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>"To single out one strand, recall the stories of flippers who would buy a house, fix it up, and resell it within months at a huge profit." You can sometimes s

>"To single out one strand, recall the stories of flippers who would buy a house, fix it up, and resell it within months at a huge profit." You can sometimes see this in financial advice on forums like these: "buy rental property!". TINSTAAFL. Economic returns tend to even out across asset classes. Of course your highly leveraged rental property looks good amidst a housing boom. Being a landlord isn't easy and has many legal obligations.

opportune 9y ago
Sometimes I wonder if the mortgage model of buying houses will have to change or adapt in the future. To me it seems to be a lending model especially prone to abuse because of the boom-bust cycles it creates: a bunch of people bite off more than they can chew when debt is cheap, and rationalize it with the assumption that housing prices will only increase, so they're not even losing money by taking on that huge debt responsibility. Then when interest rates go up or they lose their jobs, they become unable to support their debt, leading to massive foreclosures, creating a housing glut that erodes others' liquidity (simple supply vs. demand) and puts them underwater. Obviously this can happen to varying extents among other equity markets but lenders are much more likely to give someone a $400,000 loan to buy a house than to buy stock. I don't think this is necessarily sustainable.
- stupidhn 9y ago
  >but lenders are much more likely to give someone a $400,000 loan to buy a house than to buy stock. I don't think this is necessarily sustainable. Government backstop. But I hear you. I understand the intentions of subsidized mortgages: housing is a necessity, it (generally) appreciates over time so it's "safe", it provides forced savings etc. But too many people are able to take advantage of the subsidies in indirect ways. I know people house shopping in British Columbia. They have been approved for a mortgage at 10x their household income. Parents are making the down payment. Bank is fine with it, I guess. How does that work?
BeetleB 9y ago
Depends on the details of the local economy and the prices. Buying a property on cash and renting it out is totally sound, with low risk. As an investment vehicle, it is often poor as the same amount of money would likely give you better returns elsewhere. If house values go down, it'll suck, but you don't have a mortgage so it's not too bad. If house values go up, you win even more. Buying on loan is risky if the value goes down, but that's again an issue with any investment. The upside, though, is that as long as the price doesn't drop too much, your renter is paying for the house for you. You can put $50K down on a $300K house, and the renter is working for a living to ensure you own the house. This can be a phenomenal investment, but it does have a larger risk. I know multiple people in my town who bought houses and rent them out (some percentage is through loans). Both have recently quit their day jobs, because the rental income exceeds their spending needs. Now they've been lucky: Rent has gone up 30-40% in the last few years. But if prices go down, and they have to lower their rent, they'll simply go back to work. In the big picture, it is extremely unlikely that this will result in a net loss, even with another housing crisis. >Being a landlord isn't easy and has many legal obligations. If you do all the work yourself, it sucks. Everyone I know uses property management companies. One guy who's been at it 7-8 years said it's never been a pain. Might have to deal with a repair once or twice a year (i.e. much less than one repair per house). Everything else is handled by the management company. Yes, they take their cut, but he still has enough left over to relax at home and not have to work.
- zzalpha 9y ago
  Everyone I know uses property management companies. Everyone I know who uses property management companies would describe it like regular expressions. I.e. I became a landlord and now I have a problem in that I have to deal with tenants. I tried to solve that problem with a management company. Now I have two problems. Management companies are not a panacea. Many suck. The rest are expensive. And nothing stops a tenant from vandalizing your home and skipping town. As far as I'm concerned being a landlord is a sucker's game.
  - BeetleB 9y ago
    >And nothing stops a tenant from vandalizing your home and skipping town. Landlord insurance covers this. And if they violate their lease, PMC lawyers can help. But so far no one I know had to deal with this. All the headaches I've heard come from people who did not use a PMC: They found tenants themselves, so their vetting was poor compared to that of a PMC. They get repair calls at all times of day - not an issue with a PMC (tenants do not know your name or number). Tenants stop paying: Doesn't happen because the PMC vetted the tenants. But if it does, the PMC deals with it.

opportune 9y ago

Sometimes I wonder if the mortgage model of buying houses will have to change or adapt in the future. To me it seems to be a lending model especially prone to abuse because of the boom-bust cycles it creates: a bunch of people bite off more than they can chew when debt is cheap, and rationalize it with the assumption that housing prices will only increase, so they're not even losing money by taking on that huge debt responsibility. Then when interest rates go up or they lose their jobs, they become unable to support their debt, leading to massive foreclosures, creating a housing glut that erodes others' liquidity (simple supply vs. demand) and puts them underwater. Obviously this can happen to varying extents among other equity markets but lenders are much more likely to give someone a $400,000 loan to buy a house than to buy stock. I don't think this is necessarily sustainable.

stupidhn 9y ago
>but lenders are much more likely to give someone a $400,000 loan to buy a house than to buy stock. I don't think this is necessarily sustainable. Government backstop. But I hear you. I understand the intentions of subsidized mortgages: housing is a necessity, it (generally) appreciates over time so it's "safe", it provides forced savings etc. But too many people are able to take advantage of the subsidies in indirect ways. I know people house shopping in British Columbia. They have been approved for a mortgage at 10x their household income. Parents are making the down payment. Bank is fine with it, I guess. How does that work?

BeetleB 9y ago

Depends on the details of the local economy and the prices. Buying a property on cash and renting it out is totally sound, with low risk. As an investment vehicle, it is often poor as the same amount of money would likely give you better returns elsewhere. If house values go down, it'll suck, but you don't have a mortgage so it's not too bad. If house values go up, you win even more. Buying on loan is risky if the value goes down, but that's again an issue with any investment. The upside, though, is that as long as the price doesn't drop too much, your renter is paying for the house for you. You can put $50K down on a $300K house, and the renter is working for a living to ensure you own the house. This can be a phenomenal investment, but it does have a larger risk. I know multiple people in my town who bought houses and rent them out (some percentage is through loans). Both have recently quit their day jobs, because the rental income exceeds their spending needs. Now they've been lucky: Rent has gone up 30-40% in the last few years. But if prices go down, and they have to lower their rent, they'll simply go back to work. In the big picture, it is extremely unlikely that this will result in a net loss, even with another housing crisis. >Being a landlord isn't easy and has many legal obligations. If you do all the work yourself, it sucks. Everyone I know uses property management companies. One guy who's been at it 7-8 years said it's never been a pain. Might have to deal with a repair once or twice a year (i.e. much less than one repair per house). Everything else is handled by the management company. Yes, they take their cut, but he still has enough left over to relax at home and not have to work.

zzalpha 9y ago
Everyone I know uses property management companies. Everyone I know who uses property management companies would describe it like regular expressions. I.e. I became a landlord and now I have a problem in that I have to deal with tenants. I tried to solve that problem with a management company. Now I have two problems. Management companies are not a panacea. Many suck. The rest are expensive. And nothing stops a tenant from vandalizing your home and skipping town. As far as I'm concerned being a landlord is a sucker's game.
- BeetleB 9y ago
  >And nothing stops a tenant from vandalizing your home and skipping town. Landlord insurance covers this. And if they violate their lease, PMC lawyers can help. But so far no one I know had to deal with this. All the headaches I've heard come from people who did not use a PMC: They found tenants themselves, so their vetting was poor compared to that of a PMC. They get repair calls at all times of day - not an issue with a PMC (tenants do not know your name or number). Tenants stop paying: Doesn't happen because the PMC vetted the tenants. But if it does, the PMC deals with it.