The theme of buying real estate to rent out is nothing new, in fact courtesy of the government subsidized securitization gimmick known as REO-To-Rent, America's biggest asset managers have been able to load up on real estate virtually cost free, and hold on to it in hopes of renting it out to a US consumer. Alas, there is a qualifier: the "tapped out" US consumer. Case in point is Och Ziff, which as we wrote [8], after dabbling in the space for a year, has called it quits, and pulled out of the REO-to-Rent game. And they are the smart money, which means the returns for everyone else are only "downhill from here." That said, for now the meme is one of renting. In fact, as Reuters Insider points out, "Renting is the new American Dream." The problem is 'owning' was the old one. That ended in tears. This one will be no different. The only question is when. We think that when Brazilian model brothers come to Florida to buy up condos so they can rent them out, that's about as toppy as tops get (It is unclear if the two models also demand to be paid in EURs back in the homeland, like another infamous topticking supermodel and financial expert).
Incidentally, to all those who claim the US demographics will spur demand for housing, here is a fact: in the US 21% of young adults [9]now live with their parents (a number which has soared in recent years). In Italy: the number is 33 [10]%. Point being there is much more capacity in living with mom and dad before the US has to be really excited about demographics driving demand. Because at the end of the day, it is not about demographic demand on the margin, but the cash flow said demographic is making. And with rents soaring, while average hourly wages are plunging, the cash flow just is not there.