7 ms·

Can you explain why it can't be both? If I owned a property outright, and rented it out at market rates at a decent yield, is it not both? The problem is prop

by nly 4y ago

Can you explain why it can't be both? If I owned a property outright, and rented it out at market rates at a decent yield, is it not both? The problem is property exists in a debt market. Mortgage pricing basically determines property prices.

nateberkopec 4y ago
If you buy a residential property only to rent it out, it is not housing for you, it is solely an investment.
- twblalock 4y ago
  It's also housing for the people who live in it. Imagine a world without landlords. It's way worse than the one we live in now. It's a world where you cannot rent, you can only choose between buying or being homeless. Landlords provide housing and most of them don't make a ton of money out of it. They hope for future appreciation of the property, which they can only realize if they sell, and their monthly income often doesn't cover the cost of ownership.
  - DaiPlusPlus 4y ago
    How would you consider public/council/local-authority housing then? They certainly don’t own the property as an investment - especially as oftentimes thise properties cannot legally be sold anyway.
    - twblalock 4y ago
      That just means the government is your landlord.
  - flangola7 4y ago
    There could be options beyond rent buy or be homeless. But a number of steps would be required, such as growing up and taking the boot out of our throat.
  - actually_a_dog 4y ago
    A world where you cannot rent is also one where there isn't a huge class of people who own more housing units than they could possibly live in.
    - twblalock 4y ago
      Please identify this "huge class of people" who own more housing than they can possibly live in. I don't believe they exist. If you are referring to corporate owners of apartment buildings, that's one thing. But to say there is a huge class of people who are landlords is just unrealistic. Very few people own more than one home, and even fewer people own more than two.
      - actually_a_dog 4y ago
        You don't believe individual landlords exist? They have a whole, entire subreddit, r/Landlord. Voilà, quod erat demonstrandum. To wit: > Of the approximately 50 million rental housing units in the United States, around 41% of the rental units are owned by mom and pop landlords, also known as individual investor landlords. That means approximately 20.5 million units are overseen by mom and pop landlords. https://getflex.com/blog/landlord-statistics/ https://getflex.com/blog/landlord-statistics/ Also, from the same site, the average landlord has 3 properties. That means there are more than 6 million individual landlords in the US. I'm not going to nitpick whether that's "huge" or not; the point is proven.
        twblalock 4y ago
        > Also, from the same site, the average landlord has 3 properties. That means there are more than 6 million individual landlords in the US. In a population of 330 million. That's ~1.8% of the population. Hardly a "huge class".
        actually_a_dog 4y ago
        I'm not going to debate whether enough people to fill multiple major cities is a "huge" class or not. Go nitpick someone else if that's your only point.
  - crote 4y ago
    Landlords don't provide housing, property developers do. Most people who currently rent don't want landlord. You already make that point yourself: the alternative for them is being homeless, because they are unable to buy due to high housing prices and restrictions on getting mortgages. In many cases the landlord are making boatloads of money, simply by being the middleman between tenant and bank. They are not the selfless charities you are making them out to be.
    - twblalock 4y ago
      Most landlords actually spend more than they make, and they hope the long-term appreciation on the property will make up for the expenses. Property developers only build things because they know they can rent them out directly or sell them to landlords who will. None of this exists without a market that will demand it.
      - 29083011397778 4y ago
        We still don't need landlords. Water is a requirement, so my government has built out the infrastructure, and provides the service at near-cost. Same with power, insurance, licensing for firearms and motor vehicles, public transit, and more. Why is housing different in your mind? Or is this an American view that everything must be a "free" market? Note that the government doesn't need to be the sole provider of housing, but allowing the government to compete with private industry hardly seems unreasonable.
        twblalock 4y ago
        If the government provided your housing, the government would be your landlord. Is that really preferable to your landlord being an individual you can sue in court? There is no world without landlords.
        defrost 4y ago
        If a state housing commission fails to deliver contracted services then of course they can be taken to court - they are far less likely to dodge and avoid in the manner a truly bad individual landlord can. They're also there to provide housing services to all including the most needy that many landlords might reject. See (for example): https://www.housing.wa.gov.au https://www.housing.wa.gov.au
  - LikesPwsh 4y ago
    If letting was illegal the cost of housing would move to reflect that. Possibly to the point where a mortgage would be cheaper and easier than a rental is currently. Governments could set themselves up as a monopoly landlord for those people unable to afford even cheap homes.
    - twblalock 4y ago
      > Governments could set themselves up as a monopoly landlord If you wanted to make the current situation worse, congratulations, you have found a solution! Now you can't get out of your rent because your landlord is the damn government!
