5 ms·

> The value landlords provide is the assumption of risk. The premium you pay to rent is in exchange for vastly limiting your exposure to said risk. Are there a

by mrow84 9y ago

> The value landlords provide is the assumption of risk. The premium you pay to rent is in exchange for vastly limiting your exposure to said risk. Are there any risks that affect only the landlord, and not the renter, other than the possibility of losing ownership? For example, if you rent a plot of land for farming, what risks does the owner of that land face that you do not?

busterarm 9y ago
Personal injury lawsuits.
marcell 9y ago
You risk negative returns on the property, or losses compared to your opportunity cost. If you had $1 million in 2007, it would have been more profitable to invest it in Google than to buy a two houses in Mt View and rent them out. That is the risk the landlord is assuming. There are examples where you have a negative return as well.
jpollock 9y ago
The owner risks the tenant destroying the capital value of the property. http://www.cbc.ca/news/canada/ottawa/multimedia/rental-unit-overrun-by-maggots-mould-and-feces-after-city-program-fails-landlord-1.4362256 http://www.cbc.ca/news/canada/ottawa/multimedia/rental-unit-... http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11804526 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&o... In the US with civil forfeiture, the police can seize the property. https://www.cannalawblog.com/asset-forfeiture-why-your-marijuana-leasehold-is-key/ https://www.cannalawblog.com/asset-forfeiture-why-your-marij...
- slededit 9y ago
  Remember that Canada has civil forfeiture too: https://beta.theglobeandmail.com/news/national/civil-forfeiture-often-a-provincial-cash-grab-new-report-finds/article29072771/?ref=http://www.theglobeandmail.com& https://beta.theglobeandmail.com/news/national/civil-forfeit...
JSONwebtoken 9y ago
That the value of the land might go down? Risk means financial downside, you can lose money on real estate on a multitude of things, millions of investors do every year. Real estate is not as easy to diversify as stocks and bonds, certain unexpected and uninsurable external shocks can have disastrous effects on the profitability of your investment. Things such as new rent control, property tax increase, termite damage, spiteful tenants, corrupt HoA, and sudden market volatility can all cause you to lose significant money. I'm not getting the message behind the Churchill quote, landlords clearly have operating expenses to commit towards keeping a plot of land and shelter in useful or livable condition.
- downrightmike 9y ago
  Sure they do, but we now have a ton of anti slumlord laws because there was a long precedent of landlords being slumlords.
billmalarky 9y ago
A renter's financial risk is limited to his/her lease agreement. This could be the remainder of the rent due according to the lease (ie if there are 6 months left on the lease agreement you will need to pay 6X rent). In practice typically a renter is usually on the hook for the security deposit or a month's rent, so long as they can find another renter to take over their lease. The owner assumes the total risk for the property. As a basic example, consider starting a lease vs buying a property in 2007. If you were a renter when the real estate market collapsed in 2008 you were stuck paying higher than the market rate (most likely) until your lease ended, at which point your rent probably dropped to market rate. No biggie. If you bought property at the top of the market in 2007 for say $500k, and the value of that property dropped to $250k in 2008, you are now paying a $500k mortgage payment for a property worth half that amount. Rent used to cover your mortgage payment but now the market rate for rent in the same property has halved so now instead of breaking even every month on your property you have to pay $1,000 a month for someone else to live in your property just to not default on the mortgage. Odds of having to declare bankruptcy in this scenario are high.
- toomuchtodo 9y ago
  > Odds of having to declare bankruptcy in this scenario are high. Not at all. If you could not afford your property because of a loss of income, you are eligible for another mortgage after a short sale or foreclosure within a year. If you can't document a loss of income, its only 3 years to get another mortgage. Temporary credit damage? Indeed, but not necessarily bankruptcy.
  - billmalarky 9y ago
    Of course. I was wanting to keep my example reductionist on purpose to answer mrow84's question in an easily understandable way.
dpatru 9y ago
If farmer renting land can decide year-to-year whether it is worth it to him to farm the land. If the renter determines that a particular lease is not profitable, he is free to do something else. The landowner has no such option; he's stuck with the land. The renter generally pays a higher price per year than an owner but has greater options and less risk. This is generally true of renting vs buying. If you go to distant city for a one-week vacation, you are likely to rent accommodations and a car rather than buy them. At the end of the week you can just walk away, whereas the owner must concern himself with generating an income with his property.

