this post was submitted on 23 Aug 2023
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It's also not as lucrative as most would think. I have a few rentals and it's certainly not enough to quit my day job in IT. It's maybe an extra $15-20k in my pocket at the end of the year after expenses and taxes and such, and I spend at least 10-20 hours a week doing accounting, maintenance tasks, coordinating contractors, legal stuff, etc. Sure, the equity is nice too, but it doesn't do a whole lot for me until retirement age.
As far as whether landlords can be "good", I see myself as providing a valuable service to those who cannot or don't want to become homeowners. In a perfect world, those who cannot but want to become homeowners should, but the cost of housing has little to do with rentals and almost everything to do with zoning, development restrictions, and tax structure. Until that world exists, someone has to offer rental properties to these people, otherwise where would they live?
If all the available housing wasn't bought up by people wanting an extra 20k a year in rent, they'd live there.
If not landlords (and it often isn't), it would be owner occupants buying them at equally obscene prices. Contrary to what the media might lead you to believe, something like 80% of housing units are owner occupant.
That's exactly what I'm saying. If it wasn't for someone purchasing it just to profit off someone else just trying to live, it could be purchased by someone actually living there. You see how that's better right?
It might be better for that one individual who purchased for themselves, but the people who can afford to buy is a much smaller group than those who can afford to rent. A healthy housing market has a good mix of both, because even if everyone who wants to own does, there will still be plenty of people who want to rent too. Whether it's because they aren't planning on staying more than a few years, or simply because they don't want to have to deal with the tribulations of home ownership of which there are many.
Well, we're already moving quite the distance from
In regards to
You did say you were profiting off the rent. So the person paying the rent could afford to make all the payments you are making with the money they are currently spending on rent.
I have no problem with people renting out their basement, that is adding to the number of available homes. Single unit dwellings should be illegal to rent out and landlords should have to live on the property they are renting.
The main point I'm trying to make is that rentals existing is not the reason housing is expensive and difficult to obtain, it's a supply issue. Remove red tape, build more housing, so there's enough for all the people who want to own and the people who want to rent. Fix that, then see how it balances out with natural market forces, and then you create policy if things are still wacky.
As for profiting off rent, yes, the tenants in any of my rentals could afford a 30yr mortgage payment with the cost of their rent. However, when I start adding in costs like maintenance, property taxes, insurance, and my own time and sweat, most of my tenants are paying similar if not less out of their pocket every month than they would be if they owned the home they lived in, the only difference being that they aren't building equity. It's not like they don't get anything out of the deal either, they never have to worry about finding a plumber for a weekend emergency, or having to dig up $15k when the roof needs replacing, and most importantly, they can move somewhere else with zero risk of going underwater on a mortgage. Now, all that said, there are shitty landlords and property mgmt. companies out there and I would absolutely support reasonable legislation to get them to behave.
As for renting SFH, I disagree, although I am of course biased given that most of my portfolio is SFH. Just because someone doesn't want to be a homeowner doesn't mean they shouldn't have the opportunity to live in a detached house. I'm not strictly opposed to some limitations on SFH rentals, but I still think we need to fix the supply issue before looking at that further. That said, I do think multi unit housing is much more efficient, and if it were made a lot easier to build, a huge number of landlords would readily switch from SFH to that. Heck, I want to replace some of my SFH rentals with multi units (I think du/triplexes are a good balance without sticking out too much in an otherwise SFH neighborhood), but getting planning approval for it is such a byzantine nightmare that I've given up for the most part.
I agree that it is a supply issue. The problem is every landlord further limits the supply.
I don't know how many properties you have, let's say 4 (it's how many my parents had). You might not feel like your 4 properties is contributing very much to the supply issue, but if say 10% of the population has enough wealth to be a landlord, and they each own on average 4 properties plus their own home, that is now 50% of the need in the market being taken up by a small % of people. That doesn't even take into account multi-unit businesses.
No disagreements here, but without putting laws in place how do you know when we've hit the point where "there should be enough housing but things are still wacky"? What's stopping large companies from just buying up the extra available housing and continuing to charge obscene rent? There are currently 28 vacant homes for each homeless person in the US Does that mean things are wacky and it's time to put laws in place?
Again, you said yourself that you are profiting off the rent. I'm sure you already factored in maintenance, property taxes, and insurance into that. I'm sure many people would gladly use their own time and sweat in order to be building their own equity.
I'm not saying you're a bad landlord or that you don't take care of your tenants. What I'm saying is if you just look at the numbers these people would all be better off without a landlord and paying directly for the "services" you provide instead of using you as a middle man. As such, the Landlord does not generate anything of value by inserting themselves in the middle of this situation.
I appreciate you taking the time to respond. To directly address some of your points, even if 10% of the population could afford to become landlords with 4 doors, the vast majority of them wouldn't. The market will also not allow this for reasons I'll go into below.
As for determining when there's enough housing supply, there's a lot of metrics you could go by. For example, average home sale price relative to median household income for the local area. Public polling to determine the number of people who are looking to buy or rent but are having issues doing so, etc. It's not a simple problem but there are assuredly some acceptable solutions.
Vacancy rates can also be misleading, especially compared to the number of homeless people. The overwhelming majority of people in the USA are not homeless. I don't remember the exact number, but the total homeless population is something like a fraction of a percent. Just normal housing vacancy due to turnover is a few percent of housing stock which on its own accounts for almost all of the those vacancies. It is extremely rare that residential property sits vacant for extended periods of time unless there are severe issues with it, or there is a significant market oversupply in the area.
As for profiting off rent, until land value tax exists, I agree, renting property out exhibits of a level of rent seeking in the academic sense of the word. There is still an inherent service provided in that the landlord assumes the risk of property ownership though, but yes, I agree that in a lot of cases, the value extracted simply from being the owner of the property is excessive. I'll get into this more below as well.
I think a major point of disagreement is that I believe that if we increase the supply, market forces can naturally balance for the demand of both renters and and owners. Assume you're looking at an area where supply and demand are well balanced and proper measures against anti-competitive practices are in place (and also no stupid taxation schemes that make it beneficial to have vacancies, looking at you NYC). First, you have the actual ownership market. All purchasers are competing against each other to purchase property at the lowest price possible. No rational actor is going to make offers far above the actual worth of the property given that supply is saturated. That includes both owner-occupants and landlords. For landlords, there are two main considerations for value, both cashflow and gains on the value of the property. In a balanced market, the average value of a home is absolutely not going to beat something like the stock market, so as an investment, it's not a great move beyond adding some portfolio diversification. Landlords also have to compete for the pool of potential tenants in a balanced market. If there is an oversupply of rentals, and an undersupply of tenants, home prices will go up since supply for buyers is not being met due to being carved out by LLs, and rent cashflow goes down due to tenant shortage. When this begins happening, it becomes very advantageous for LLs to sell as the prices have gone up and the rents have gone down. In theory, this mechanism should prevent things from getting out of hand to begin with. Where you see big issues is in markets where demand outstrips supply. LLs can buy out the supply from owner occupants, but instead of cratering rent, the undersupply allows them to turn around and charge obscene rates to the top percent who can afford them.
My mom rented out 3 apartments and earned barely enough to take care of the two of us. A significant portion of her expenses go toward treating her type 1 diabetes