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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 "tri

by 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.

by gpm 6y ago

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.