by mrow84 9y ago

busterarm 9y ago

Personal injury lawsuits.

marcell 9y ago

You risk negative returns on the property, or losses compared to your opportunity cost. If you had $1 million in 2007, it would have been more profitable to invest it in Google than to buy a two houses in Mt View and rent them out. That is the risk the landlord is assuming. There are examples where you have a negative return as well.

jpollock 9y ago

The owner risks the tenant destroying the capital value of the property. http://www.cbc.ca/news/canada/ottawa/multimedia/rental-unit-overrun-by-maggots-mould-and-feces-after-city-program-fails-landlord-1.4362256 http://www.cbc.ca/news/canada/ottawa/multimedia/rental-unit-... http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11804526 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&o... In the US with civil forfeiture, the police can seize the property. https://www.cannalawblog.com/asset-forfeiture-why-your-marijuana-leasehold-is-key/ https://www.cannalawblog.com/asset-forfeiture-why-your-marij...

slededit 9y ago
Remember that Canada has civil forfeiture too: https://beta.theglobeandmail.com/news/national/civil-forfeiture-often-a-provincial-cash-grab-new-report-finds/article29072771/?ref=http://www.theglobeandmail.com& https://beta.theglobeandmail.com/news/national/civil-forfeit...

JSONwebtoken 9y ago

That the value of the land might go down? Risk means financial downside, you can lose money on real estate on a multitude of things, millions of investors do every year. Real estate is not as easy to diversify as stocks and bonds, certain unexpected and uninsurable external shocks can have disastrous effects on the profitability of your investment. Things such as new rent control, property tax increase, termite damage, spiteful tenants, corrupt HoA, and sudden market volatility can all cause you to lose significant money. I'm not getting the message behind the Churchill quote, landlords clearly have operating expenses to commit towards keeping a plot of land and shelter in useful or livable condition.

downrightmike 9y ago
Sure they do, but we now have a ton of anti slumlord laws because there was a long precedent of landlords being slumlords.

billmalarky 9y ago

A renter's financial risk is limited to his/her lease agreement. This could be the remainder of the rent due according to the lease (ie if there are 6 months left on the lease agreement you will need to pay 6X rent). In practice typically a renter is usually on the hook for the security deposit or a month's rent, so long as they can find another renter to take over their lease. The owner assumes the total risk for the property. As a basic example, consider starting a lease vs buying a property in 2007. If you were a renter when the real estate market collapsed in 2008 you were stuck paying higher than the market rate (most likely) until your lease ended, at which point your rent probably dropped to market rate. No biggie. If you bought property at the top of the market in 2007 for say $500k, and the value of that property dropped to $250k in 2008, you are now paying a $500k mortgage payment for a property worth half that amount. Rent used to cover your mortgage payment but now the market rate for rent in the same property has halved so now instead of breaking even every month on your property you have to pay $1,000 a month for someone else to live in your property just to not default on the mortgage. Odds of having to declare bankruptcy in this scenario are high.

toomuchtodo 9y ago
> Odds of having to declare bankruptcy in this scenario are high. Not at all. If you could not afford your property because of a loss of income, you are eligible for another mortgage after a short sale or foreclosure within a year. If you can't document a loss of income, its only 3 years to get another mortgage. Temporary credit damage? Indeed, but not necessarily bankruptcy.
- billmalarky 9y ago
  Of course. I was wanting to keep my example reductionist on purpose to answer mrow84's question in an easily understandable way.

dpatru 9y ago

If farmer renting land can decide year-to-year whether it is worth it to him to farm the land. If the renter determines that a particular lease is not profitable, he is free to do something else. The landowner has no such option; he's stuck with the land. The renter generally pays a higher price per year than an owner but has greater options and less risk. This is generally true of renting vs buying. If you go to distant city for a one-week vacation, you are likely to rent accommodations and a car rather than buy them. At the end of the week you can just walk away, whereas the owner must concern himself with generating an income with his property.