  - KingMachiavelli 4y ago
    That's just not the case even though the net cash flow makes it seem like landlords are often just breaking even. If a tenants rent only covered the the monthly mortgage, that's still a 5.5% ROI assuming 20% down, 30 year mortgage. Accounting for interest rates, then the ROI is 5.5-(R*0.8)% returns. But rents go up yearly to match market rents so the actual returns are closer to 15-22% (though it tends to scale poorly which is why REITs pay so little IMO). Even after accounting for loan interest & costs, real estate is a very attractive 8%-15% investment with very favorable tax incentives. E.g. gains gan be deferred as long as they are invested in other real estate, positive cash flow is typically tax free due to depreciation of property - despite it's market value going up!.
    - WalterBright 4y ago
      Once you sell, though, that depreciated value becomes your cost basis for capital gains, and then you get socko'ed with taxes.
      - KingMachiavelli 4y ago
        IRC Section 1031 lets you transfer the cost basis as long as you reinvest in real estate and inherited assets get stepped up cost basis. As long as you stay invested in real estate (and the tax laws don't change), you could get an entire lifetime of appreciation tax free all while having positive cash flow.
minitoar 4y ago
because if housing was affordable for most people then the demand for rentals would be greatly reduced and you wouldn’t get a decent yield
coldtea 4y ago
>If I owned a property outright, and rented it out at market rates at a decent yield, is it not both? No, since parent said "lucrative investment". Key word: lucrative. If housing was cheap enough to be affordable, not only a house wouldn't be a lucrative investment, but rent wouldn't be that good of a return either.
Arkhaine_kupo 4y ago
> If I owned a property outright, and rented it out at market rates at a decent yield, is it not both? For you yes, but if everyone does it, then the market is priced on the "market rates" which have now become much higher than your initial price due to market capture. The problem with private land ownership is that land is a natural monopoly and as such has very actual market conditions. You could theoretically have a functioning one as long as you build way more than people need, housing then becomes elastic despite the land below being non elastic but the math quickly breaks down. For the conditions to be met where housing "always goes up", and "housing is a basic need" someone is gotta give. And power wise, homeowners wreck non homeowners and have for 70 years hence, they always win. Now with the rush of institutional house buyers and the rush of big corps buying entire house blocks, the problem is gonna become much worse, and quickly. If you wanna see alternatives to fix the problem, Singapore nationalised all land and has no private landlords and Austria has about 50% of the houses in Vienna to be non market rates (so the price is dictated by construction costs plus a percentage not on how much you can charge for rent). Both models heavily bring down rent/ mortgage costs and yield better results for people, the only ones who lose out are IRA's tied to housing and large landlord conglomerates.
- 7speter 4y ago
  Not all current homeowners are sitting on their house as an investment. The true value in a house is that you have some property and a roof over your head as long as you can pay the mortgage, taxes and insurance. Much better than being at the whim of landlords in a lot of cases. My father has owned a house for 29 years and when he’s gone I don’t care about cashing out or making a profit. Its just great to have a literal home base to rely on in case things get rough.
  - tsimionescu 4y ago
    Of course, but that is exactly the point that GP was making: we either have this sort of safety for the majority of people, or we have a lucrative investment opportunity. It is fundamentally impossible, or or at least deeply unlikely, to have both.
  - 4y ago
hagy 4y ago
Homeownership cannot be both affordable and a good investment because a good investment has returns that at least beat inflation. That implies housing costs for new buyers will become increasingly expensive in real terms. Think about how cars generally depreciate over time such that a used car becomes more affordable. During the pandemic, this trend broke to supply side disruptions and used cars actually started to appreciate. Housing always has supply side constraints to zoning regulations to guard the entrenched interests of existing homeowners, and thereby housing generally appreciates in value. The closest that we can come to balancing both affordability and investment interests in a growing area is to constantly increase housing density. Then the land itself can appreciate in value as larger buildings are built in a fixed footprint. Yet the price of an individual unit of housing can stay roughly constant in real terms due to the ever increasing supply.
- WalterBright 4y ago
  Houses (not the land) tended to depreciate over time (like cars) until the 1970s.
- jjav 4y ago
  > Homeownership cannot be both affordable and a good investment because a good investment has returns that at least beat inflation. This is precisely why a house is different. You can't live in a stock certificate but you live in a home. If you buy a stock at $10 and sell it for $10 ten years later you lost money. If you buy a house and sell it ten years later at exactly the same price it was still good value because you got to live in it for a decade.
michaelt 4y ago
To remain affordable, housing must not appreciate faster than the rate of inflation (and salaries must keep pace with inflation) To be a good investment, housing must appreciate faster than the rate of inflation. The politics of the last two decades have overwhelmingly produced the latter.

