17 ms·

If landlords get wiped out, Wall Street wins, not renters

76 points by bkohlmann 6y ago

fred_is_fred 6y ago
The first lady cited in the story is overextended and if I am supposed to feel bad for her, I don't. She took a risk in taking out 1.2 million in mortgages and should reap the profits or losses from said risk. Then there's these people- "The townhouse they bought 24 years ago was at the center of their plans to fund retirement. Now they may have to dip into their retirement savings to cover the mortgage." Why isn't that mortgage paid off yet? Sounds like they made some bad decisions. And any place bought in Boulder 24 years ago could be sold for at least 3x what was paid. Edit: these are 2 separate people discussed in the story.
- rrivers 6y ago
  Second statement is an oversimplification of many in that scenario; e.g. my mother. Single Mom for 30 years, built a career, bought a house in her mid 40s. 2008 recession erased her career, unemployed for 5 years after, now rebuilding. Still has a mortgage on her townhouse. Let's not assume poor decision making when there are plenty of factors outside of the average blue collar workers control that directly impacted their ability to to the right thing.
  - SketchySeaBeast 6y ago
    This doesn't seem to be her case though - she owns "27 low-income apartments" - I don't know if those are buildings or just apartments, but 1.2 million in mortgages owed after 2 months is insane if it's just 27 individual apartments. And she only made $24,0000 last year on all that? These numbers are just insane to me. Edit: Ah, 1.2 million total, not currently owing.
    - richthegeek 6y ago
      Her total mortgate exposure is $1.2m, not her currently owed amount. $24k is a yield of only 2% so yeah she's on razor thin margins... which does explain why she's immediately in jeopardy from the slightest economic wobble (not that this is a slight wobble).
      - SketchySeaBeast 6y ago
        Ah, that makes way more sense. Thanks! Me read bad sometimes.
      - akgoel 6y ago
        This really becomes a question of leverage. If she only put down 20%, then her return on invested capital is 10%.
    - intortus 6y ago
      Probably $27k of income per month with $29k of expenses, implying a $1.2M loan due in a few years? Just speculating.
    - klmadfejno 6y ago
      Being a landlord is much less profitable than intuition would lead you to assume.
      - sokoloff 6y ago
        Indeed. I find the people who complain most loudly about how easy and profitable it is to be a landlord generally have no first-hand experience on the topic.
      - refurb 6y ago
        Indeed! Just talk to professional landlord about cap rates. Generally you aim for 10%+ cap rates, which are exceeding difficult to find with the exception of a few markets. If your cap rate is less than 10%, you’re on thin margins and a new roof would probably push you into the red.
        lotsofpulp 6y ago
        It’s definitely work and a lot of risk unless you were gifted property in a high demand urban area or vacation hotspot. Putting your money in VOO or a bunch of FAANG stock will prob net you a lot more for a lot less work based on how the government needs to keep the equity markets appreciating. Real estate purchased decades ago in hot spots might be easy money, but buying it these days is just for diversification of assets for me.
    - treis 6y ago
      She's probably not counting appreciation and principle reduction. Her 1.2 million in mortgages is probably on ~2 millionish in property. Last year she probably saw their value go up a few percent while paying down 40k in principle. Her profit is probably in the 6 figures and the 24k is cash flow.
      - SketchySeaBeast 6y ago
        Hopefully. She's probably just considering the profit that enables her to eat.
    - thrower123 6y ago
      There are a lot of games you can play with the IRS to reduce the amount of profit that you show from rental properties. You can count depreciation, property taxes, mortgage payments, utilities, maintenance, improvements, and a whole host of other expenses. Particularly with depreciation thrown in, it's not uncommon for small-time landlords to show losses on their rentals. But even if it's low-income housing in Connecticut, that's got to be close to $500-1000/month in rent per unit. Accounting for some amount of delinquency or vacancy, that's still $150k-$300k in revenue, and I think I'm being conservative. Something doesn't add up with this story.
      - shuckles 6y ago
        Everything you listed count as legitimate expenses.
        thrower123 6y ago
        I know, I am a landlord. Depreciation, as it is normally calculated, is somewhat nonsense on properties, especially over the past decade as they have increased by leaps and bounds in value.
        zaroth 6y ago
        Not to mention the depreciation has to be recaptured at the time of sale.
        AjithAntony 6y ago
        Not if you die first!
        shuckles 6y ago
        You are depreciating the built structure, not the land. It’s land values which increase.
        thrower123 6y ago
  - dwater 6y ago
    The quoted scenario is about a second home purchased as an investment property. They likely have a great deal of equity in that home as well as their primary residence. If they do not have much equity in their investment property, they have either been extracting money from it for 24 years or failed to manage it as a business. They are not in the same class as "average blue collar workers", many of whom do not own even their primary residence.
  - fred_is_fred 6y ago
    Anyone who owns a 2nd home in Boulder is not a blue collar worker.
    - Nasrudith 6y ago
      That conflates type of work with payment. Plumbers or other specalties like say underwater welders can make quite a bit of money and those certainly are blue collar jobs. Not common mind you but still blue collar.
  - donmcronald 6y ago
    I'm pretty sure the townhouse they're talking about is a second income property. And the lady with 27 units that claims to make $24k/year is ignoring the equity building in her properties. If she ends up with $2 million of property after 20 years she's ignoring $100k/year. Lots of business owners, farmers, landlords, etc. give the same sob story and conveniently forget they're going to end up with multi-million dollar properties, farms, businesses by the time they retire. I can see how it's tough with no cash flow right now, but how is that any different than your mom ending up unemployed? Excluding the current situation, no one cares about normal people losing their jobs, but now that the business / landlord class is in a negative cashflow situation we should all be thinking of them.
- klmadfejno 6y ago
