4 ms·

I feel it should include mortgage interest, excluding principal. The principal is going straight to the landlord's net assets, which should one day return a pr

I feel it should include mortgage interest, excluding principal. The principal is going straight to the landlord's net assets, which should one day return a profit on it's own.

cirgue 8y ago
That's not how prices work. The landlord is absorbing a huge liability by owning the home in the first place. You're a renter, your risk exposure is 0. That's why rent will almost always be higher than a mortgage.
- ianai 8y ago
  I’m not at all talking about renting a home vs owning a home. That’s going to be a significantly minor portion of a rental market. The nearest comparison is like sqft for like sqft apartment vs condo/townhome. That gets you closest to ceteris paribus without the actual total market data.
ianai 8y ago
I did some calculating on a local market at various points. Basically, it seems to me the sweet spot is around 50k/rental for a building in the 100s of units. So your marginal, per unit mortgage should be around 50k or 500/mo (10 year mortgage) plus overhead. I know it’s possible to run such a complex with around 5-10 staff of various functions (possibly less). Those same units wind up being rented for over 1k/month - as that’s the trade off point for a similarly equipped condo. That’s a market operating inefficiently.
ars 8y ago
> I feel it should include mortgage interest, excluding principal. It does. When you start a mortgage, interest is around 90% of the payment. So by definition mortgage is virtually all interest. True, later the amount of interest goes down, but that's just a detail - the amount of money tied up in the house is what matters, not the accounting in your bank.
- perl4ever 8y ago
  If 90% of your rent is interest, why can't someone who's paid off their mortgage rent to you for 90% less?
  - jurassic 8y ago
    Maybe they could, but why would they? Landlords charge rent according to what the market will pay, not what their costs are.
    - ianai 8y ago
      They would if there was someone else in the market selling closer to cost. But real estate isn’t an efficient market.
    - perl4ever 8y ago
      That's my argument though - if someone is charging 90% less, why would anyone pay more just because someone else has more expenses.
      - loco5niner 8y ago
        Because of opportunity cost. They've now invested their efforts and money into a house, and are now reaping the benefits of their investment. They could invest it elsewhere, and charging a renter less money "because charity", doesn't make a lot of sense.
        perl4ever 8y ago
        You're not looking at the other side of the coin. Why would a renter pay ten times as much "because charity"? Nobody who has to compete with others gets to set a price based on their costs.
        loco5niner 8y ago
        > Nobody who has to compete with others gets to set a price based on their costs. Sure they can. They can set whatever price they want. And on the other side of the coin, the available pool of renters can choose to pay that price or not pay that price.

I feel it should include mortgage interest, excluding principal. The principal is going straight to the landlord's net assets, which should one day return a profit on it's own.

cirgue 8y ago

That's not how prices work. The landlord is absorbing a huge liability by owning the home in the first place. You're a renter, your risk exposure is 0. That's why rent will almost always be higher than a mortgage.

ianai 8y ago
I’m not at all talking about renting a home vs owning a home. That’s going to be a significantly minor portion of a rental market. The nearest comparison is like sqft for like sqft apartment vs condo/townhome. That gets you closest to ceteris paribus without the actual total market data.

ianai 8y ago

I did some calculating on a local market at various points. Basically, it seems to me the sweet spot is around 50k/rental for a building in the 100s of units. So your marginal, per unit mortgage should be around 50k or 500/mo (10 year mortgage) plus overhead. I know it’s possible to run such a complex with around 5-10 staff of various functions (possibly less). Those same units wind up being rented for over 1k/month - as that’s the trade off point for a similarly equipped condo. That’s a market operating inefficiently.

ars 8y ago

> I feel it should include mortgage interest, excluding principal. It does. When you start a mortgage, interest is around 90% of the payment. So by definition mortgage is virtually all interest. True, later the amount of interest goes down, but that's just a detail - the amount of money tied up in the house is what matters, not the accounting in your bank.

perl4ever 8y ago
If 90% of your rent is interest, why can't someone who's paid off their mortgage rent to you for 90% less?
- jurassic 8y ago
  Maybe they could, but why would they? Landlords charge rent according to what the market will pay, not what their costs are.
  - ianai 8y ago
    They would if there was someone else in the market selling closer to cost. But real estate isn’t an efficient market.
  - perl4ever 8y ago
    That's my argument though - if someone is charging 90% less, why would anyone pay more just because someone else has more expenses.
    - loco5niner 8y ago
      Because of opportunity cost. They've now invested their efforts and money into a house, and are now reaping the benefits of their investment. They could invest it elsewhere, and charging a renter less money "because charity", doesn't make a lot of sense.
      - perl4ever 8y ago
        You're not looking at the other side of the coin. Why would a renter pay ten times as much "because charity"? Nobody who has to compete with others gets to set a price based on their costs.
        loco5niner 8y ago
        > Nobody who has to compete with others gets to set a price based on their costs. Sure they can. They can set whatever price they want. And on the other side of the coin, the available pool of renters can choose to pay that price or not pay that price.