Comment by conductr
9 days ago
What does this say about tenants though? You expect someone to buy a home that you can’t afford, rent it to you until you can. Meanwhile, maintain it while you rent it, pay the property taxes and insurance as well, basically have a tiny cash flow off my investment-all to just be forced to sell it to you in the end when my only hope of getting ahead on this was some long term appreciation or the build up of equity. Spoiler, equity doesn’t usually build up very fast. Better chance of appreciation building up, but even that is a pretty big risk because you’re trying to time the market.
I was a landlord for a bit and what I’ve found is that tenants that have probably never actually owned a property have no ideas about what it cost to own a property and what the landlord is actually making off your rent. Sure even if you pay a few thousand in rent, it may be the landlord only has a couple hundred of cash flow. Then, one repair on the home can easily wipe out a year or more of that. One bad tenants can wipe out a decade of it.
I recall my worst tenants ever. Weren’t even that bad all things considered but the were dirty people. The house was filthy when they moved out. The walls and floors were coated in a grease like film. I had a no smoking policy in the lease but it was obvious they smoked and used the floor as an ashtray. There was a handful of other things that were just broken. Anyways it was a 4 bedroom house that was 2500 sf. I got a few quotes to paint and fix the list of little stuff. The cheapest quote I got was $15k but there was also a $20k and a $30k quote. I decided not to go after these people for the damages but I told them the long list of repairs and because of the condition and cost of repairing it all I would not return their deposit which was only about $2500. Anyway they completely lost it calling me a slumlord and how there’s no way they could have generated that much damage and reported me to the state and wanted to sue me but I don’t think they found a lawyer to take the case. They thought I was marking up all the repairs costs and scamming them. I just sent them all 3 quotes and told them I chose the lowest and wasn’t asking them to pay the excess (I knew it would just be a bad debt). But they went through every line item and said they knew what it cost to paint a house and it was overpriced. This is where the problem is. They’ve never owned a property, never hired a contractor or handyman so they actually have no idea what these things cost. And in my city, construction is booming and everything housing related does seem expensive but it is what it is. There’s no cheaper way to do it besides DIY. But my labor isn’t free either and I’d charge more for my time than the contractors do so that’s not really a solution either.
> Sure even if you pay a few thousand in rent, it may be the landlord only has a couple hundred of cash flow. Then, one repair on the home can easily wipe out a year or more of that. One bad tenants can wipe out a decade of it.
I love how this conveniently ignores the equity you acquired in this year and almost certainly the appreciation.
I went from renting for a decade plus to buying four years ago and while I have had to make repairs (replace HVAC, which I knew about at purchase, replace electrical main panel), and things can be expensive, there’s definitely a contingent that likes to act like they need more protections as landlords because to listen to them just owning a home means writing a four digit check or credit card transaction every month if not more.
I'm not sure why this is a surprise to you. People take much better care of their own stuff, because any damage is a direct hit to their own pocketbook. Whereas bad tenants can be careless with no real consequences to speak of; the damage they cause is ultimately defrayed via higher renting costs across the board.
> I love how this conveniently ignores the equity you acquired in this year and almost certainly the appreciation.
I love how I addressed both those things in my comment and you chose to ignore it or just didn't read
Appreciation is a gamble that you bought at the low or just plan on holding for a very long time and even then, most economists will tell your real estate should appreciate at the rate of inflation - so not a good investment. Rent can go up but that's a gamble too, or just takes a long time to become significant above your mortgage payment. Everything else goes up with time as well - tax, insurance, maintenance, etc. So it doesn't flow through to the bottom line like you think it does.
Equity is not very material either for the first decade or more. Most landlords have a mortgage to pay on that property and you should look into how an amortization schedule works. Your rent payment is mostly going to interest to the bank, not building equity for the landlord.
The landlord is mostly taking on a huge risk in hopes the stars will align and 1) appreciation will happen 2) equity will be built and 3) it's not all eroded by a high maintenance structure or bad tenants destroying the place. The main reason it is so prevalent in the US is, low interest rates for a long period of time allowed leverage (most landlords would not be if they had to pay cash) and shortage of housing inventory and housing cost more to build that many people can ever afford-aka-forced to rent.
Sure, there's plenty of regulations that could be done to falsely manipulate this market. But, so far, the only reason rentals continue to be developed is because of the investment opportunity. If that went away due to regulation, I for one wouldn't trust our government to solve the problem completely and also fund development, renters can't fund it or they wouldn't be renters, and so prices just go up even more because there is now a severely limited supply of rental housing and no ability for investors to deploy capital towards that problem. Like most things related to regulation, you can't just ban something without thinking the problem through more completely and having a holistic solution. If you do, you just are meddling and will screw it up worse than it already is.
> Most landlords have a mortgage to pay on that property and you should look into how an amortization schedule works. Your rent payment is mostly going to interest to the bank, not building equity for the landlord.
What? No. Explain to me how after putting 10% down, I was able to get out of PMI because I had 20% equity after the first 18 months of my mortgage? After all, at 18 months at 3.5% I've only paid down 2.1% of the principal. That's not how that works. Principal != Equity.
> The landlord is mostly taking on a huge risk in hopes the stars will align and 1) appreciation will happen 2) equity will be built
A "huge risk"? No, it's a pretty safe bet. Positive appreciation on home prices in the US has happened 28 out of the last 30 years.
And again, you build equity with each payment of your mortgage, 0.29% per month even factoring in that negative appreciation in, on average, 2 of the 30 years of your mortgage AND zero positive appreciation. Like I said, between May 2021 and November 2022 I was able to garner 4.8% equity due to appreciation alone (net zero I should have gained 5.2% - 18 months at 0.29%/month).
"Hoping the stars will align"? Come on now. Then why bother, if it's such a crap shoot that you're unlikely to ever make a profit on? Out of the sheer good of your heart? No.
Also, coming back to one of your original points:
> Sure even if you pay a few thousand in rent, it may be the landlord only has a couple hundred of cash flow. Then, one repair on the home can easily wipe out a year or more of that.
Then maybe you can't afford to be a landlord?
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