  It's tricky. One person takes out a loan to start a small business and it fails due the virus. Another takes out a loan to purchase properties and be a landlord who also gets wiped out. Economic rent is a societal problem. But landlords aren't actually reaping in the profits most of the time, and it might be argued that they're providing useful services to people. On the other hand, most go into it with the hope of just sitting on stuff and making passive income for low amounts of work. If landlords are doing societal good, it's mostly accidental, and at best a local maxima of a well function system. I'd say in the scheme of suffering going on right now this doesn't feel like the most deserving of sympathy. Taking out huge loans is a risk. As a society, this is not a good way for members to build wealth. But they're not villains by any means.
  - fred_is_fred 6y ago
    I agree with your assessment - they are not villains, but they also don't need a bailout from me or you, because they took a risk in making the investment. It should not be a guarantee because if it is we may as well just let the government me the landlord.
  - sokoloff 6y ago
    I think it's more than "might be argued" that providing housing to people seeking a rented place to live is a useful service to people.
  - ethanbond 6y ago
    What’s tricky? The small business owner employs people. The landlord merely purchases the right to keep productivity off of valuable land. Agreed that they are not villains, but nor should we act like they’re doing some service. No one pays their rent because they believe their landlord is adding value. They pay it for access to the jobs, amenities, services that the community (not the landlord) provides.
    - zaroth 6y ago
      You pay rent in return for the right of use of the property. Generally you do this because you either do not have the necessary credit to obtain your own property, can not afford the transaction costs of buying/selling a property in your desired timeframe, or simply want the convenience of not having to maintain it yourself. None of this is really the point. Generally when people pay for a service, if they stop paying, the company is allowed to stop providing the service. Eviction laws already impose a higher bar on “stopping service” in the case of rental housing, but an outright moratorium on evictions is just another way the government response to COVID wipes out small/independent business for the benefit of mega corporations. No one should be forced by government decree to offer their property or services for free. I’m sure at some point there is a Constitutional issue to be argued.
- tren-hard 6y ago
  This whole story is written into a narrative to weep for landlords. 24 properties and can't pay mortgages, does she owe money on all 24 properties... or could she sell some of them she owns and reduce her debt load maybe? > Many landlords operate on thin margins, typically 9 cents for every $1. What kind of horseshit figure is this!? Someone tell me what they mean, do landlords have a 9% profit margin on a static piece of property and that isn't enough still? > Many landlords aren’t any better off than their tenants and certainly aren’t rich enough to credibly pull off a bow tie, says Jan Lee, who manages two buildings in New York’s Chinatown that his family has owned for nearly a century. Owns 2 properties in the most ridiculous real estate market in the US but doesn't make money, ok. Oh wait, it's that he can't pay property taxes this year, even though he hasn't had a mortgage for 70 years and is coming out of a 10 year bull run.
  - cko 6y ago
    There is a popular strategy known as 'BRRRR' where the investor uses capital from a refinance to buy another unit, and so on. It's a fast way to pick up and rehab lots of units. In my opinion if you were to do this, you should sell a few properties here or there to have 6-12 months of cash reserves on each property.
- lobotryas 6y ago
  Do you feel bad for people who lost their job because of COVID? What dummies! They should have picked a pandemic-proof job or just “learned to code”! If you do feel bad for them, then your statement just exposes your own bias and hypocrisy, my dude. Landlords are people too.
eli_gottlieb 6y ago
Time to bring back penny auctions. https://en.wikipedia.org/wiki/Penny_auction_(foreclosure) https://en.wikipedia.org/wiki/Penny_auction_(foreclosure)
- klyrs 6y ago
  > The neighbors would gather in large numbers at the auction of the farm and bid very low prices on the farm and its contents while intimidating other bidders. Emphasis added. The world has changed. Today, if folks attempted intimidation, such auctions would be attended by hoards of cops in riot gear. They'd be there to protect the rich, who will be happy to outbid the locals and sell the property back to them at twice the price.
  - sudosysgen 6y ago
    I think you overestimate the ratio of riot cops to renters. By a few orders of magnitude. Also, everything else failing, there is really nothing stopping someone from throwing a molotov at a rental property. There would be essentially no way to find who did it, following the principles of stochastic direct action. This happened in history a few times. For better or for worse, the stability of civilization is a lot shakier than it seems.
    - klyrs 6y ago
      > I think you overestimate the ratio of riot cops to renters. Nope, I watched the conflict between the WTO protesters and cops first hand, and got caught out during the beer riot of the SLC Olympics. Crowd control is scary effective, and it's backed by lethal force including rooftop snipers. Folks will need to come with gas masks, body armor and armor-piercing rounds to overtake the riot cops. The folks willing and prepared for that aren't nearly as populous as "renters." But then what happens? Is the auction "legitimate" after this escalation? The aggressors would need to overthrow the courts as well. Not saying it can't / hasn't happened, but it's quite a leap. > There would be essentially no way to find who did it, following the principles of stochastic direct action. The surveillance state is pretty bad too. > For better or for worse, the stability of civilization is a lot shakier than it seems. Here, we agree. A second civil war has seemed like an obvious eventuality to me since circa Bush II.
Joeboy 6y ago
I don't know about the US but speaking for the UK, landlords have had a ridiculously easy ride in recent decades. As a result, people with spare money customarily invest it in buy-to-let properties, the cost of housing has rocketed, and vast amounts of cash are continuously siphoned from poorer people to richer people. We don't have to vindictively celebrate these people getting wiped out, but anything that discourages customary amateur landlordism has to be a good thing.
- nightski 6y ago
  I'm confused by this. You say that becoming a landlord is more accessible to the masses, yet indicate this somehow creates wealth disparity? Wouldn't it be the opposite where your proposal of making more exclusive would have that effect?
  - MattGaiser 6y ago
    Upper middle class vs lower working class. So while ownership is more accessible to the top 25%, it is hurting the bottom 25%. You also have to consider that the UK was formerly feudal, so they never had the same culture of individual ownership as America does.
