7 ms·

This exactly! Also upkeep. Replacing a cheap shingle roof vs a metal or Spanish tile roof are night and day in costs. Plumbing is cheaper in a cheap small hous

This exactly! Also upkeep. Replacing a cheap shingle roof vs a metal or Spanish tile roof are night and day in costs. Plumbing is cheaper in a cheap small house with simple layout vs. Sprawling multi-level house. Size of grounds (and expected level care) to maintain are different. It goes on and on, but the gist is that the total net on a cheap house (ie. houses in cheap areas) is going to be more for the same level of investment. I don't even see how this is unexpected or controversial!

privacypoller 8y ago
this is similar to our experience in commercial properties as well, which removes the emotionally charged aspects of "taking advantage of poor people" - landscaping, interior finishings, painting, etc are all large costs in nice retail properties, and non existent in functional light industrial or trades-oriented buildings, yet rents are generally higher for the later.
zaroth 8y ago
TFA also makes another good point but somehow makes it sound evil; In low-cost cities, landlord profit rates rise steeply alongside neighborhood poverty. But in expensive cities, the reverse is true. In expensive cities, landlords make money through appreciation and gentrification (which is bad enough for the poor). In lower-cost, more economically hard-hit cities, they make it on the backs of the poor. If the home value is flat or even falling, then of course the rent will have to be higher to provide the necessary return on capital to bother owning the rental property in the first place! It’s not like capital is required to be deployed to rental stock in certain proportions. There is whole world of potential investments, and based on their risk and return will have a whole world of dollars competing for them. Rental units that appreciate fast enough are just held vacant in some markets, so much so that Vancouver had to abundantly tax it to try to stop it. Rental property appreciation is an absolutely key variable in the profitability calculation. In many markets it totally dominates the equation over the actual rental income figure.
- mhuffman 8y ago
  There is a sense it this new socio-political climate that we live in, that people should not invest to actually make money, but only use what money they have to make other people's lives easier or better. I am not saying that this is a terrible goal, but it is wildly unrealistic for people that are not billionaires. Sadly, however, this ends up in accusations of exploitation, both because of these (imo unreasonable) thoughts, but also because there is a wild lack of economic literacy.
  - pmiller2 8y ago
    > wildly unrealistic for people that are not billionaires. Bullshit. Someone with an invested net worth of $10M exclusive of home value can generate an income of $300k using a conservative safe withdrawal rate of 3%. Anyone making $300k as an individual with a paid off home has more than enough money to be comfortable anywhere in the country, with no real need to invest further. $10M net worth is a large, but not absurd amount, but even if my numbers were somehow off by an order of magnitude, we’re far from billionaire territory.
    - mhuffman 8y ago
      > wildly unrealistic for people that are not billionaires. >> Bullshit. Ok, "wildly unrealistic for people that are not double-digit millionaires!". My intent was that it was a small amount of people in that group.
      - pmiller2 8y ago
        True, but you can cut those numbers by ~50% and still be very comfortable in most, if not all places in the US. According to https://dqydj.com/net-worth-percentile-calculator-united-states/ https://dqydj.com/net-worth-percentile-calculator-united-sta... there are over 3 million households with a net worth over $4.5M. Relatively speaking, that is a small number, but, collectively, the good those people could do if they came together would be immense. Of course, this will never happen.
- 8y ago
tfehring 8y ago
Taking GP’s example of a $180k townhouse vs. a $1.8M McMansion, will these costs really be significantly more than an order of magnitude more expensive for the latter, and therefore significantly higher as a percentage of property value? My intuition is that the opposite would be true, i.e., that the difference would typically be less than a factor of 10.

privacypoller 8y ago

this is similar to our experience in commercial properties as well, which removes the emotionally charged aspects of "taking advantage of poor people" - landscaping, interior finishings, painting, etc are all large costs in nice retail properties, and non existent in functional light industrial or trades-oriented buildings, yet rents are generally higher for the later.

zaroth 8y ago

TFA also makes another good point but somehow makes it sound evil; In low-cost cities, landlord profit rates rise steeply alongside neighborhood poverty. But in expensive cities, the reverse is true. In expensive cities, landlords make money through appreciation and gentrification (which is bad enough for the poor). In lower-cost, more economically hard-hit cities, they make it on the backs of the poor. If the home value is flat or even falling, then of course the rent will have to be higher to provide the necessary return on capital to bother owning the rental property in the first place! It’s not like capital is required to be deployed to rental stock in certain proportions. There is whole world of potential investments, and based on their risk and return will have a whole world of dollars competing for them. Rental units that appreciate fast enough are just held vacant in some markets, so much so that Vancouver had to abundantly tax it to try to stop it. Rental property appreciation is an absolutely key variable in the profitability calculation. In many markets it totally dominates the equation over the actual rental income figure.

mhuffman 8y ago
There is a sense it this new socio-political climate that we live in, that people should not invest to actually make money, but only use what money they have to make other people's lives easier or better. I am not saying that this is a terrible goal, but it is wildly unrealistic for people that are not billionaires. Sadly, however, this ends up in accusations of exploitation, both because of these (imo unreasonable) thoughts, but also because there is a wild lack of economic literacy.
- pmiller2 8y ago
  > wildly unrealistic for people that are not billionaires. Bullshit. Someone with an invested net worth of $10M exclusive of home value can generate an income of $300k using a conservative safe withdrawal rate of 3%. Anyone making $300k as an individual with a paid off home has more than enough money to be comfortable anywhere in the country, with no real need to invest further. $10M net worth is a large, but not absurd amount, but even if my numbers were somehow off by an order of magnitude, we’re far from billionaire territory.
  - mhuffman 8y ago
    > wildly unrealistic for people that are not billionaires. >> Bullshit. Ok, "wildly unrealistic for people that are not double-digit millionaires!". My intent was that it was a small amount of people in that group.
    - pmiller2 8y ago
      True, but you can cut those numbers by ~50% and still be very comfortable in most, if not all places in the US. According to https://dqydj.com/net-worth-percentile-calculator-united-states/ https://dqydj.com/net-worth-percentile-calculator-united-sta... there are over 3 million households with a net worth over $4.5M. Relatively speaking, that is a small number, but, collectively, the good those people could do if they came together would be immense. Of course, this will never happen.
8y ago

tfehring 8y ago

Taking GP’s example of a $180k townhouse vs. a $1.8M McMansion, will these costs really be significantly more than an order of magnitude more expensive for the latter, and therefore significantly higher as a percentage of property value? My intuition is that the opposite would be true, i.e., that the difference would typically be less than a factor of 10.