7 ms·

There is something deeply wrong with the fact that you can buy-to-rent a property and immediately turn up a profit, essentially inserting yourself as a parasiti

There is something deeply wrong with the fact that you can buy-to-rent a property and immediately turn up a profit, essentially inserting yourself as a parasitic middleman in the process, providing no service, and extracting an economic rent.

refurb 5y ago
Anyone who has been a landlord can attest "providing no service" isn't true at all.
- rapind 5y ago
  Subjective. When I used to rent, I never saw my landlord after signing the lease. I was renting a house and taking care of small maintenance issues myself. I'd say it was far less effort to rent to me, then it would have been to live there himself. Of course there are bad tenants, but I suspect, like most things, we focus on those negatives and ignore all the low maintenance tenants when thinking about it.
  - boredumb 5y ago
    a new roof is over 20,000$ a new floor in a modest home is over 10,000$ a burst pipe will be over 1,000$ interest payments are thousands a year property taxes are thousands of dollars a year all are guarantees even with the lowest maintenance tenants.
    - rapind 5y ago
      Agreed. Home maintenance, property tax, mortgage interest, is a cost of owning regardless of whether you are renting or living in it. So that needs to always be part of your calculation, and I would hope most landlords are considering that. I was just hypothesizing that the "Bad Tenant tax" is potentially overblown. Sure it can be an absolute nightmare if you're unlucky (or bad at screening), but on average I suspect it's pretty minor. I honestly don't have anything but anecdotal data to back that up though. I just suspect, like a lot of things where exceptional horror stories are propagated, we could be over-weighting the negatives.
      - bombcar 5y ago
        The problem with small landlords is they can't average bad tenants over a large number of units. They have one or two units, and even one just sitting empty for a few months destroys years of cash flow. Let alone actually getting a bad tenant. It may be a low chance, but if it comes up, you can be hosed out of the entire value of the house (usually you can still sell the land, but in the absolute worst cases where the property was turned into a meth factory, you may be out more than the entire value).
- IgorPartola 5y ago
  This. 1. Immediately turn a profit would mean that monthly rent is higher than the cost of the property. This is not a thing. If they person you are replying to means “cash flow positive” then sure in 20-30 years the renter will have paid off the property for the landlord. 2. Renting provides choices. Tenant wants to move across the country or across the street? No problem: ride out your lease and move when ready. If you own the property you need to sell it to move in most cases. Ever try to sell when the market changed and suddenly your property lost 30% in value and you are suddenly underwater? I have. On the other hand if you are renting you can just move on a relatively short timeframe and get the fuck out of dodge no matter where property values are. 3. The responsibility for maintaining the building is on the landlord. Sure, some are bad at this but know your rights and interview your landlords well and it won’t be a problem. 4. Rentals provide inventory. If you don’t have $500,000 saved up for a large single family home in an expensive state (like where I have been stuck for the past decade), what do you do for housing? Mortgage your life away and hope jobs and markets go your way? Or rent for a small premium over a mortgage payment with no money down and a 12 month commitment? For most people renting is actually a much better choice provided they save the difference between renting and owning the home and invest it wisely. Over a lifetime there are few places in the US where you’d be better off buying instead. NYT had a nice comprehensive calculator to this effect.
  - bombcar 5y ago
    Most landlords aren't even cash flow positive if you correctly account for everything - http://www.johntreed.net/positive.html http://www.johntreed.net/positive.html The majority of cash single-family landlords are because they're paying a mortgage on 2005 prices whilst charging 2020s rent. But to properly do the accounting you'd want to compare selling the house and buying it again vs the rents. Buying is usually worse than renting unless you value the relative freedom to do what you want with the property and even then renters have the ability to change the house they're in (unless they're effectively stuck because of grandfathered in lower-than-market rates). The idea that housing problems are caused by landlords is obviously false on its face, as each landlorded house already has people living in it. Speculators sitting on empty inventory and refusing to landlord, now that could be a cause.
- deleted 5y ago
  [deleted]
- andrepd 5y ago
  But I have been a landlord, I rented out my old apartment for several years after I moved to my new home. I don't pretend the income I got was for "services rendered". It is trivially easy to demonstrate that: you can outsource all tasks (cleaning, maintenance, even management and accounting) and still turn up a profit, which implies that this profit is entirely due to your monopoly on capital wrt. the rentee, and not due to actual material services rendered.