  - ignoramous 6y ago
    > You say that becoming a landlord is more accessible to the masses... Not OP, but they don't say that. At least what I interpreted was, people with spare money bought properties to rent them, and then have more spare money to keep buying that ultimately results in unaffordable housing as the double whammy of 1. Costs to buy a house keeps creeping up, whilst 2. The wealth transfer from renters to landlords continues at an unsustainable clip.
    - m0llusk 6y ago
      Housing only ever becomes unaffordable when building stops. In the UK property rights and markets have kept the vast majority of tracts unavailable for housing development and in the US zoning and environmental impact hearings achieve the same result of making most land impossible to develop. All around London there are bucolic villages and one of the most extreme property value bubbles is in the San Francisco bay area which is largely reserved for extremely inefficient and wasteful single family homes.
adamsmith838 6y ago
Jokes on you suckers They’ll just hand more cash to themselves and keep filling you full of shit about how the game works This is plain old rich v. poor As long as the literal majority feel guilty for demanding figurative sacrifice in the form of higher taxes (something modern day elite families benefited from as children) this is your society Enjoy it! Country by of and for the people, right? Americans are losing standing in the world for looking so pathetic. The people protesting in Hong Kong and the Mideast, in the face of despots have taken the title of exceptional from people that can’t stand up against ... yeah him. An idiot
sooheon 6y ago
Henry George's single tax[1] is criminally excluded from the Overton window. Tax rent-seeking, not productivity. [1] https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism
- centimeter 6y ago
  Georgism is not socially efficient, but LVT (which is similar, in that it's a single tax on land) is. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
  - ethanbond 6y ago
    Out of curiosity, what do you perceive as the difference here? Progress & Poverty, George’s own book, proposes the LVT. In any case, not to let the narcissism of small differences derail this too much: LVT is the right thing.
    - centimeter 6y ago
      Georgism proposes to tax the value derived from land, whereas LVT proposes to tax the market value of the land itself. The primary problem with the Georgist proposal is that it involves a lot of arbitrary determinations of value. The goal is the same, but the much simpler mechanism of LVT can actually be implemented with reasonable accuracy and efficiency. It's not totally trivial - it's kind of hard to figure out the value of land if you were to counterfactually remove all the improvements, but it's simpler than determining something as abstract as the value derived from it.
      - sooheon 6y ago
        The single tax, LVT, and Georgism are synonymous. > Georgism proposes to tax the value derived from land Incorrect, it's almost completely the opposite. The Georgist proposal is rather to tax the economic rent on land, not the value derived from it. Recall the classic example of the landlord leaving his lot in downtown Manhattan undeveloped. No value is derived from the land, the upside for the owner is purely in speculation (benefitting only from improvements to neighboring land).
dvduval 6y ago
I read little about rent price depreciation, but it seems to me this is already happening. People will move to cheaper housing, and the existing mortgages will be untenable.
- deleted 6y ago
  [deleted]
yardie 6y ago
I've got to hand it to Bloomberg for finding 3 of the most extreme cases of the, "think of the poor rentseekers" they could find. I know a few landlords. After meeting them I know I could never seriously become one. We were having drinks while one was on the phone working on evicting someone. Apparently, he didn't have a choice, dems the rules. 1. The woman sitting on 27 units and only making $24k, is seriously over leveraged. Sounds like she took on more debt than she could reasonably manage and expect her tenants to be the safe bet even though she isn't. 2. Family owned Mott St apartments. Something is wrong with this story as well. If they owned the properties for a century (1st wave Taosinese immigrants I bet) they should be printing money. Chinatown rents are high for old, low amenities buildings. There is a whole lot more to this story because someone is lying. 3. Something tells me they refinanced one too many times and pumped the equity out of their property. Property bought in the 90s is worth 3x as much today so where is the renters money going exactly?
- schoolornot 6y ago
  As they say, play stupid games, win stupid prizes. It seems that most tenants are over leveraged. I'm weathering this pandemic just fine because I scrapped together a little extra every month and don't live in a posh area with 60% of my income going to rent.
- TheHypnotist 6y ago
  Perhaps they should take a look at the majority of "luxury" apartment landlords and see just how poorly they were/are doing. The name itself entitles them to charge over $2k/mo in major metro areas in the northeast US.
  - schoolornot 6y ago
    They are entitled to charge whatever they want. They bought/invested/renovated the place.
    - hckr_news 6y ago
      Using homes as investment vehicles never seems to sit right with me.
helen___keller 6y ago
Investment properties are like stocks, except that retail investors are much more likely to be leveraged and much less likely to be diversified. It sucks to lose your savings but this is just how the free market is. If you dump your life savings into a penny stock, you might get screwed over there too. That's the free market, if you don't like it then invest in bonds or atleast diversify. I suspect in some number of months, stock values are going to begin taking real hits, and when that happens I suspect we will start seeing the lost-my-retirement-to-SPXL sob stories
- Ididntdothis 6y ago
  “It sucks to lose your savings but this is just how the free market is“ There is no free market. It gets constantly manipulated to the benefit of favored groups. 2008 made this very blatant and we see the same thing now again. And the little guy is certainly not part of the favored groups.
  - helen___keller 6y ago
    Well, that's true. Maybe I should have said, "that's just how the free* market is" If you're a retail investor, nobody's coming to bail you out. Diversify or face the consequences of your leveraged risk assets collapsing.
- compiler-guy 6y ago
  In normal times I would agree with you, but these aren't normal times. The government has said that many of your tenants can't work right now, and that you can't replace them with people who can. All of this is painful, but reasonable under the circumstances we find ourselves in. But "free market!" isn't what has messed up their plans. Surprise, almost completely unpredictable government regulation has messed it up.
