4 ms·

To be fair, GP has a point: unexpected expenses and delays in construction represent sunk costs, and don't matter with respect to maximising profits, as the lan

To be fair, GP has a point: unexpected expenses and delays in construction represent sunk costs, and don't matter with respect to maximising profits, as the landlord should pick the price which maximises profits with respect to whatever the operating costs of the apartment are, without considering the cost of construction. However, as sibling comments to yours mentioned, there are flaws to this perspective: - You can make the apartments 'better' and charge a premium on top of whatever the better appliances cost. So if that raises operating costs by $100/unit month, raise rent by $200/unit month. - Real life doesn't always map perfectly onto microeconomic theory. In particular, discovering the profit-maximising price is tricky. However, I would still argue that the landlord would rationally still pick whatever they would assume the profit-maximising price would be. - Since everyone else is probably facing delays and cost overruns, probably not as much construction is getting done as might have been assumed, therefore the landlord faces less competition than anticipated and can raise rent higher than expected without losing too many prospective tenants.

s1artibartfast 4y ago
My point is that the GP's point isnt applicable, and critiquing a statement that was not made . >If, all along, you could have rented it out for more money ... why were you planning to rent it out for less money? ... the original post never said they would rent it out for less money. Nor did it say they would rent it out for more money. They only said the rent required to break even went up. This is clear in the original post, which says they could not achieve this higher rent required to break even.
- mannerheim 4y ago
  I think implicit here > This was almost a year delay and added cost overruns, etc. It also made the required rent higher to recoup those costs and try to be profitable (that deal will lose money). is the 'try to be profitable' that implies they did end up raising rent higher than otherwise planned, but you are right that this isn't necessarily true.
  - s1artibartfast 4y ago
    thats fair
    - eagleinparadise 4y ago
      We did end up pursuing higher rents than what was "market", unsuccessfully. By setting a lower rent, it meant that a lender or potential buyer would underwrite that income, resulting in significantly lower valuations, making the magnitude of the economics worse. But holding out for higher rents pushes out the business plan and increases the risk of the deal (ie your loan matures and you had no leases in place) If you can hit the same 10% return on 20% lower revenue... you can attract more capital and execute with a better measure of risk. My point was that the I of ROI increased substantially and we needed to try to hit the rate R of ROI.

s1artibartfast 4y ago

My point is that the GP's point isnt applicable, and critiquing a statement that was not made . >If, all along, you could have rented it out for more money ... why were you planning to rent it out for less money? ... the original post never said they would rent it out for less money. Nor did it say they would rent it out for more money. They only said the rent required to break even went up. This is clear in the original post, which says they could not achieve this higher rent required to break even.

mannerheim 4y ago
I think implicit here > This was almost a year delay and added cost overruns, etc. It also made the required rent higher to recoup those costs and try to be profitable (that deal will lose money). is the 'try to be profitable' that implies they did end up raising rent higher than otherwise planned, but you are right that this isn't necessarily true.
- s1artibartfast 4y ago
  thats fair
  - eagleinparadise 4y ago
    We did end up pursuing higher rents than what was "market", unsuccessfully. By setting a lower rent, it meant that a lender or potential buyer would underwrite that income, resulting in significantly lower valuations, making the magnitude of the economics worse. But holding out for higher rents pushes out the business plan and increases the risk of the deal (ie your loan matures and you had no leases in place) If you can hit the same 10% return on 20% lower revenue... you can attract more capital and execute with a better measure of risk. My point was that the I of ROI increased substantially and we needed to try to hit the rate R of ROI.