  - refurb 5y ago
    But the rental market and home purchase markets as separate markets. There is nothing that says rent has to be more than the cost of ownership. Go to a big city like Toronto and you'll meet plenty of landlords taking a loss each month. And there is nothing that says it has to remain static. Rents can drop while housing prices go up (see SF during Covid). And in the end, I'm not sure it matters? I've lived in cities where despite being able to afford ownership, I choose to rent. I'm glad to exchange my money for exclusive use of a house that I take no financial risk on, have no obligation to maintain, has only negligible transaction costs and I can walk away from with a months notice. All of those things have intrinsic value to me, some of those being services that I don't have to perform. I mean, is it unfair when someone rents out their cars on Turo and make a profit each month? Are they "extracting rents"?
    - trgn 5y ago
      That's it. Tons of homeowners are letting at a loss in the superstar cities. They're banking on appreciation, or see inherent value to stake a foothold in their city, possibly for generations. The cost of renting in the most expensive markets is much lower than the cost of home-ownership in those same markets. It's not because of supposed rent-extraction of landlords that housing is expensive. Renters will be in for a cold shower if they think that the cost of rent is just because of parasitic extraction from landlords right now. It's because of a zoning structure and tax-code which punishes capital investment in land, and favors speculative landholding. Without meaningful change to either, there won't be downward pressure on rents.
ekianjo 5y ago
You have never seen people who dont pay rents, I guess.
sokoloff 5y ago
If that were the case, why would someone else not bid $1 more to buy that house and rent it out? Then someone else would logically be willing to bid $1 more than that, until there was no easy profit left… I think the answer is that much of the landlord’s initial profit is more or less income from working a job (buying, insuring, readying, showing, screening, fixing, collecting, etc) as evidenced by the share that a property management company takes if you don’t want to do all that work. That share is often enough to push a small positive cashflow into a moderately negative cash flow, meaning it’s the job aspect not the passive ownership aspect that’s profitable initially. I laugh everytime someone calls being a landlord “passive income”. I’m not one because I saw the aggravation and effort my parents went through with a series of crappy tenants. No one calls the pizza shop owner a “parasitic middleman between inexpensive ingredients and $15 cheese pizzas”. Because they can see that it’s work; they imagine being a landlord isn’t.
- andrepd 5y ago
  > If that were the case, why has someone else not bid $1 more to buy that house and rent it out? Because capital is privatised and scarce, therefore a working-class family wishing to buy a home to live on cannot do so since they're outbid by those with capital. This leaves them with two choices: (1) pay rent to a middleman with capital, who buys the house, or (2) beg a private entity for a capital advance to be repaid with future expected cash flows, i.e. a bank loan. The fundamental issue was always there, but for a time the house prices where well within what working/middle-class people could afford. Now that capital, incl. behemoth investment funds, have pushed these prices well outside what most people can reasonably afford, it becomes much more visible. It's kinda silly that your take is "well why don't working-class people just bid $1 above Blackrock"?
  - sokoloff 5y ago
    The question is “if Blackrock can buy and turn an immediate profit, why didn’t MAA, Starwood, AvalonBay, or one of 100 others not bid it up from the easy-money, too-cheap level?”
    - 5y ago
trgn 5y ago
> providing no service Landlords are not parasites and provide a valuable service. I think a land tax would be great to curb speculation. Buying property, not providing any service (neither by renting nor capital investment in improvements), and just pocketing the appreciation, I agree, that's parasitic on the community. FWIW - I don't think a landtax would create a meaningful tilt towards more affordable home ownership, especially single family home ownership, since it's such a poor use of land. Instead, I think it will tilt to more affordable housing in the aggregate. Lower rents, but a lot higher capital improvements in what's now underdeveloped land. More apartment buildings basically. More units, more affordable, closer to amenities, but smaller overall. > buy-to-rent a property and immediately turn up a profit That's just never the case (at least, the immediate part of it), maybe only in the most lopsided markets. Buying a property is a huge capital investment, and can take decades to start seeing meaningful ROI. It does create cash flow quickly.
- andrepd 5y ago
  Oh but it is the case, for instance buy-to-let loans are a big thing in the UK from a few years back till now.
  - trgn 5y ago
    Thanks, I'll look into it!
- danaris 5y ago