  - helen___keller 6y ago
    Sure but do we say the same for people who own airline stock, who own energy sector stock, etc? Either the government bails out the entire investor class, literally anybody who faced capital losses or loss of dividends in 2020, or we accept that risk assets are risk assets because a black swan can annihilate them, and we let them be annihilated.
mindslight 6y ago
The pain needs to propagate up the debt ladder now that it has overflowed the first layer of rent payers. When landlords aren't getting their incoming payments, there should be growing political will to do this - freezing mortgage payments, interest, and a large part of real estate taxes. It's either now, or a future crisis when the black hole of debt has grown even larger.
- nradov 6y ago
  It's impossible to freeze real estate taxes. Local governments don't have reserves and would quickly become insolvent.
  - mindslight 6y ago
    Layer 3: frozen interest and payments on municipal bonds.
    - nradov 6y ago
      Municipal bonds are a minor issue. Employees (and retirees) still have to be paid. Asphalt to repair potholes isn't free. Your proposal in totally unreasonable.
      - mindslight 6y ago
        I haven't fleshed out all the details, because I'm describing the fundamental problem. The economy is a distributed system, precisely because nobody can know all the details. I'm sure the cities themselves are perfectly capable of figuring out how to salvage their situation, when they actually feel the squeeze. By bluntly rejecting my analysis, you're effectively arguing that cities shouldn't have to feel any of the squeeze, by making the pain remain on others instead. You're right about defined benefit pensions. They also are in the class of economic rent payments, and so should also be drastically reduced during the pullback.
- jeffbee 6y ago
  Why freeze taxes? You're proposing that land owners are allowed to capture all of the upside of a booming economy, and then should be protected in falling economies? Why? They are demonstrably to better-off among us. If a jurisdiction had the ability to forego that revenue, I'm sure they can find a better place to cut it (like suspending sales taxes on food, or payroll taxes).
deleted 6y ago
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generalpass 6y ago
Landlords have at least one asset. The vast majority (all?) of their tenants have zero assets. This is a measure of wealth, but Bloomberg makes the same mistake that all of these borderline propaganda rags make which is to compare incomes.
- lobotryas 6y ago
  It’s not wealth if you are still paying off a mortgage on the rental unit. Even if you owed the rental unit outright the “it’s wealth” argument is foolish. What’s the point? Sell your only source of income and live off the money until you become homeless or die? It’s like saying a farmer is wealthy because he owns a tractor and a plot of land. Absolutely asinine.
  - generalpass 6y ago
    > It’s not wealth if you are still paying off a mortgage on the rental unit. Even if you owed the rental unit outright the “it’s wealth” argument is foolish. What’s the point? Sell your only source of income and live off the money until you become homeless or die? > It’s like saying a farmer is wealthy because he owns a tractor and a plot of land. Absolutely asinine. These are all assets that can be liquidated for something. The renters have no such assets. The landlords are just as capable of going and getting a job as anyone. Most landlords are not employed full time simply because there isn't enough work to be done as a landlord to justify 40 hours of labor every week, at least until a substantial number of units are being rented out. The income the landlord receives is typically declared after all costs of ownership, which include any mortgages. So, the work of the landlord results in a greater share of their asset ("equity"). The jobs their tenants have likely do nothing to increase the value or share in an asset.
  - sudosysgen 6y ago
    Landlording doesn't work out? Sell your assets, get a real job. You'll still end up much better than your tenants.
- abeppu 6y ago
  I do think it's totally plausible that tenants in the NYC Chinatown apartments would have some assets. It's NYC, downtown, and really kind of depends on how old the lease is, right?
abeppu 6y ago
The gist of this seems to be "small-time landlords aren't rich; they have thin margins" while ignoring the fact that they do in fact have a lot of _wealth_ especially relative to their tenants. I've recently been listening to the audio version of Piketty's more recent book, Capital and Ideology. I think noting the difference between wealth and income, and the wage-share vs capital-share (more his 2013 book) is helpful framing for the question of "how badly should we feel for small landlords?" But the rest of this lobbying piece is echoing the more recent book much more clearly. It participates in creating and perpetuating a set of beliefs and values. The concept pitched here is that "most landlords are small-time, having only a handful of units". But if the big ones are big, e.g. if there's a power-law or similar distribution, don't forget that most tenants (or most units) might have much larger landlords, which don't look like the people discussed here. Their own copy implies it: "Over 43% of rental units ... are owned by small businesses" -> "A majority of rental units are not owned by small businesses". The largest landlord in my city, with over 5K units and a value of over $3B, received PPP funds, b/c its number of "real" employees is relatively modest. And even the small ones are too used to having the law or policies bent to their needs. I live in a multi-unit building in a popular neighborhood, which should probably be worth >$3M, but is taxed at an assessment of ~$135K. And my landlord is probably by most standards not bad. I walk by some buildings near me that were quite likely torched by their owners to get out old, low-paying tenants. Arson is pretty hard to prove, but it can work out quite well for the owners. Whatever I feel for landlords, it's not sympathy.
jacknews 6y ago
The pain has to be shared, and particularly, lenders should be making accommodations, waiving (not simply deferring) interest payments, etc.
amykhar 6y ago
>But Washington stopped short of offering renters comparable relief on the assumption that those in distress would likely qualify for the $1,200 checks the Treasury began mailing out in April, as well as beefed-up unemployment benefits. I have to laugh at this because Americans were told a) you're getting a stimulus check and b) you can't be evicted. I am almost positive that many people used the stimulus check as found money and blew it rather than using it for rent. The mindset being that if they can't be evicted now, they'll cross that bridge when they get to it.

