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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. 20
by 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 agoThis 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 agoHer 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 agoAh, that makes way more sense. Thanks! Me read bad sometimes.
- akgoel 6y agoThis really becomes a question of leverage. If she only put down 20%, then her return on invested capital is 10%.
- intortus 6y agoProbably $27k of income per month with $29k of expenses, implying a $1.2M loan due in a few years? Just speculating.
- klmadfejno 6y agoBeing a landlord is much less profitable than intuition would lead you to assume.
- sokoloff 6y agoIndeed. 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 agoIndeed! 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 agoIt’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 agoShe'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 agoHopefully. She's probably just considering the profit that enables her to eat.
- thrower123 6y agoThere 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 agoEverything you listed count as legitimate expenses.
- thrower123 6y agoI 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 agoNot to mention the depreciation has to be recaptured at the time of sale.
- AjithAntony 6y agoNot if you die first!
- shuckles 6y agoYou are depreciating the built structure, not the land. It’s land values which increase.
- thrower123 6y ago
- dwater 6y agoThe 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 agoAnyone who owns a 2nd home in Boulder is not a blue collar worker.
- Nasrudith 6y agoThat 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 agoI'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.