4 ms·

>>~30 years later, you've deprecated it down to an effective value of $0 >An no one will now rent, since your building has an effective value of $0 since it ha

by wonnor 4y ago

>>~30 years later, you've deprecated it down to an effective value of $0 >An no one will now rent, since your building has an effective value of $0 since it has become crap. Are you really in good faith trying to argue that nobody will rent a house that is 30+ years old?

bitexploder 4y ago
Narrator: They were not arguing in good faith. I know we like to give the benefit of doubt here on HN, but that crosses a line. Landlords are known to perhaps not take the best care of their property, but in general, even if a tenant totally trashes the place it isn't too hard to strip down whatever got abused and rebuild it. Same thing happened to us when we rented a property. Tenant did as much damage as you can imagine with pets and abuse short of ripping wires and pipes out of the walls. It was really annoying to fix, but not hard. In the [late] 2020 real estate market it was easy to sell it and the house appreciated like 30-40K since we sold it easily.
- robertlagrant 4y ago
  It doesn't cross any lines. This is HN, not some chest-thumping political rag.
jefftk 4y ago
Maybe they're saying that if you don't maintain a house for 30y it will be unlivable?
andrewmutz 4y ago
He's saying that you factored in the depreciation deduction, but never factored in the expenses of related to keeping the property in good shape. So you either left them out of your math, or you planned to do zero upkeep (hence, "nobody would rent it")
- wonnor 4y ago
  To claim that you need to spend money equal to the tax-assessed value of the building over the course of 30 years to maintain equal value is slightly less ridiculous, but still not exactly reasonable. The (conservative) rule of thumb is 1% of the property value per year in repairs, which would be 30% of the property value over 30 years. And even then, it seems there's no shortage of fairly decrepit buildings that have no problem finding tenants.
  - ChrisLomont 4y ago
    >To claim that you need to spend money equal to the tax-assessed value of the building over the course of 30 years to maintain equal value is slightly less ridiculous, but still not exactly reasonable. No one wrote that either. You're reading what you want to argue into what is written yet again. > which would be 30% of the property value over 30 years Ignoring increasing property value, compound interest, opportunity cost, that plenty of places put this between 1 and 4%, and that pretty much all places indicate the rate increases as the property ages, and that this rate is for owners whereas tenants are statistically worse on property, then sure. For example, State Farm [1] recommends between 1% and 4%, which would vastly increase your estimate. And tenants are statistically worse on property than owners In reality it's a far larger cost over 30 years than 30% of the original price. [1] https://www.statefarm.com/simple-insights/residence/how-to-budget-and-save-for-home-maintenance https://www.statefarm.com/simple-insights/residence/how-to-b...
  - DubiousPusher 4y ago
    Here is a starter list of things a house will need over the course of 30 years. - a new roof (maybe two if they are 15 year rooves) -new siding (unless fiber cement siding was installed originally) -new exterior paint -new windows -major repairs to the driveway -2 new furnaces -2 to 3 new water heaters -2 to 3 full new sets of appliances -1 cosmetic kitchen remodel -1 cosmetic remodel of each bathroom -1 to 2 cosmetic relandscapings -1 to 2 new floors (depending on the flooring material chosen) -new exterior doors -new garage doors and openers None of this includes any repairs the home may have needed at the time of purchase. Nor does it include any upgrades. Nor does it include any unexpected repairs that may not be covered by insurance (there are many). Nor does it include any of the dozen or so minor repairs you either have to do yourself or get a handy man for. I'm not going to symp for the landlords but maintaining property is brutally expensive. I know because I bought a 40 year old house. Since I bought a home I've become very convinced that there are a ton of landlords losing their ass out there. Some have been saved by the ridiculous property valuations we've seen lately. But that is not the norm. Houses typically increase in value at a pace with inflation. Personally, I would only ever rent housing I had specced myself because the design choices and material choices have a huge impact on the cost of maintenance.