76 points by bkohlmann 6y ago

The first lady cited in the story is overextended and if I am supposed to feel bad for her, I don't. She took a risk in taking out 1.2 million in mortgages and should reap the profits or losses from said risk. Then there's these people- "The townhouse they bought 24 years ago was at the center of their plans to fund retirement. Now they may have to dip into their retirement savings to cover the mortgage." Why isn't that mortgage paid off yet? Sounds like they made some bad decisions. And any place bought in Boulder 24 years ago could be sold for at least 3x what was paid. Edit: these are 2 separate people discussed in the story.

rrivers 6y ago
Second statement is an oversimplification of many in that scenario; e.g. my mother. Single Mom for 30 years, built a career, bought a house in her mid 40s. 2008 recession erased her career, unemployed for 5 years after, now rebuilding. Still has a mortgage on her townhouse. Let's not assume poor decision making when there are plenty of factors outside of the average blue collar workers control that directly impacted their ability to to the right thing.
- SketchySeaBeast 6y ago
  This doesn't seem to be her case though - she owns "27 low-income apartments" - I don't know if those are buildings or just apartments, but 1.2 million in mortgages owed after 2 months is insane if it's just 27 individual apartments. And she only made $24,0000 last year on all that? These numbers are just insane to me. Edit: Ah, 1.2 million total, not currently owing.
  - richthegeek 6y ago
    Her total mortgate exposure is $1.2m, not her currently owed amount. $24k is a yield of only 2% so yeah she's on razor thin margins... which does explain why she's immediately in jeopardy from the slightest economic wobble (not that this is a slight wobble).
    - SketchySeaBeast 6y ago
      Ah, that makes way more sense. Thanks! Me read bad sometimes.
    - akgoel 6y ago
      This really becomes a question of leverage. If she only put down 20%, then her return on invested capital is 10%.
  - intortus 6y ago
    Probably $27k of income per month with $29k of expenses, implying a $1.2M loan due in a few years? Just speculating.
  - klmadfejno 6y ago
    Being a landlord is much less profitable than intuition would lead you to assume.
    - sokoloff 6y ago
      Indeed. I find the people who complain most loudly about how easy and profitable it is to be a landlord generally have no first-hand experience on the topic.
    - refurb 6y ago
      Indeed! Just talk to professional landlord about cap rates. Generally you aim for 10%+ cap rates, which are exceeding difficult to find with the exception of a few markets. If your cap rate is less than 10%, you’re on thin margins and a new roof would probably push you into the red.
      - lotsofpulp 6y ago
        It’s definitely work and a lot of risk unless you were gifted property in a high demand urban area or vacation hotspot. Putting your money in VOO or a bunch of FAANG stock will prob net you a lot more for a lot less work based on how the government needs to keep the equity markets appreciating. Real estate purchased decades ago in hot spots might be easy money, but buying it these days is just for diversification of assets for me.
  - treis 6y ago
    She's probably not counting appreciation and principle reduction. Her 1.2 million in mortgages is probably on ~2 millionish in property. Last year she probably saw their value go up a few percent while paying down 40k in principle. Her profit is probably in the 6 figures and the 24k is cash flow.
    - SketchySeaBeast 6y ago
      Hopefully. She's probably just considering the profit that enables her to eat.
  - thrower123 6y ago
    There are a lot of games you can play with the IRS to reduce the amount of profit that you show from rental properties. You can count depreciation, property taxes, mortgage payments, utilities, maintenance, improvements, and a whole host of other expenses. Particularly with depreciation thrown in, it's not uncommon for small-time landlords to show losses on their rentals. But even if it's low-income housing in Connecticut, that's got to be close to $500-1000/month in rent per unit. Accounting for some amount of delinquency or vacancy, that's still $150k-$300k in revenue, and I think I'm being conservative. Something doesn't add up with this story.
    - shuckles 6y ago
      Everything you listed count as legitimate expenses.
      - thrower123 6y ago
        I know, I am a landlord. Depreciation, as it is normally calculated, is somewhat nonsense on properties, especially over the past decade as they have increased by leaps and bounds in value.
        zaroth 6y ago
        Not to mention the depreciation has to be recaptured at the time of sale.
        AjithAntony 6y ago
        Not if you die first!
        shuckles 6y ago
        You are depreciating the built structure, not the land. It’s land values which increase.
        thrower123 6y ago
- dwater 6y ago
  The quoted scenario is about a second home purchased as an investment property. They likely have a great deal of equity in that home as well as their primary residence. If they do not have much equity in their investment property, they have either been extracting money from it for 24 years or failed to manage it as a business. They are not in the same class as "average blue collar workers", many of whom do not own even their primary residence.
- fred_is_fred 6y ago
  Anyone who owns a 2nd home in Boulder is not a blue collar worker.
  - Nasrudith 6y ago
    That conflates type of work with payment. Plumbers or other specalties like say underwater welders can make quite a bit of money and those certainly are blue collar jobs. Not common mind you but still blue collar.
- donmcronald 6y ago
  I'm pretty sure the townhouse they're talking about is a second income property. And the lady with 27 units that claims to make $24k/year is ignoring the equity building in her properties. If she ends up with $2 million of property after 20 years she's ignoring $100k/year. Lots of business owners, farmers, landlords, etc. give the same sob story and conveniently forget they're going to end up with multi-million dollar properties, farms, businesses by the time they retire. I can see how it's tough with no cash flow right now, but how is that any different than your mom ending up unemployed? Excluding the current situation, no one cares about normal people losing their jobs, but now that the business / landlord class is in a negative cashflow situation we should all be thinking of them.
klmadfejno 6y ago
It's tricky. One person takes out a loan to start a small business and it fails due the virus. Another takes out a loan to purchase properties and be a landlord who also gets wiped out. Economic rent is a societal problem. But landlords aren't actually reaping in the profits most of the time, and it might be argued that they're providing useful services to people. On the other hand, most go into it with the hope of just sitting on stuff and making passive income for low amounts of work. If landlords are doing societal good, it's mostly accidental, and at best a local maxima of a well function system. I'd say in the scheme of suffering going on right now this doesn't feel like the most deserving of sympathy. Taking out huge loans is a risk. As a society, this is not a good way for members to build wealth. But they're not villains by any means.
- fred_is_fred 6y ago
  I agree with your assessment - they are not villains, but they also don't need a bailout from me or you, because they took a risk in making the investment. It should not be a guarantee because if it is we may as well just let the government me the landlord.
- sokoloff 6y ago
  I think it's more than "might be argued" that providing housing to people seeking a rented place to live is a useful service to people.
- ethanbond 6y ago
  What’s tricky? The small business owner employs people. The landlord merely purchases the right to keep productivity off of valuable land. Agreed that they are not villains, but nor should we act like they’re doing some service. No one pays their rent because they believe their landlord is adding value. They pay it for access to the jobs, amenities, services that the community (not the landlord) provides.
  - zaroth 6y ago
    You pay rent in return for the right of use of the property. Generally you do this because you either do not have the necessary credit to obtain your own property, can not afford the transaction costs of buying/selling a property in your desired timeframe, or simply want the convenience of not having to maintain it yourself. None of this is really the point. Generally when people pay for a service, if they stop paying, the company is allowed to stop providing the service. Eviction laws already impose a higher bar on “stopping service” in the case of rental housing, but an outright moratorium on evictions is just another way the government response to COVID wipes out small/independent business for the benefit of mega corporations. No one should be forced by government decree to offer their property or services for free. I’m sure at some point there is a Constitutional issue to be argued.
tren-hard 6y ago
This whole story is written into a narrative to weep for landlords. 24 properties and can't pay mortgages, does she owe money on all 24 properties... or could she sell some of them she owns and reduce her debt load maybe? > Many landlords operate on thin margins, typically 9 cents for every $1. What kind of horseshit figure is this!? Someone tell me what they mean, do landlords have a 9% profit margin on a static piece of property and that isn't enough still? > Many landlords aren’t any better off than their tenants and certainly aren’t rich enough to credibly pull off a bow tie, says Jan Lee, who manages two buildings in New York’s Chinatown that his family has owned for nearly a century. Owns 2 properties in the most ridiculous real estate market in the US but doesn't make money, ok. Oh wait, it's that he can't pay property taxes this year, even though he hasn't had a mortgage for 70 years and is coming out of a 10 year bull run.
- cko 6y ago
  There is a popular strategy known as 'BRRRR' where the investor uses capital from a refinance to buy another unit, and so on. It's a fast way to pick up and rehab lots of units. In my opinion if you were to do this, you should sell a few properties here or there to have 6-12 months of cash reserves on each property.
lobotryas 6y ago
Do you feel bad for people who lost their job because of COVID? What dummies! They should have picked a pandemic-proof job or just “learned to code”! If you do feel bad for them, then your statement just exposes your own bias and hypocrisy, my dude. Landlords are people too.

