros and cons of social housing are pretty easy to assess and I won't get into that here, but suffice to say I think that on aggregate better diversification of demographics in the community is both desirable and better achieved by privately held rental stock. It would be difficult to have a discussion about your other comments if we can't agree on this, but I will assume that you do.
If you are reliant on rental income to pay your mortgage, and are whining about all the 'risk' you are taking on by renting your property out, you probably shouldn't have bought in the first place."
Being reliant on income to pay for an investment is the only scenario under which anyone would bother providing a service. Either it's to pay for the mortgage and the gamut of other expenses, or to pay for opportunity cost of the cash invested (plus said gamut of other expenses). Not sure where 'whining' about risk comes into play, but risk is the basis of a properly functioning capitalist system (and hence why the removal of it almost destroyed the global economy, but that's another essay altogether). Rental income is the reward for the risk taken, and the mortgage is only one possible cost that must be covered, or the risk is not worth taking, leading to a lack of supply of rental stock.
If you find a good tenant that provides you rent that allows you to keep making payments on a mortgage that allows you to own a property…
This is the only sustainable solution, yet as from examples I provided earlier the market can change for the worse and not allow this situation to happen. Market resale value of property falls and the owner can't sell, so they choose to rent it out, but the rental market has fallen and they can't cover expenses.
on which you are going to make a significant capital gain
Maybe in the long run, but in the example I provided earlier this is not the case, and nobody can say what is going to happen next (RISK). People expecting this to make up for shortfalls in expenses are speculating and not investing (agree that plenty of this is happening).
Well then you probably need to accept the fact that, in order to keep them around in the long run, it's worth renting out to them at below 'market rate' in order to mitigate the risk of getting a shitty tenant.
I don't agree that you have to accept providing your service for below fair market value ad infinitum, once the market turns from out of your favor to in your favor as the proviso for not having a shitty tenant. I would guess the stats would show that tenants that can afford less rent are more likely to be shitty.
I would argue that rent control favors the party who provides zero capital and takes on zero risk, and this will cause downward pressure on supply of properties that fit into that category (those willing to supply recurring leases) and upward pressure on rents that don't fit into that category (fixed term leases). This results in owners selling properties, doing renovations, or lying about family members moving in, to terminate these agreements. This is exactly what is being reported.
But that's kind of off track to my central argument, which to repeat myself is simply that I believe tenants who provide zero capital and zero risk have little to stand on when a landlord exercises their right to demand fair market value for a service they are providing at significant expense, opportunity cost and risk.
I'll get off track a bit more here to say (and I'm talking about Squamish here), that while I think the property market is in a bubble, I don't believe rental markets can really be affected by bubble behavior to any realistic extent. Unless people are renting out places to then sublet at higher rates (which I have not heard of happening here yet), there is no speculation in the rental market, and hence little motivation for bubble behavior, and is simply supply and demand dynamics. This then loops my head back to think about the intrinsic rental value here, which then would suggest that perhaps we are not actually in a resale bubble either, since the rental values actually do support the resale values (for the time being).
The only way to correct the rental situation is to either increase supply or reduce demand. Hard to control demand. So this comes back to either creating more social housing stock or by building more stock to sell to investors. I suppose the 3rd way is to have so much new stock that it crashes the resale values and makes it more affordable to buy so more people will buy than rent. But the problem with that is people still need a deposit to buy, which most people renting do not have. You could reduce the deposit required, but that was tested and it drives prices through the roof. So it's all pretty complicated, but the bottom line is if you don't have enough rental stock, your rents will be high. If you can't make money renting out that stock, less people will make it available to rent out. And you can totally F it all up by making speculating on empty units more profitable which throws the whole thing out of whack.
Shit, is anyone even going to read all that crap? Time for me to get offline.
