5 ms·

I think you don’t understand “take more profit.” That means they have considered those costs and still they “take more profit” even considering those costs. Th

I think you don’t understand “take more profit.” That means they have considered those costs and still they “take more profit” even considering those costs. That’s what profit means.

marktangotango 8y ago
I read this article with an eye to that as well, but it does not appear such damage was taken into account. When Wilmers and Desmond control for regular expenses in the form of mortgage payments, property taxes, property insurance, utilities, and property management fees A new roof, flooding from a busted pipe can be considerable expense even including insurance help. Factor in chemical residue from cooking meth, destroyed fixtures like porcelain toilets and sinks, it can be very expensive to rent to unconscientious people (nothing to do with income!).
justinalanbass 8y ago
Actually... According to the research source landlords do charge more due to increased risk: "Because landlords operating in poor communities face more risks, they hedge their position by raising rents on all tenants." https://www.journals.uchicago.edu/doi/abs/10.1086/701697 https://www.journals.uchicago.edu/doi/abs/10.1086/701697
- pytester 8y ago
  >Because landlords operating in poor communities face more risks >Since losses are rare, landlords typically realize the surplus risk charge as higher profits The author of this study appears to be confused as to what risk is. Behind a paywall unfortunately, so it's difficult to tell if he's just made two contradictory assumptions in his abstract or if there's something deeper going on. I suspect slumlords actually yield higher profits because of basic supply and demand - slumlording is a market, after all, that most would find it distasteful to get in to (who wants to evict somebody who lost their job at walmart on to the streets?). It's sort of like the "low salaries for teachers/charity workers" effect in reverse - there are certain kinds of work (or investments) that people can be proud of and certain kinds that they aren't. "Risk" sounds more laudable than "there's a restricted supply of investors who are prepared to be assholes to protect their investments, though.
  - pmiller2 8y ago
    Since you haven’t read the article, how do you even know what their definition of “loss” is?
  - justinalanbass 8y ago
    This paper might argue that the risk/reward ratio is lower than other similarly risky investments, which would substantiate the article's argument that landlords are greedy and generally bad. But good point, the abstraction of risk is something like a veil used to make landlords and investors sleep at night.
defertoreptar 8y ago
I think the poster is referring to the PITA factor. The article's author chose to come at this from the "exploiting the poor" angle. There's a case to be made there, and there's also a case to be made for how people are less willing to take on in these kinds of investments. That will no doubt effect the profit margin that those who are willing are able to take.
mruts 8y ago
The efficient market hypothesis posits that you can only make higher returns by increasing your risk. So it would make sense that landlords make higher returns from poor renters than rich renters. They have to price in the substantial risk (volatility of returns).
paulddraper 8y ago
> even considering those costs But there is an overall expected value premium to be paid on low-risk purchases (or to be gained on high-risk purchases) On average, you will lose money by purchasing insurance. (That's how insurance derive a profit.) However, people are generally happy to do that, because they value the certainty of it, even if overall it's the arthemtically subpar choice. I expect that you will make profit from the stock market than a CD, even after averaging bear and bull years. I'd expect that low-income rental are riskier investments, and that landlords are more likely to lose money, but overall the expected value of return is higher. That's just how markets work.
- deleted 8y ago
  [deleted]
bkohlmann 8y ago
Having read "Evicted" - the book positively mentioned in the article - I came to understand how difficult it was to be a landlord in LCOL areas. The effort required to evict or collect on non-paying tenants made it a full time job with significant costs associated (psychological and financial). The article did not make mention of this in it's accounting of "profit."
wutbrodo 8y ago
My parents' retirement fund consists largely of an apartment building, a substantial portion of which is rented by section 8 (ie low income) tenants. The variance in cash flow is pretty dramatic, from both an expenses and a non-payment of rent perspective. Tenant protections are robust enough that, more than once, they've ended up in a situation where it takes four months of missed rent + legal fees before a non-paying tenant could be evicted, which is a cool $10k chopped right off of their income. To say nothing of the occasional expenses you wouldn't see in higher-income properties: the same tenant protections mean that units can become almost hazardously filthy before the landlord can intervene, and when they leave, they obviously don't tend to clean up. Higher rents effectively function as an insurance policy for these expenses, and your insurance policy is obviously going to overcover rather than undercover. Higher risk (ie variance) investments mean higher returns, for the simple fact that the value of a high-variance investment will be lower than that of a low-variance one with a given expected return, for obvious reasons. The only reason to be ignoring variance If your goal is shitty advocacy instead of intellectual honesty, which, as others have pointed out, is obviously the case with the authors of this study.
- iguy 8y ago
  Ah the variance is a good point. In addition to the these higher average costs (unpaid rent, extensive repairs). Especially since the average landlord is small, an cannot average over hundreds of properties.
bequanna 8y ago
...and the reward for taking greater risk is greater profit.