eli_gottlieb 6y ago

Time to bring back penny auctions. https://en.wikipedia.org/wiki/Penny_auction_(foreclosure) https://en.wikipedia.org/wiki/Penny_auction_(foreclosure)

klyrs 6y ago
> The neighbors would gather in large numbers at the auction of the farm and bid very low prices on the farm and its contents while intimidating other bidders. Emphasis added. The world has changed. Today, if folks attempted intimidation, such auctions would be attended by hoards of cops in riot gear. They'd be there to protect the rich, who will be happy to outbid the locals and sell the property back to them at twice the price.
- sudosysgen 6y ago
  I think you overestimate the ratio of riot cops to renters. By a few orders of magnitude. Also, everything else failing, there is really nothing stopping someone from throwing a molotov at a rental property. There would be essentially no way to find who did it, following the principles of stochastic direct action. This happened in history a few times. For better or for worse, the stability of civilization is a lot shakier than it seems.
  - klyrs 6y ago
    > I think you overestimate the ratio of riot cops to renters. Nope, I watched the conflict between the WTO protesters and cops first hand, and got caught out during the beer riot of the SLC Olympics. Crowd control is scary effective, and it's backed by lethal force including rooftop snipers. Folks will need to come with gas masks, body armor and armor-piercing rounds to overtake the riot cops. The folks willing and prepared for that aren't nearly as populous as "renters." But then what happens? Is the auction "legitimate" after this escalation? The aggressors would need to overthrow the courts as well. Not saying it can't / hasn't happened, but it's quite a leap. > There would be essentially no way to find who did it, following the principles of stochastic direct action. The surveillance state is pretty bad too. > For better or for worse, the stability of civilization is a lot shakier than it seems. Here, we agree. A second civil war has seemed like an obvious eventuality to me since circa Bush II.