by nly 4y ago

nateberkopec 4y ago

If you buy a residential property only to rent it out, it is not housing for you, it is solely an investment.

twblalock 4y ago
It's also housing for the people who live in it. Imagine a world without landlords. It's way worse than the one we live in now. It's a world where you cannot rent, you can only choose between buying or being homeless. Landlords provide housing and most of them don't make a ton of money out of it. They hope for future appreciation of the property, which they can only realize if they sell, and their monthly income often doesn't cover the cost of ownership.
- DaiPlusPlus 4y ago
  How would you consider public/council/local-authority housing then? They certainly don’t own the property as an investment - especially as oftentimes thise properties cannot legally be sold anyway.
  - twblalock 4y ago
    That just means the government is your landlord.
- flangola7 4y ago
  There could be options beyond rent buy or be homeless. But a number of steps would be required, such as growing up and taking the boot out of our throat.
- actually_a_dog 4y ago
  A world where you cannot rent is also one where there isn't a huge class of people who own more housing units than they could possibly live in.
  - twblalock 4y ago
    Please identify this "huge class of people" who own more housing than they can possibly live in. I don't believe they exist. If you are referring to corporate owners of apartment buildings, that's one thing. But to say there is a huge class of people who are landlords is just unrealistic. Very few people own more than one home, and even fewer people own more than two.
    - actually_a_dog 4y ago
      You don't believe individual landlords exist? They have a whole, entire subreddit, r/Landlord. Voilà, quod erat demonstrandum. To wit: > Of the approximately 50 million rental housing units in the United States, around 41% of the rental units are owned by mom and pop landlords, also known as individual investor landlords. That means approximately 20.5 million units are overseen by mom and pop landlords. https://getflex.com/blog/landlord-statistics/ https://getflex.com/blog/landlord-statistics/ Also, from the same site, the average landlord has 3 properties. That means there are more than 6 million individual landlords in the US. I'm not going to nitpick whether that's "huge" or not; the point is proven.
      - twblalock 4y ago
        > Also, from the same site, the average landlord has 3 properties. That means there are more than 6 million individual landlords in the US. In a population of 330 million. That's ~1.8% of the population. Hardly a "huge class".
        actually_a_dog 4y ago
        I'm not going to debate whether enough people to fill multiple major cities is a "huge" class or not. Go nitpick someone else if that's your only point.
- crote 4y ago
  Landlords don't provide housing, property developers do. Most people who currently rent don't want landlord. You already make that point yourself: the alternative for them is being homeless, because they are unable to buy due to high housing prices and restrictions on getting mortgages. In many cases the landlord are making boatloads of money, simply by being the middleman between tenant and bank. They are not the selfless charities you are making them out to be.
  - twblalock 4y ago
    Most landlords actually spend more than they make, and they hope the long-term appreciation on the property will make up for the expenses. Property developers only build things because they know they can rent them out directly or sell them to landlords who will. None of this exists without a market that will demand it.
    - 29083011397778 4y ago
      We still don't need landlords. Water is a requirement, so my government has built out the infrastructure, and provides the service at near-cost. Same with power, insurance, licensing for firearms and motor vehicles, public transit, and more. Why is housing different in your mind? Or is this an American view that everything must be a "free" market? Note that the government doesn't need to be the sole provider of housing, but allowing the government to compete with private industry hardly seems unreasonable.
      - twblalock 4y ago
        If the government provided your housing, the government would be your landlord. Is that really preferable to your landlord being an individual you can sue in court? There is no world without landlords.
        defrost 4y ago
        If a state housing commission fails to deliver contracted services then of course they can be taken to court - they are far less likely to dodge and avoid in the manner a truly bad individual landlord can. They're also there to provide housing services to all including the most needy that many landlords might reject. See (for example): https://www.housing.wa.gov.au https://www.housing.wa.gov.au
- LikesPwsh 4y ago
  If letting was illegal the cost of housing would move to reflect that. Possibly to the point where a mortgage would be cheaper and easier than a rental is currently. Governments could set themselves up as a monopoly landlord for those people unable to afford even cheap homes.
  - twblalock 4y ago
    > Governments could set themselves up as a monopoly landlord If you wanted to make the current situation worse, congratulations, you have found a solution! Now you can't get out of your rent because your landlord is the damn government!
- KingMachiavelli 4y ago
  That's just not the case even though the net cash flow makes it seem like landlords are often just breaking even. If a tenants rent only covered the the monthly mortgage, that's still a 5.5% ROI assuming 20% down, 30 year mortgage. Accounting for interest rates, then the ROI is 5.5-(R*0.8)% returns. But rents go up yearly to match market rents so the actual returns are closer to 15-22% (though it tends to scale poorly which is why REITs pay so little IMO). Even after accounting for loan interest & costs, real estate is a very attractive 8%-15% investment with very favorable tax incentives. E.g. gains gan be deferred as long as they are invested in other real estate, positive cash flow is typically tax free due to depreciation of property - despite it's market value going up!.
  - WalterBright 4y ago
    Once you sell, though, that depreciated value becomes your cost basis for capital gains, and then you get socko'ed with taxes.
    - KingMachiavelli 4y ago
      IRC Section 1031 lets you transfer the cost basis as long as you reinvest in real estate and inherited assets get stepped up cost basis. As long as you stay invested in real estate (and the tax laws don't change), you could get an entire lifetime of appreciation tax free all while having positive cash flow.