  > Landlords are not parasites and provide a valuable service. Landlords take property that could be owned outright by the resident and extract, at best, a middleman's fee. Some landlords also provide access to services such as repair, cleaning, etc and combine those fees with the rent, but there is no reason those could not be equally available to owner-residents without the landlord acting as a middleman, and there is nothing inherent in the nature of being a landlord that implies offering such services.
  - silicon2401 5y ago
    > Landlords take property that could be owned outright by the resident Why do you assume every resident wants to own their property? When I lived in Baltimore you can be damn sure I didn't want to own anything in that city. There are valid reasons for renting to exist, landlords do provide valuable services, and there are people who do want landlords and renting to exist. It's okay to say you personally don't like landlords without making it seem like they're some kind of demons
silicon2401 5y ago
> providing no service Being a landlord does provide a service, the service of managing the land and property. I don't want to buy a house right now because I'm not ready yet, so I _want_ landlords to provide properties so that I can have a home without having to go through the process of buying one just to sell it a year or so later.
- larsiusprime 5y ago
  We can still do that under a land value tax system. Property managers are good; the argument being made here is that a "house" is really two assets: the land, and the capital of the building itself. The latter is a depreciating asset, the former doesn't behave like capital at all, because, among other reasons, it can't be produced. Property managers receive a return on their labor (services to their tenants) and their investments of capital (maintenance and improvements to the building). Conventional landlords are a mixture of property managers and "pure" landlords. A "pure" landlord makes money only off of gatekeeping access to the land. The fact that it is entirely possible for a landlord to outsource property management to a 3rd party and still have a profitable venture is a telling sign. In a land value tax system, you would only be able to profit from property management, not from "pure" landlordism of holding a scarce asset nobody can make and waiting for it to go up in value or collecting rent to let people access it. I was interviewed by Jerusalem in the piece and have written an in-depth series with many citations from the empirical literature about this subject: www.gameofrent.com
  - bombcar 5y ago
    I wonder what that would say about banks being "landlords" of money and "renting" it out ... probably something about usury.
- orthecreedence 5y ago
  > the service of managing the land and property That's being a property manager, not a landlord. Landlords provide no services. One can be a landlord AND a property manager, but the role of landlord is distinguished simply by owning something that others want.
Ekaros 5y ago
Is it deeply wrong that you can go on stock market and buy part of company and immediately turn up profit when they pay dividends. Essentially inserting yourself as parasitic middleman in the process, providing no service and extracting an economic rent... Or doing same by buying existing debt?
- basch 5y ago
  The dividend payout is priced into the purchase price.
- andrepd 5y ago
  Yes. I'm actually also against tradeable joint-stock corporations, admittedly a quite radical position, but one I share with people such as Adam Smith ;)
- bombcar 5y ago
  The clarification in my mind is the assumption of risk. When you buy a stock that pays dividends, you're also taking on the risk that the stock goes down in value, that the company Enrons, that Musk decides he wants it, etc. A landlord has a similar risk associated with the property, and not just in loss of value but other real risks, such as lawsuits, etc. The stockholder is protected from many risks and can't lose more than his investment (ignoring cases where he owns so much of the company that the corporate veil can be pierced) - but a landlord easily can - especially with a mortgage, but even without. Insurance can be purchased to mitigate some of those risks, but few do beyond what a bank may require. Let's take the example of landlords of property in areas threatened by climate change; real risks exist there that the renter doesn't have to worry about beyond considering moving.
azth 5y ago
As someone else mentioned, landlords provide a valuable service to the economy. They take on the risk of property ownership and maintenance etc. Now, if we look at why the three major religions prohibited money lending with interest, we can see where the true parasitic middlemen are: the money lenders.
- chii 5y ago
  i would not take religious prohibitions as any moral high ground. They also prohibit homosexual relationships. Money lending is as natural as money spending. It allows future improvements to be funded, and is critical to development of a society.
  - azth 5y ago
jjav 5y ago
> There is something deeply wrong with the fact that you can buy-to-rent a property and immediately turn up a profit Could you please post here a handful of links (zillow/redfin/etc) to properties one could buy-to-rent and immediately turn up a profit? (Considering all costs.) I've been looking for over a decade and haven't found one, so it would be most helpful to see a few examples.