Joeboy 6y ago

I don't know about the US but speaking for the UK, landlords have had a ridiculously easy ride in recent decades. As a result, people with spare money customarily invest it in buy-to-let properties, the cost of housing has rocketed, and vast amounts of cash are continuously siphoned from poorer people to richer people. We don't have to vindictively celebrate these people getting wiped out, but anything that discourages customary amateur landlordism has to be a good thing.

nightski 6y ago
I'm confused by this. You say that becoming a landlord is more accessible to the masses, yet indicate this somehow creates wealth disparity? Wouldn't it be the opposite where your proposal of making more exclusive would have that effect?
- MattGaiser 6y ago
  Upper middle class vs lower working class. So while ownership is more accessible to the top 25%, it is hurting the bottom 25%. You also have to consider that the UK was formerly feudal, so they never had the same culture of individual ownership as America does.
- ignoramous 6y ago
  > You say that becoming a landlord is more accessible to the masses... Not OP, but they don't say that. At least what I interpreted was, people with spare money bought properties to rent them, and then have more spare money to keep buying that ultimately results in unaffordable housing as the double whammy of 1. Costs to buy a house keeps creeping up, whilst 2. The wealth transfer from renters to landlords continues at an unsustainable clip.
  - m0llusk 6y ago
    Housing only ever becomes unaffordable when building stops. In the UK property rights and markets have kept the vast majority of tracts unavailable for housing development and in the US zoning and environmental impact hearings achieve the same result of making most land impossible to develop. All around London there are bucolic villages and one of the most extreme property value bubbles is in the San Francisco bay area which is largely reserved for extremely inefficient and wasteful single family homes.

adamsmith838 6y ago

Jokes on you suckers They’ll just hand more cash to themselves and keep filling you full of shit about how the game works This is plain old rich v. poor As long as the literal majority feel guilty for demanding figurative sacrifice in the form of higher taxes (something modern day elite families benefited from as children) this is your society Enjoy it! Country by of and for the people, right? Americans are losing standing in the world for looking so pathetic. The people protesting in Hong Kong and the Mideast, in the face of despots have taken the title of exceptional from people that can’t stand up against ... yeah him. An idiot

sooheon 6y ago

Henry George's single tax[1] is criminally excluded from the Overton window. Tax rent-seeking, not productivity. [1] https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism

centimeter 6y ago
Georgism is not socially efficient, but LVT (which is similar, in that it's a single tax on land) is. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
- ethanbond 6y ago
  Out of curiosity, what do you perceive as the difference here? Progress & Poverty, George’s own book, proposes the LVT. In any case, not to let the narcissism of small differences derail this too much: LVT is the right thing.
  - centimeter 6y ago
    Georgism proposes to tax the value derived from land, whereas LVT proposes to tax the market value of the land itself. The primary problem with the Georgist proposal is that it involves a lot of arbitrary determinations of value. The goal is the same, but the much simpler mechanism of LVT can actually be implemented with reasonable accuracy and efficiency. It's not totally trivial - it's kind of hard to figure out the value of land if you were to counterfactually remove all the improvements, but it's simpler than determining something as abstract as the value derived from it.
    - sooheon 6y ago
      The single tax, LVT, and Georgism are synonymous. > Georgism proposes to tax the value derived from land Incorrect, it's almost completely the opposite. The Georgist proposal is rather to tax the economic rent on land, not the value derived from it. Recall the classic example of the landlord leaving his lot in downtown Manhattan undeveloped. No value is derived from the land, the upside for the owner is purely in speculation (benefitting only from improvements to neighboring land).

dvduval 6y ago

I read little about rent price depreciation, but it seems to me this is already happening. People will move to cheaper housing, and the existing mortgages will be untenable.

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yardie 6y ago

I've got to hand it to Bloomberg for finding 3 of the most extreme cases of the, "think of the poor rentseekers" they could find. I know a few landlords. After meeting them I know I could never seriously become one. We were having drinks while one was on the phone working on evicting someone. Apparently, he didn't have a choice, dems the rules. 1. The woman sitting on 27 units and only making $24k, is seriously over leveraged. Sounds like she took on more debt than she could reasonably manage and expect her tenants to be the safe bet even though she isn't. 2. Family owned Mott St apartments. Something is wrong with this story as well. If they owned the properties for a century (1st wave Taosinese immigrants I bet) they should be printing money. Chinatown rents are high for old, low amenities buildings. There is a whole lot more to this story because someone is lying. 3. Something tells me they refinanced one too many times and pumped the equity out of their property. Property bought in the 90s is worth 3x as much today so where is the renters money going exactly?

schoolornot 6y ago
As they say, play stupid games, win stupid prizes. It seems that most tenants are over leveraged. I'm weathering this pandemic just fine because I scrapped together a little extra every month and don't live in a posh area with 60% of my income going to rent.
TheHypnotist 6y ago
Perhaps they should take a look at the majority of "luxury" apartment landlords and see just how poorly they were/are doing. The name itself entitles them to charge over $2k/mo in major metro areas in the northeast US.
- schoolornot 6y ago
  They are entitled to charge whatever they want. They bought/invested/renovated the place.
  - hckr_news 6y ago
    Using homes as investment vehicles never seems to sit right with me.

helen___keller 6y ago

Investment properties are like stocks, except that retail investors are much more likely to be leveraged and much less likely to be diversified. It sucks to lose your savings but this is just how the free market is. If you dump your life savings into a penny stock, you might get screwed over there too. That's the free market, if you don't like it then invest in bonds or atleast diversify. I suspect in some number of months, stock values are going to begin taking real hits, and when that happens I suspect we will start seeing the lost-my-retirement-to-SPXL sob stories

Ididntdothis 6y ago
“It sucks to lose your savings but this is just how the free market is“ There is no free market. It gets constantly manipulated to the benefit of favored groups. 2008 made this very blatant and we see the same thing now again. And the little guy is certainly not part of the favored groups.
- helen___keller 6y ago
  Well, that's true. Maybe I should have said, "that's just how the free* market is" If you're a retail investor, nobody's coming to bail you out. Diversify or face the consequences of your leveraged risk assets collapsing.
compiler-guy 6y ago
In normal times I would agree with you, but these aren't normal times. The government has said that many of your tenants can't work right now, and that you can't replace them with people who can. All of this is painful, but reasonable under the circumstances we find ourselves in. But "free market!" isn't what has messed up their plans. Surprise, almost completely unpredictable government regulation has messed it up.
- helen___keller 6y ago
  Sure but do we say the same for people who own airline stock, who own energy sector stock, etc? Either the government bails out the entire investor class, literally anybody who faced capital losses or loss of dividends in 2020, or we accept that risk assets are risk assets because a black swan can annihilate them, and we let them be annihilated.

