On 2018-07-31 13:07, jbeattie wrote:
On Tuesday, July 31, 2018 at 10:51:21 AM UTC-7, Joerg wrote:

snip

An apartment building is not a commodity item like a house. The
sale price of a building is determined based on its net cash flow
which is related to building quality only to the extent that it
increases rents and decreases expense, e.g. new building doesn't
need a new roof, immediate maintenance, etc.

Whether a building gets built depends on what net cash it will
produce, ...


Bingo! And that depends on the cost of construction. If it goes up
for all developers, and with this mandate it does, then the market
move up in price.

That's where you go wrong.


Nope. The housing shortage is getting worse here and all those mandates,
permit fees, et cetera is what developers say is driving that.


So, lets say construction costs are the
same in Tulsa and Folsom. Why would you build a $5M 50 unit low-rise
complex in Tulsa when you could build a $5M 50 unit in Folsom and get
triple the rent. Even if the complex cost $6M in Folsom because of
the solar hit, you're still earning more than you would in Tulsa --
land of cheap construction.


That investor would neither got to Tulsa nor to Folsom. He'd go to
Rochester, NY or Memphis, TN where rental returns are currently best.


The difference in construction cost is far outweighed by the market
rents, potential for appreciation and the natural increase in rates
with a rising local economy. Gentrification is a gold mine. Smart
money goes to Folsom even though construction costs are higher.

Rental rates are based on supply and demand and not cost of
construction -- until those costs get so high that market rental
rates don't produce an acceptable ROI.


That is what I am saying all the time. Not enough ROI - no new
construction. Until rents consequently rise, then there wil be new
construction.


... Then you don't get new
construction, and there is potentially a supply shortage -- assuming
there is a demand. Then rents go up, and then the new developers
come.


When rents go up enough to make a good ROI outlook apear solid enough
there will be new construction. Else not.


Hey, speaking of demand, you could buy an apartment building in
Jeffrey City, Wyoming, for probably nothing.
https://www.atlasobscura.com/places/...ity-ghost-town
https://trib.com/news/state-and-regi...bcf887a.html#1
Or you could build! Imagine saving all those construction costs in
Jeffrey City -- hell, you could build the place out of uranium and
asbestos scraps. Skip the solar. Put in granite counter-tops and
rent it for . . . nothing! But at least it was cheap to build
because none of those liberal commie pinkos were making you put in
solar panels.


Ghost towns are everywhere. Heck, much of Detroit is a ghost town.

https://drrichswier.com/wp-content/u...2612770257.jpg

If I had my druthers I'd rather move and invest in Southern Utah:

https://i1.wp.com/www.traipsingabout...ize=1030%2C773

My dream of a low maintenance back yard is a rock, some bare dirt, a
cactus and maybe one manzanita bush. You can buy big homes there for
less than half the Californian prices:

https://activerain.com/blogsview/224...e-in-back-yard

Heck, I could have one whole big room just for my brewery and the bikes
would have their own garage. We'd look for a house sans pool though
which would cost even less.

Where we live not it's nice though. This week I'll be riding he

https://www.youtube.com/watch?v=jvI1W7kmc4o

It still has the buildings of an old Western movie set there, "Love
Comes Softly". Not very schmaltzy and a pretty good family movie. I
recognize almost all areas they show because I've ridden there.


BTW, I rode through Jeffrey City on my bike in '81 as it was becoming
a ghost town. It's right on the Trans Am trail. The help at the
market openly derided all the bicyclists who were presumed liberal
environmentalists -- basically the town's only revenue stream after
the uranium mines went kaput. It made absolutely no sense to me.
They should have been sucking up and selling glowing souvenirs.


Or attract some other business. Some people aren't very smart.

--
Regards, Joerg

http://www.analogconsultants.com/