refurb 5y ago

Anyone who has been a landlord can attest "providing no service" isn't true at all.

rapind 5y ago
Subjective. When I used to rent, I never saw my landlord after signing the lease. I was renting a house and taking care of small maintenance issues myself. I'd say it was far less effort to rent to me, then it would have been to live there himself. Of course there are bad tenants, but I suspect, like most things, we focus on those negatives and ignore all the low maintenance tenants when thinking about it.
- boredumb 5y ago
  a new roof is over 20,000$ a new floor in a modest home is over 10,000$ a burst pipe will be over 1,000$ interest payments are thousands a year property taxes are thousands of dollars a year all are guarantees even with the lowest maintenance tenants.
  - rapind 5y ago
    Agreed. Home maintenance, property tax, mortgage interest, is a cost of owning regardless of whether you are renting or living in it. So that needs to always be part of your calculation, and I would hope most landlords are considering that. I was just hypothesizing that the "Bad Tenant tax" is potentially overblown. Sure it can be an absolute nightmare if you're unlucky (or bad at screening), but on average I suspect it's pretty minor. I honestly don't have anything but anecdotal data to back that up though. I just suspect, like a lot of things where exceptional horror stories are propagated, we could be over-weighting the negatives.
    - bombcar 5y ago
      The problem with small landlords is they can't average bad tenants over a large number of units. They have one or two units, and even one just sitting empty for a few months destroys years of cash flow. Let alone actually getting a bad tenant. It may be a low chance, but if it comes up, you can be hosed out of the entire value of the house (usually you can still sell the land, but in the absolute worst cases where the property was turned into a meth factory, you may be out more than the entire value).
IgorPartola 5y ago
This. 1. Immediately turn a profit would mean that monthly rent is higher than the cost of the property. This is not a thing. If they person you are replying to means “cash flow positive” then sure in 20-30 years the renter will have paid off the property for the landlord. 2. Renting provides choices. Tenant wants to move across the country or across the street? No problem: ride out your lease and move when ready. If you own the property you need to sell it to move in most cases. Ever try to sell when the market changed and suddenly your property lost 30% in value and you are suddenly underwater? I have. On the other hand if you are renting you can just move on a relatively short timeframe and get the fuck out of dodge no matter where property values are. 3. The responsibility for maintaining the building is on the landlord. Sure, some are bad at this but know your rights and interview your landlords well and it won’t be a problem. 4. Rentals provide inventory. If you don’t have $500,000 saved up for a large single family home in an expensive state (like where I have been stuck for the past decade), what do you do for housing? Mortgage your life away and hope jobs and markets go your way? Or rent for a small premium over a mortgage payment with no money down and a 12 month commitment? For most people renting is actually a much better choice provided they save the difference between renting and owning the home and invest it wisely. Over a lifetime there are few places in the US where you’d be better off buying instead. NYT had a nice comprehensive calculator to this effect.
- bombcar 5y ago
  Most landlords aren't even cash flow positive if you correctly account for everything - http://www.johntreed.net/positive.html http://www.johntreed.net/positive.html The majority of cash single-family landlords are because they're paying a mortgage on 2005 prices whilst charging 2020s rent. But to properly do the accounting you'd want to compare selling the house and buying it again vs the rents. Buying is usually worse than renting unless you value the relative freedom to do what you want with the property and even then renters have the ability to change the house they're in (unless they're effectively stuck because of grandfathered in lower-than-market rates). The idea that housing problems are caused by landlords is obviously false on its face, as each landlorded house already has people living in it. Speculators sitting on empty inventory and refusing to landlord, now that could be a cause.
deleted 5y ago
[deleted]
andrepd 5y ago
But I have been a landlord, I rented out my old apartment for several years after I moved to my new home. I don't pretend the income I got was for "services rendered". It is trivially easy to demonstrate that: you can outsource all tasks (cleaning, maintenance, even management and accounting) and still turn up a profit, which implies that this profit is entirely due to your monopoly on capital wrt. the rentee, and not due to actual material services rendered.
- refurb 5y ago
  But the rental market and home purchase markets as separate markets. There is nothing that says rent has to be more than the cost of ownership. Go to a big city like Toronto and you'll meet plenty of landlords taking a loss each month. And there is nothing that says it has to remain static. Rents can drop while housing prices go up (see SF during Covid). And in the end, I'm not sure it matters? I've lived in cities where despite being able to afford ownership, I choose to rent. I'm glad to exchange my money for exclusive use of a house that I take no financial risk on, have no obligation to maintain, has only negligible transaction costs and I can walk away from with a months notice. All of those things have intrinsic value to me, some of those being services that I don't have to perform. I mean, is it unfair when someone rents out their cars on Turo and make a profit each month? Are they "extracting rents"?
  - trgn 5y ago
    That's it. Tons of homeowners are letting at a loss in the superstar cities. They're banking on appreciation, or see inherent value to stake a foothold in their city, possibly for generations. The cost of renting in the most expensive markets is much lower than the cost of home-ownership in those same markets. It's not because of supposed rent-extraction of landlords that housing is expensive. Renters will be in for a cold shower if they think that the cost of rent is just because of parasitic extraction from landlords right now. It's because of a zoning structure and tax-code which punishes capital investment in land, and favors speculative landholding. Without meaningful change to either, there won't be downward pressure on rents.