mindslight 6y ago

The pain needs to propagate up the debt ladder now that it has overflowed the first layer of rent payers. When landlords aren't getting their incoming payments, there should be growing political will to do this - freezing mortgage payments, interest, and a large part of real estate taxes. It's either now, or a future crisis when the black hole of debt has grown even larger.

nradov 6y ago
It's impossible to freeze real estate taxes. Local governments don't have reserves and would quickly become insolvent.
- mindslight 6y ago
  Layer 3: frozen interest and payments on municipal bonds.
  - nradov 6y ago
    Municipal bonds are a minor issue. Employees (and retirees) still have to be paid. Asphalt to repair potholes isn't free. Your proposal in totally unreasonable.
    - mindslight 6y ago
      I haven't fleshed out all the details, because I'm describing the fundamental problem. The economy is a distributed system, precisely because nobody can know all the details. I'm sure the cities themselves are perfectly capable of figuring out how to salvage their situation, when they actually feel the squeeze. By bluntly rejecting my analysis, you're effectively arguing that cities shouldn't have to feel any of the squeeze, by making the pain remain on others instead. You're right about defined benefit pensions. They also are in the class of economic rent payments, and so should also be drastically reduced during the pullback.
jeffbee 6y ago
Why freeze taxes? You're proposing that land owners are allowed to capture all of the upside of a booming economy, and then should be protected in falling economies? Why? They are demonstrably to better-off among us. If a jurisdiction had the ability to forego that revenue, I'm sure they can find a better place to cut it (like suspending sales taxes on food, or payroll taxes).

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generalpass 6y ago

Landlords have at least one asset. The vast majority (all?) of their tenants have zero assets. This is a measure of wealth, but Bloomberg makes the same mistake that all of these borderline propaganda rags make which is to compare incomes.

lobotryas 6y ago
It’s not wealth if you are still paying off a mortgage on the rental unit. Even if you owed the rental unit outright the “it’s wealth” argument is foolish. What’s the point? Sell your only source of income and live off the money until you become homeless or die? It’s like saying a farmer is wealthy because he owns a tractor and a plot of land. Absolutely asinine.
- generalpass 6y ago
  > It’s not wealth if you are still paying off a mortgage on the rental unit. Even if you owed the rental unit outright the “it’s wealth” argument is foolish. What’s the point? Sell your only source of income and live off the money until you become homeless or die? > It’s like saying a farmer is wealthy because he owns a tractor and a plot of land. Absolutely asinine. These are all assets that can be liquidated for something. The renters have no such assets. The landlords are just as capable of going and getting a job as anyone. Most landlords are not employed full time simply because there isn't enough work to be done as a landlord to justify 40 hours of labor every week, at least until a substantial number of units are being rented out. The income the landlord receives is typically declared after all costs of ownership, which include any mortgages. So, the work of the landlord results in a greater share of their asset ("equity"). The jobs their tenants have likely do nothing to increase the value or share in an asset.
- sudosysgen 6y ago
  Landlording doesn't work out? Sell your assets, get a real job. You'll still end up much better than your tenants.
abeppu 6y ago
I do think it's totally plausible that tenants in the NYC Chinatown apartments would have some assets. It's NYC, downtown, and really kind of depends on how old the lease is, right?

abeppu 6y ago

The gist of this seems to be "small-time landlords aren't rich; they have thin margins" while ignoring the fact that they do in fact have a lot of _wealth_ especially relative to their tenants. I've recently been listening to the audio version of Piketty's more recent book, Capital and Ideology. I think noting the difference between wealth and income, and the wage-share vs capital-share (more his 2013 book) is helpful framing for the question of "how badly should we feel for small landlords?" But the rest of this lobbying piece is echoing the more recent book much more clearly. It participates in creating and perpetuating a set of beliefs and values. The concept pitched here is that "most landlords are small-time, having only a handful of units". But if the big ones are big, e.g. if there's a power-law or similar distribution, don't forget that most tenants (or most units) might have much larger landlords, which don't look like the people discussed here. Their own copy implies it: "Over 43% of rental units ... are owned by small businesses" -> "A majority of rental units are not owned by small businesses". The largest landlord in my city, with over 5K units and a value of over $3B, received PPP funds, b/c its number of "real" employees is relatively modest. And even the small ones are too used to having the law or policies bent to their needs. I live in a multi-unit building in a popular neighborhood, which should probably be worth >$3M, but is taxed at an assessment of ~$135K. And my landlord is probably by most standards not bad. I walk by some buildings near me that were quite likely torched by their owners to get out old, low-paying tenants. Arson is pretty hard to prove, but it can work out quite well for the owners. Whatever I feel for landlords, it's not sympathy.

jacknews 6y ago

The pain has to be shared, and particularly, lenders should be making accommodations, waiving (not simply deferring) interest payments, etc.

amykhar 6y ago

>But Washington stopped short of offering renters comparable relief on the assumption that those in distress would likely qualify for the $1,200 checks the Treasury began mailing out in April, as well as beefed-up unemployment benefits. I have to laugh at this because Americans were told a) you're getting a stimulus check and b) you can't be evicted. I am almost positive that many people used the stimulus check as found money and blew it rather than using it for rent. The mindset being that if they can't be evicted now, they'll cross that bridge when they get to it.