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This still doesn't make any sense! Lower rent is worth more than no rent and the property appreciates either way. Keeping a unit off the market to keep the rent

This still doesn't make any sense! Lower rent is worth more than no rent and the property appreciates either way. Keeping a unit off the market to keep the rents up is kind of a silly plan if you never end up actually renting any of the units.

ethbr0 5y ago
Any tenant comes with risk. Risk has a financial cost. Ergo, lower rent is not always worth more than no rent, even all else excluded. Example: you rent your property to a tenant for $100 / month, who does $5,000 worth of damage to the property, and declares bankruptcy when you sue them for recovery, in addition to the time you spent installing them + evicting them + dealing with recovery.
- dionidium 5y ago
  Sure, there is some number at which this becomes true. But we’re talking about landlords who have supposedly kept properties off the market for years at a time in order to rake in the tax benefits. Keeping properties off the market for years at a time in order to mitigate the risk of actually having tenants is not a very good plan.
deleted 5y ago
[deleted]
useful 5y ago
My understand is that commercial real estate loans require additional collateral for lower rents than what was agreed to when the mortgage was created. Building value is basically (monthly rent * constant).Accepting lower than when the mortgage was written will trigger provisions that value the property differently and require the building owner to add principal to get back to 25%. If lowering the rent by 10k a year lowers the value of the building by 100k, the building owner may have to add 25k that they don't have to keep the building from falling into default. If you have a completely empty building and you accept a lower rent in one of ten units, you could need to put down 250k it of you have many building under one loan they may want millions because of how it changes the loan valuations.
- dionidium 5y ago
  I have no idea if this is true, but unlike every other response to me in this thread, this is at least a coherent explanation that isn't immediately and obviously ridiculous. If this is true, it at least makes arithmetic sense. People don’t keep units empty for tax breaks. That’s absurd.

ethbr0 5y ago

Any tenant comes with risk. Risk has a financial cost. Ergo, lower rent is not always worth more than no rent, even all else excluded. Example: you rent your property to a tenant for $100 / month, who does $5,000 worth of damage to the property, and declares bankruptcy when you sue them for recovery, in addition to the time you spent installing them + evicting them + dealing with recovery.

dionidium 5y ago
Sure, there is some number at which this becomes true. But we’re talking about landlords who have supposedly kept properties off the market for years at a time in order to rake in the tax benefits. Keeping properties off the market for years at a time in order to mitigate the risk of actually having tenants is not a very good plan.

deleted 5y ago

[deleted]

useful 5y ago

My understand is that commercial real estate loans require additional collateral for lower rents than what was agreed to when the mortgage was created. Building value is basically (monthly rent * constant).Accepting lower than when the mortgage was written will trigger provisions that value the property differently and require the building owner to add principal to get back to 25%. If lowering the rent by 10k a year lowers the value of the building by 100k, the building owner may have to add 25k that they don't have to keep the building from falling into default. If you have a completely empty building and you accept a lower rent in one of ten units, you could need to put down 250k it of you have many building under one loan they may want millions because of how it changes the loan valuations.

dionidium 5y ago
I have no idea if this is true, but unlike every other response to me in this thread, this is at least a coherent explanation that isn't immediately and obviously ridiculous. If this is true, it at least makes arithmetic sense. People don’t keep units empty for tax breaks. That’s absurd.