ekianjo 5y ago

You have never seen people who dont pay rents, I guess.

sokoloff 5y ago

If that were the case, why would someone else not bid $1 more to buy that house and rent it out? Then someone else would logically be willing to bid $1 more than that, until there was no easy profit left… I think the answer is that much of the landlord’s initial profit is more or less income from working a job (buying, insuring, readying, showing, screening, fixing, collecting, etc) as evidenced by the share that a property management company takes if you don’t want to do all that work. That share is often enough to push a small positive cashflow into a moderately negative cash flow, meaning it’s the job aspect not the passive ownership aspect that’s profitable initially. I laugh everytime someone calls being a landlord “passive income”. I’m not one because I saw the aggravation and effort my parents went through with a series of crappy tenants. No one calls the pizza shop owner a “parasitic middleman between inexpensive ingredients and $15 cheese pizzas”. Because they can see that it’s work; they imagine being a landlord isn’t.

andrepd 5y ago
> If that were the case, why has someone else not bid $1 more to buy that house and rent it out? Because capital is privatised and scarce, therefore a working-class family wishing to buy a home to live on cannot do so since they're outbid by those with capital. This leaves them with two choices: (1) pay rent to a middleman with capital, who buys the house, or (2) beg a private entity for a capital advance to be repaid with future expected cash flows, i.e. a bank loan. The fundamental issue was always there, but for a time the house prices where well within what working/middle-class people could afford. Now that capital, incl. behemoth investment funds, have pushed these prices well outside what most people can reasonably afford, it becomes much more visible. It's kinda silly that your take is "well why don't working-class people just bid $1 above Blackrock"?
- sokoloff 5y ago
  The question is “if Blackrock can buy and turn an immediate profit, why didn’t MAA, Starwood, AvalonBay, or one of 100 others not bid it up from the easy-money, too-cheap level?”
  - 5y ago

trgn 5y ago

> providing no service Landlords are not parasites and provide a valuable service. I think a land tax would be great to curb speculation. Buying property, not providing any service (neither by renting nor capital investment in improvements), and just pocketing the appreciation, I agree, that's parasitic on the community. FWIW - I don't think a landtax would create a meaningful tilt towards more affordable home ownership, especially single family home ownership, since it's such a poor use of land. Instead, I think it will tilt to more affordable housing in the aggregate. Lower rents, but a lot higher capital improvements in what's now underdeveloped land. More apartment buildings basically. More units, more affordable, closer to amenities, but smaller overall. > buy-to-rent a property and immediately turn up a profit That's just never the case (at least, the immediate part of it), maybe only in the most lopsided markets. Buying a property is a huge capital investment, and can take decades to start seeing meaningful ROI. It does create cash flow quickly.

