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Yes, your landlord can rent out for a loss when the house is gaining double digit percentages per year, assuming they’re well capitalized[0]. But let’s be hones
by ashtonkem 5y ago
Yes, your landlord can rent out for a loss when the house is gaining double digit percentages per year, assuming they’re well capitalized[0]. But let’s be honest, how long can houses gain 10% per year? And how often do you really think landlords rent at a loss in such hot real estate markets?
Under less insane circumstances, a land lord who is charging less for rent than the house costs to own is going broke. As a general rule most land lords rent to make a profit, and therefore won’t charge rent below the cost of ownership.
0 - A poorly capitalized land lord will still go broke in this circumstance, since they’ll eventually fail to pay their mortgage without refinancing.
- pandaman 5y ago10% per year is not the threshold, as long as the cap gains are more than expenses it's profitable to lease at any amount >= 0. Before I moved to Austin I used to live in a ~1.5M house in Los Angeles, paying ~2K rent for 10 years or so. It's not relevant to the current discussion though. Right now rents are lower than mortgages in general so the assertion that the tenant pays all landlord's expenses is demonstrably false.
- deleted 5y ago[deleted]
- ashtonkem 5y agoI think you’re making a lot of implicit assumptions here. For example, in this discussion there is no guarantee that the average current mortgage is the same as the mortgage held by the current landlord charging the prevailing rent. In my experience it’s pretty typical for rented houses to not be recently purchased. If you have evidence that it’s the norm for landlords to rent below their operating costs, by all means provide it. But from what you’ve provided so far, I am unconvinced.
- pandaman 5y agoI gave you an example of my house, have not I? If I were interested in renting it I would not be "underwater" and any non-negative rent would be better for me than selling/renovating/keeping it off market. Note that I am not making a statement about every house, to rebut your assertion that all renters pay no less than the landlord's taxes + mortgage + insurance it's enough to show some (even one) counter example and not to prove that all or, even, typical renter does not do so. There are certainly rental properties that make profit on rent but I have few friends who rent their houses at less than their own expenses because they just cannot find tenants willing to pay more. Seeing how in general rents had been lower than mortgage for quite a while it's sane to assume that I am not an owner of a unique house with a selected group of friends who are in this completely extreme situation.
- ashtonkem 5y agoI do not find your house to be persuasive for larger trends, no. I responded to the other bit already. > Note that I am not making a statement about every house, to rebut your assertion that all renters pay no less than the landlord's taxes + mortgage + insurance it's enough to show some (even one) counter example and not to prove that all or, even, typical renter does not do so. Don’t be a pedant, we were clearly talking about the typical renter.
- pandaman 5y agoIt was not clear to me, I thought you made a general assertion about the economics of real estate which is false on its face. I am not equipped to talk about typical renters since I don't have data. All I can find is the Census statistics showing that average national rent is less than mortgage: https://www.census.gov/quickfacts/fact/table/US/HSG860219 https://www.census.gov/quickfacts/fact/table/US/HSG860219