- ChrisLomont 4y ago
  Bingo - I'm surprised so many didn't understand the thread flow and jumped on this....
ChrisLomont 4y ago
>Are you really in good faith trying to argue that nobody will rent a house that is 30+ years old? Nope, pointing out that in order to keep the house rentable, the landlord has in put money into over all those years, which the OP left out. A house that has had no money spent on for 30 years would not be rentable, right? So depreciation is not a free ride.
- lovich 4y ago
  Why would it not be rentable? That’s an assumption that doesn’t stand on its face when you look at the unmaintained crackhouses landlords will rent easily because demand is so high for housing.
  - ChrisLomont 4y ago
    Are you claiming zero money was spent on those properties for 30 years? I don't think that claim would stand on it's face. Over 30 years all sorts of things would break, pipes, leaks, batteries corroding and leaking out, animals move in, windows broken, doors removed.... Detroit ruins show what zero money put into a building for 30 years looks like - gutted shells. Show me an ad for a rentable place that has had zero money spent on the building for any maintenance for 30 years and I'll believe you.
    - lovich 4y ago
      Does >0 money spent equal 100% deprecation over 30 years? If the landlord spends a single penny in paint does that make up for getting an asset that’s considered zero value but still gets to be sold for hundreds of thousands?
saiya-jin 4y ago
I'd say the truth is somewhere in between. It is really, really not that great unless you have some superbly well located shiny great apartment in Manhattan or some other center center which gets 100% short term rental ie airbnb. But then this is multi-million $$ property. Long term rentals - the gains are minimal given how much capital is completely locked in that property and not doing anything else. If you are lucky, you have long term nice tenants and stuff generally doesn't break (ie heating/wash machine bursting and flooding everything, including 5 apartments below). If unlucky, 1 bad accident that needs to be fixed asap will wipe out any income you have for given month, if not more. Utterly random example - I got locked out (if thats the proper term) last sunday evening, went for a walk and big weird key wasn't turning in our old very massive (15cm thick & heavy) doors that look like they could handle a nuclear blast. Called some emergency services for this and they opened it, but showed me the lock basically disintegrated and I was lucky they didn't have to drill huge hole in those doors to get in and pay tripple the cost. The cost for new lock in those doors with all work? 2400 Swiss francs (cca 2500$), and that was work week rate of one of the cheaper agencies doing this, albeit in Geneva, one of the most expensive places to live. For a freaking lock that is just old design, fitting some 50 years old doors. Guess who pays that? Well me but I will get 100% reimbursement from agency who will get it from owner. Properties are great if you inherit them and suddenly have a nice passive income (and management worries). Or if you are lucky with timing and in 10 years they jump 3x with value. Thats over now. I wouldn't invest in properties now unless its for primary residence and then a lot of emotions and other concerns come into equation, but financially its not great.
- fwip 4y ago
  $2500 isn't that far off of the monthly rent for a single apartment in a lot of American cities. Sure, your old door might need a new lock after 30+ years (although given it was 15cm thick I'll bet it was much older than that).
Ajedi32 4y ago
If it's worth $0 then by definition you couldn't sell the property for more than $0, let alone charge a monthly rent higher than that. Obviously that wouldn't actually happen in real life, which I think is the GP's point.
djbebs 4y ago
Are you aware of the concept of risk? The amortization schedules are what they are for a reason, even if not all houses only last 30 years, the average is what matters here. Any number of things can result in houses being destroyed and become worthless prior to that time, including damage from earthquakes, fires. Additionally poor initial building standards, or changing building standards, or new regulatory barriers can make certain properties become not just worthless, but have an active cost to their owners and therefore have negative value.