I think you don’t understand “take more profit.” That means they have considered those costs and still they “take more profit” even considering those costs. That’s what profit means.

marktangotango 8y ago

I read this article with an eye to that as well, but it does not appear such damage was taken into account. When Wilmers and Desmond control for regular expenses in the form of mortgage payments, property taxes, property insurance, utilities, and property management fees A new roof, flooding from a busted pipe can be considerable expense even including insurance help. Factor in chemical residue from cooking meth, destroyed fixtures like porcelain toilets and sinks, it can be very expensive to rent to unconscientious people (nothing to do with income!).

justinalanbass 8y ago

Actually... According to the research source landlords do charge more due to increased risk: "Because landlords operating in poor communities face more risks, they hedge their position by raising rents on all tenants." https://www.journals.uchicago.edu/doi/abs/10.1086/701697 https://www.journals.uchicago.edu/doi/abs/10.1086/701697

pytester 8y ago
>Because landlords operating in poor communities face more risks >Since losses are rare, landlords typically realize the surplus risk charge as higher profits The author of this study appears to be confused as to what risk is. Behind a paywall unfortunately, so it's difficult to tell if he's just made two contradictory assumptions in his abstract or if there's something deeper going on. I suspect slumlords actually yield higher profits because of basic supply and demand - slumlording is a market, after all, that most would find it distasteful to get in to (who wants to evict somebody who lost their job at walmart on to the streets?). It's sort of like the "low salaries for teachers/charity workers" effect in reverse - there are certain kinds of work (or investments) that people can be proud of and certain kinds that they aren't. "Risk" sounds more laudable than "there's a restricted supply of investors who are prepared to be assholes to protect their investments, though.
- pmiller2 8y ago
  Since you haven’t read the article, how do you even know what their definition of “loss” is?
- justinalanbass 8y ago
  This paper might argue that the risk/reward ratio is lower than other similarly risky investments, which would substantiate the article's argument that landlords are greedy and generally bad. But good point, the abstraction of risk is something like a veil used to make landlords and investors sleep at night.

defertoreptar 8y ago

I think the poster is referring to the PITA factor. The article's author chose to come at this from the "exploiting the poor" angle. There's a case to be made there, and there's also a case to be made for how people are less willing to take on in these kinds of investments. That will no doubt effect the profit margin that those who are willing are able to take.

mruts 8y ago

The efficient market hypothesis posits that you can only make higher returns by increasing your risk. So it would make sense that landlords make higher returns from poor renters than rich renters. They have to price in the substantial risk (volatility of returns).

paulddraper 8y ago

> even considering those costs But there is an overall expected value premium to be paid on low-risk purchases (or to be gained on high-risk purchases) On average, you will lose money by purchasing insurance. (That's how insurance derive a profit.) However, people are generally happy to do that, because they value the certainty of it, even if overall it's the arthemtically subpar choice. I expect that you will make profit from the stock market than a CD, even after averaging bear and bull years. I'd expect that low-income rental are riskier investments, and that landlords are more likely to lose money, but overall the expected value of return is higher. That's just how markets work.

deleted 8y ago
[deleted]

bkohlmann 8y ago

Having read "Evicted" - the book positively mentioned in the article - I came to understand how difficult it was to be a landlord in LCOL areas. The effort required to evict or collect on non-paying tenants made it a full time job with significant costs associated (psychological and financial). The article did not make mention of this in it's accounting of "profit."

wutbrodo 8y ago

My parents' retirement fund consists largely of an apartment building, a substantial portion of which is rented by section 8 (ie low income) tenants. The variance in cash flow is pretty dramatic, from both an expenses and a non-payment of rent perspective. Tenant protections are robust enough that, more than once, they've ended up in a situation where it takes four months of missed rent + legal fees before a non-paying tenant could be evicted, which is a cool $10k chopped right off of their income. To say nothing of the occasional expenses you wouldn't see in higher-income properties: the same tenant protections mean that units can become almost hazardously filthy before the landlord can intervene, and when they leave, they obviously don't tend to clean up. Higher rents effectively function as an insurance policy for these expenses, and your insurance policy is obviously going to overcover rather than undercover. Higher risk (ie variance) investments mean higher returns, for the simple fact that the value of a high-variance investment will be lower than that of a low-variance one with a given expected return, for obvious reasons. The only reason to be ignoring variance If your goal is shitty advocacy instead of intellectual honesty, which, as others have pointed out, is obviously the case with the authors of this study.

iguy 8y ago
Ah the variance is a good point. In addition to the these higher average costs (unpaid rent, extensive repairs). Especially since the average landlord is small, an cannot average over hundreds of properties.

bequanna 8y ago

...and the reward for taking greater risk is greater profit.