6 ms·

What do you mean tricks exhaust? It's a loophole, so it will work until the laws are changed to close the loophole. It makes no different to the landlord or ten

What do you mean tricks exhaust? It's a loophole, so it will work until the laws are changed to close the loophole. It makes no different to the landlord or tenant if the base rent is dropped, or the effective rent is dropped (assuming everyone can do basic math)

gpm 6y ago
The landlord is selling: - A month (or year) of time in the apartment for cost $x. - An option on purchasing more time for cost $y/time unit. What these "tricks" do is make $x less than $y. That makes sense in the short term when you expect to be able demand higher rent/unit time in the future. When that expectation is no longer likely, it makes sense to lower $y to $x because other landlords will, and they will have less turnover (costs) and the same amount of income.
- dan-robertson 6y ago
  I don’t think that’s true. The landlord can cancel this “option” reasonably easily so it is quite different from selling a call. I look at it like: the fair value for rent is x. The current rent is y > x. If the landlord nominally lowers the rent, they cannot raise it to as high a value next year, and they do not want to do this. Therefore they are incentivised to (effectively) give the tenant money along with the rent to decrease y without changing the nominal rent and giving up on the right to increase it.
  - holdenk 6y ago
    Except in places like San Francisco with rent-controlled housing.
    - dan-robertson 6y ago
      That’s exactly the case I’m describing in the second paragraph. I don’t understand what this has to do with the “option” scenario claimed by the post I replied to. It maybe looks like the landlord is selling a years rent for x and buying a put for the next years rent at y (and recursively options for the later years), but it isn’t really like a put either because it’s really a right-to-try-to-sell rather than a right-to-sell.
  - gpm 6y ago
    > The landlord can cancel this “option” reasonably easily so it is quite different from selling a call. Theoretically in a rent controlled market the landlord can't cancel the call option. In practice they might be able to by jumping through some (expensive) hoops, but it should be a reasonable approximation still. I'm not quite sure what sf/Cali law looks like so I am just taking in generalities about rent controlled markets.
xsmasher 6y ago
"Tricks exhausted" means when the trick is no longer sufficient to keep apartments filled; when the only way to entice new renters is lower absolute rents. No one is going to click on a $2000 apartment with six months free when the listings are full of $1500 apartments.
- joshribakoff 6y ago
  The trick is that they advertise it for $1500 and report up to the government it was $2000. That’s the point of the trick..
raincom 6y ago
The primary reason for these tricks to keep the rents high. If a company offers 45 days free rent on one year lease with $2500 per month, that amounts to effective $2187.5 per month, 12.5 percent discount. During the renewal, the land lord will either keep $2500 per month or add another 3% on top of $2500. That's how these REIT companies have been doing. Even leasing agents won't help, as rents are determined by REIT algorithms. Small mom and pop landlords play it differently. They will just rent you outright without these tricks.
- deleted 6y ago
  [deleted]

gpm 6y ago

The landlord is selling: - A month (or year) of time in the apartment for cost $x. - An option on purchasing more time for cost $y/time unit. What these "tricks" do is make $x less than $y. That makes sense in the short term when you expect to be able demand higher rent/unit time in the future. When that expectation is no longer likely, it makes sense to lower $y to $x because other landlords will, and they will have less turnover (costs) and the same amount of income.

dan-robertson 6y ago
I don’t think that’s true. The landlord can cancel this “option” reasonably easily so it is quite different from selling a call. I look at it like: the fair value for rent is x. The current rent is y > x. If the landlord nominally lowers the rent, they cannot raise it to as high a value next year, and they do not want to do this. Therefore they are incentivised to (effectively) give the tenant money along with the rent to decrease y without changing the nominal rent and giving up on the right to increase it.
- holdenk 6y ago
  Except in places like San Francisco with rent-controlled housing.
  - dan-robertson 6y ago
    That’s exactly the case I’m describing in the second paragraph. I don’t understand what this has to do with the “option” scenario claimed by the post I replied to. It maybe looks like the landlord is selling a years rent for x and buying a put for the next years rent at y (and recursively options for the later years), but it isn’t really like a put either because it’s really a right-to-try-to-sell rather than a right-to-sell.
- gpm 6y ago
  > The landlord can cancel this “option” reasonably easily so it is quite different from selling a call. Theoretically in a rent controlled market the landlord can't cancel the call option. In practice they might be able to by jumping through some (expensive) hoops, but it should be a reasonable approximation still. I'm not quite sure what sf/Cali law looks like so I am just taking in generalities about rent controlled markets.

xsmasher 6y ago

"Tricks exhausted" means when the trick is no longer sufficient to keep apartments filled; when the only way to entice new renters is lower absolute rents. No one is going to click on a $2000 apartment with six months free when the listings are full of $1500 apartments.

joshribakoff 6y ago
The trick is that they advertise it for $1500 and report up to the government it was $2000. That’s the point of the trick..

raincom 6y ago

The primary reason for these tricks to keep the rents high. If a company offers 45 days free rent on one year lease with $2500 per month, that amounts to effective $2187.5 per month, 12.5 percent discount. During the renewal, the land lord will either keep $2500 per month or add another 3% on top of $2500. That's how these REIT companies have been doing. Even leasing agents won't help, as rents are determined by REIT algorithms. Small mom and pop landlords play it differently. They will just rent you outright without these tricks.

deleted 6y ago
[deleted]