minitoar 4y ago

because if housing was affordable for most people then the demand for rentals would be greatly reduced and you wouldn’t get a decent yield

coldtea 4y ago

>If I owned a property outright, and rented it out at market rates at a decent yield, is it not both? No, since parent said "lucrative investment". Key word: lucrative. If housing was cheap enough to be affordable, not only a house wouldn't be a lucrative investment, but rent wouldn't be that good of a return either.

Arkhaine_kupo 4y ago

> If I owned a property outright, and rented it out at market rates at a decent yield, is it not both? For you yes, but if everyone does it, then the market is priced on the "market rates" which have now become much higher than your initial price due to market capture. The problem with private land ownership is that land is a natural monopoly and as such has very actual market conditions. You could theoretically have a functioning one as long as you build way more than people need, housing then becomes elastic despite the land below being non elastic but the math quickly breaks down. For the conditions to be met where housing "always goes up", and "housing is a basic need" someone is gotta give. And power wise, homeowners wreck non homeowners and have for 70 years hence, they always win. Now with the rush of institutional house buyers and the rush of big corps buying entire house blocks, the problem is gonna become much worse, and quickly. If you wanna see alternatives to fix the problem, Singapore nationalised all land and has no private landlords and Austria has about 50% of the houses in Vienna to be non market rates (so the price is dictated by construction costs plus a percentage not on how much you can charge for rent). Both models heavily bring down rent/ mortgage costs and yield better results for people, the only ones who lose out are IRA's tied to housing and large landlord conglomerates.

7speter 4y ago
Not all current homeowners are sitting on their house as an investment. The true value in a house is that you have some property and a roof over your head as long as you can pay the mortgage, taxes and insurance. Much better than being at the whim of landlords in a lot of cases. My father has owned a house for 29 years and when he’s gone I don’t care about cashing out or making a profit. Its just great to have a literal home base to rely on in case things get rough.
- tsimionescu 4y ago
  Of course, but that is exactly the point that GP was making: we either have this sort of safety for the majority of people, or we have a lucrative investment opportunity. It is fundamentally impossible, or or at least deeply unlikely, to have both.
- 4y ago

hagy 4y ago

Homeownership cannot be both affordable and a good investment because a good investment has returns that at least beat inflation. That implies housing costs for new buyers will become increasingly expensive in real terms. Think about how cars generally depreciate over time such that a used car becomes more affordable. During the pandemic, this trend broke to supply side disruptions and used cars actually started to appreciate. Housing always has supply side constraints to zoning regulations to guard the entrenched interests of existing homeowners, and thereby housing generally appreciates in value. The closest that we can come to balancing both affordability and investment interests in a growing area is to constantly increase housing density. Then the land itself can appreciate in value as larger buildings are built in a fixed footprint. Yet the price of an individual unit of housing can stay roughly constant in real terms due to the ever increasing supply.

WalterBright 4y ago
Houses (not the land) tended to depreciate over time (like cars) until the 1970s.
jjav 4y ago
> Homeownership cannot be both affordable and a good investment because a good investment has returns that at least beat inflation. This is precisely why a house is different. You can't live in a stock certificate but you live in a home. If you buy a stock at $10 and sell it for $10 ten years later you lost money. If you buy a house and sell it ten years later at exactly the same price it was still good value because you got to live in it for a decade.

michaelt 4y ago

To remain affordable, housing must not appreciate faster than the rate of inflation (and salaries must keep pace with inflation) To be a good investment, housing must appreciate faster than the rate of inflation. The politics of the last two decades have overwhelmingly produced the latter.