Comment by FireBeyond
9 days ago
> 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?
> 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.
So there was appreciation, that's great but it's difficult to bank it until you sell the property. Investors usually don't qualify for sub 20% down so PMI is never even a factor. This is timing, which I've also explained. If you buy low and appreciation follows that's great, but it can also go the reverse which is a risk for an investor.
> 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.
Positive appreciation is great. But it's doesn't always exceed inflation and if it does you have no control of that and are just hoping it does. I already mentioned it's timing the market in terms of appreciation. If you bought a rental in 2007, you likely didn't appreciate for a decade. That's a long time to have your money locked up and be exposed to risk for nothing. The money down, the risk of bad tenants, the risk of the government ban evictions, squatters, just normal risk of owning a maintaining a property (roof, foundation, plumbing, etc), so much more that you're ignoring.
> Then maybe you can't afford to be a landlord?
No, that takes us back to my original point of why landlords need to make a profit. They're not guaranteed a profit, almost no business is, but it needs to be a part of their calculus. That whole point is actually my counterpoint to your comment about how of landlords shouldn't have profit and are leeches and how they should be forced to sell there property to you after you rented it without risk for a few years - just get a mortgage if that's what you want. It's not the landlords fault if you individually can't afford to buy that property. Go live in rural Nevada, it's cheap.