by wonnor 4y ago

bitexploder 4y ago

Narrator: They were not arguing in good faith. I know we like to give the benefit of doubt here on HN, but that crosses a line. Landlords are known to perhaps not take the best care of their property, but in general, even if a tenant totally trashes the place it isn't too hard to strip down whatever got abused and rebuild it. Same thing happened to us when we rented a property. Tenant did as much damage as you can imagine with pets and abuse short of ripping wires and pipes out of the walls. It was really annoying to fix, but not hard. In the [late] 2020 real estate market it was easy to sell it and the house appreciated like 30-40K since we sold it easily.

robertlagrant 4y ago
It doesn't cross any lines. This is HN, not some chest-thumping political rag.

jefftk 4y ago

Maybe they're saying that if you don't maintain a house for 30y it will be unlivable?

andrewmutz 4y ago

He's saying that you factored in the depreciation deduction, but never factored in the expenses of related to keeping the property in good shape. So you either left them out of your math, or you planned to do zero upkeep (hence, "nobody would rent it")

wonnor 4y ago
To claim that you need to spend money equal to the tax-assessed value of the building over the course of 30 years to maintain equal value is slightly less ridiculous, but still not exactly reasonable. The (conservative) rule of thumb is 1% of the property value per year in repairs, which would be 30% of the property value over 30 years. And even then, it seems there's no shortage of fairly decrepit buildings that have no problem finding tenants.
- ChrisLomont 4y ago
  >To claim that you need to spend money equal to the tax-assessed value of the building over the course of 30 years to maintain equal value is slightly less ridiculous, but still not exactly reasonable. No one wrote that either. You're reading what you want to argue into what is written yet again. > which would be 30% of the property value over 30 years Ignoring increasing property value, compound interest, opportunity cost, that plenty of places put this between 1 and 4%, and that pretty much all places indicate the rate increases as the property ages, and that this rate is for owners whereas tenants are statistically worse on property, then sure. For example, State Farm [1] recommends between 1% and 4%, which would vastly increase your estimate. And tenants are statistically worse on property than owners In reality it's a far larger cost over 30 years than 30% of the original price. [1] https://www.statefarm.com/simple-insights/residence/how-to-budget-and-save-for-home-maintenance https://www.statefarm.com/simple-insights/residence/how-to-b...
- DubiousPusher 4y ago
  Here is a starter list of things a house will need over the course of 30 years. - a new roof (maybe two if they are 15 year rooves) -new siding (unless fiber cement siding was installed originally) -new exterior paint -new windows -major repairs to the driveway -2 new furnaces -2 to 3 new water heaters -2 to 3 full new sets of appliances -1 cosmetic kitchen remodel -1 cosmetic remodel of each bathroom -1 to 2 cosmetic relandscapings -1 to 2 new floors (depending on the flooring material chosen) -new exterior doors -new garage doors and openers None of this includes any repairs the home may have needed at the time of purchase. Nor does it include any upgrades. Nor does it include any unexpected repairs that may not be covered by insurance (there are many). Nor does it include any of the dozen or so minor repairs you either have to do yourself or get a handy man for. I'm not going to symp for the landlords but maintaining property is brutally expensive. I know because I bought a 40 year old house. Since I bought a home I've become very convinced that there are a ton of landlords losing their ass out there. Some have been saved by the ridiculous property valuations we've seen lately. But that is not the norm. Houses typically increase in value at a pace with inflation. Personally, I would only ever rent housing I had specced myself because the design choices and material choices have a huge impact on the cost of maintenance.
ChrisLomont 4y ago
Bingo - I'm surprised so many didn't understand the thread flow and jumped on this....

ChrisLomont 4y ago

>Are you really in good faith trying to argue that nobody will rent a house that is 30+ years old? Nope, pointing out that in order to keep the house rentable, the landlord has in put money into over all those years, which the OP left out. A house that has had no money spent on for 30 years would not be rentable, right? So depreciation is not a free ride.

lovich 4y ago
Why would it not be rentable? That’s an assumption that doesn’t stand on its face when you look at the unmaintained crackhouses landlords will rent easily because demand is so high for housing.
- ChrisLomont 4y ago
  Are you claiming zero money was spent on those properties for 30 years? I don't think that claim would stand on it's face. Over 30 years all sorts of things would break, pipes, leaks, batteries corroding and leaking out, animals move in, windows broken, doors removed.... Detroit ruins show what zero money put into a building for 30 years looks like - gutted shells. Show me an ad for a rentable place that has had zero money spent on the building for any maintenance for 30 years and I'll believe you.
  - lovich 4y ago
    Does >0 money spent equal 100% deprecation over 30 years? If the landlord spends a single penny in paint does that make up for getting an asset that’s considered zero value but still gets to be sold for hundreds of thousands?

saiya-jin 4y ago

I'd say the truth is somewhere in between. It is really, really not that great unless you have some superbly well located shiny great apartment in Manhattan or some other center center which gets 100% short term rental ie airbnb. But then this is multi-million $$ property. Long term rentals - the gains are minimal given how much capital is completely locked in that property and not doing anything else. If you are lucky, you have long term nice tenants and stuff generally doesn't break (ie heating/wash machine bursting and flooding everything, including 5 apartments below). If unlucky, 1 bad accident that needs to be fixed asap will wipe out any income you have for given month, if not more. Utterly random example - I got locked out (if thats the proper term) last sunday evening, went for a walk and big weird key wasn't turning in our old very massive (15cm thick & heavy) doors that look like they could handle a nuclear blast. Called some emergency services for this and they opened it, but showed me the lock basically disintegrated and I was lucky they didn't have to drill huge hole in those doors to get in and pay tripple the cost. The cost for new lock in those doors with all work? 2400 Swiss francs (cca 2500$), and that was work week rate of one of the cheaper agencies doing this, albeit in Geneva, one of the most expensive places to live. For a freaking lock that is just old design, fitting some 50 years old doors. Guess who pays that? Well me but I will get 100% reimbursement from agency who will get it from owner. Properties are great if you inherit them and suddenly have a nice passive income (and management worries). Or if you are lucky with timing and in 10 years they jump 3x with value. Thats over now. I wouldn't invest in properties now unless its for primary residence and then a lot of emotions and other concerns come into equation, but financially its not great.

fwip 4y ago
$2500 isn't that far off of the monthly rent for a single apartment in a lot of American cities. Sure, your old door might need a new lock after 30+ years (although given it was 15cm thick I'll bet it was much older than that).

Ajedi32 4y ago

If it's worth $0 then by definition you couldn't sell the property for more than $0, let alone charge a monthly rent higher than that. Obviously that wouldn't actually happen in real life, which I think is the GP's point.

djbebs 4y ago

Are you aware of the concept of risk? The amortization schedules are what they are for a reason, even if not all houses only last 30 years, the average is what matters here. Any number of things can result in houses being destroyed and become worthless prior to that time, including damage from earthquakes, fires. Additionally poor initial building standards, or changing building standards, or new regulatory barriers can make certain properties become not just worthless, but have an active cost to their owners and therefore have negative value.