andrepd 5y ago
Oh but it is the case, for instance buy-to-let loans are a big thing in the UK from a few years back till now.
- trgn 5y ago
  Thanks, I'll look into it!
danaris 5y ago
> Landlords are not parasites and provide a valuable service. Landlords take property that could be owned outright by the resident and extract, at best, a middleman's fee. Some landlords also provide access to services such as repair, cleaning, etc and combine those fees with the rent, but there is no reason those could not be equally available to owner-residents without the landlord acting as a middleman, and there is nothing inherent in the nature of being a landlord that implies offering such services.
- silicon2401 5y ago
  > Landlords take property that could be owned outright by the resident Why do you assume every resident wants to own their property? When I lived in Baltimore you can be damn sure I didn't want to own anything in that city. There are valid reasons for renting to exist, landlords do provide valuable services, and there are people who do want landlords and renting to exist. It's okay to say you personally don't like landlords without making it seem like they're some kind of demons

silicon2401 5y ago

> providing no service Being a landlord does provide a service, the service of managing the land and property. I don't want to buy a house right now because I'm not ready yet, so I _want_ landlords to provide properties so that I can have a home without having to go through the process of buying one just to sell it a year or so later.

larsiusprime 5y ago
We can still do that under a land value tax system. Property managers are good; the argument being made here is that a "house" is really two assets: the land, and the capital of the building itself. The latter is a depreciating asset, the former doesn't behave like capital at all, because, among other reasons, it can't be produced. Property managers receive a return on their labor (services to their tenants) and their investments of capital (maintenance and improvements to the building). Conventional landlords are a mixture of property managers and "pure" landlords. A "pure" landlord makes money only off of gatekeeping access to the land. The fact that it is entirely possible for a landlord to outsource property management to a 3rd party and still have a profitable venture is a telling sign. In a land value tax system, you would only be able to profit from property management, not from "pure" landlordism of holding a scarce asset nobody can make and waiting for it to go up in value or collecting rent to let people access it. I was interviewed by Jerusalem in the piece and have written an in-depth series with many citations from the empirical literature about this subject: www.gameofrent.com
- bombcar 5y ago
  I wonder what that would say about banks being "landlords" of money and "renting" it out ... probably something about usury.
orthecreedence 5y ago
> the service of managing the land and property That's being a property manager, not a landlord. Landlords provide no services. One can be a landlord AND a property manager, but the role of landlord is distinguished simply by owning something that others want.

Ekaros 5y ago

Is it deeply wrong that you can go on stock market and buy part of company and immediately turn up profit when they pay dividends. Essentially inserting yourself as parasitic middleman in the process, providing no service and extracting an economic rent... Or doing same by buying existing debt?

basch 5y ago
The dividend payout is priced into the purchase price.
andrepd 5y ago
Yes. I'm actually also against tradeable joint-stock corporations, admittedly a quite radical position, but one I share with people such as Adam Smith ;)
bombcar 5y ago
The clarification in my mind is the assumption of risk. When you buy a stock that pays dividends, you're also taking on the risk that the stock goes down in value, that the company Enrons, that Musk decides he wants it, etc. A landlord has a similar risk associated with the property, and not just in loss of value but other real risks, such as lawsuits, etc. The stockholder is protected from many risks and can't lose more than his investment (ignoring cases where he owns so much of the company that the corporate veil can be pierced) - but a landlord easily can - especially with a mortgage, but even without. Insurance can be purchased to mitigate some of those risks, but few do beyond what a bank may require. Let's take the example of landlords of property in areas threatened by climate change; real risks exist there that the renter doesn't have to worry about beyond considering moving.

azth 5y ago

As someone else mentioned, landlords provide a valuable service to the economy. They take on the risk of property ownership and maintenance etc. Now, if we look at why the three major religions prohibited money lending with interest, we can see where the true parasitic middlemen are: the money lenders.

chii 5y ago
i would not take religious prohibitions as any moral high ground. They also prohibit homosexual relationships. Money lending is as natural as money spending. It allows future improvements to be funded, and is critical to development of a society.
- azth 5y ago

jjav 5y ago

> There is something deeply wrong with the fact that you can buy-to-rent a property and immediately turn up a profit Could you please post here a handful of links (zillow/redfin/etc) to properties one could buy-to-rent and immediately turn up a profit? (Considering all costs.) I've been looking for over a decade and haven't found one, so it would be most helpful to see a few examples.