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Here's the thing though: Being a landlord is profitable. The rent you pay on a house covers all the costs of ownership (cost to buy the home, mortgage princip

Here's the thing though: Being a landlord is profitable. The rent you pay on a house covers all the costs of ownership (cost to buy the home, mortgage principal & interest, repairs, taxes, insurance) AND there is some left over as profit for the landlord. If you owned the house instead of the landlord, you are still paying the same costs, but you don't have to pay the extra profit to the landlord. That is the amount of money you save by owning over renting. There are edge cases, like people who want to move every year, but this is a useful heuristic. You can pay your landlord's salary or you can be your own landlord and keep that money for yourself.

pwinnski 4y ago
Being a landlord is mostly profitable when two things are true: 1. You can maintain the property in question for less than the market rate. 2. You bought the property for less than the current market rate. I looked into this in detail, talking with a realtor who very much wanted me to buy a second home to rent out, and determined that while the rental might be profitable a few years down the road--assuming I could keep it fully occupied and didn't end up with any "problem renters," even then it almost certainly would be more profitable to put the same capital outlay into the stock market, with the added advantages of liquidity and no renter headaches. Most individual landlords are renting out houses they have already owned for a few years, so their mortgage is not based on today's price, and that is where their profit margin primarily comes from.
syzarian 4y ago
Your analysis is incorrect and overly simplistic. Being a landlord is not always profitable. The fewer rentals one has the more likely it is to be unprofitable. Economies of scale work in the rental market just like they do in other markets. Landlords can depreciate their properties and write off maintenance expenses and homeowners can not.

pwinnski 4y ago

Being a landlord is mostly profitable when two things are true: 1. You can maintain the property in question for less than the market rate. 2. You bought the property for less than the current market rate. I looked into this in detail, talking with a realtor who very much wanted me to buy a second home to rent out, and determined that while the rental might be profitable a few years down the road--assuming I could keep it fully occupied and didn't end up with any "problem renters," even then it almost certainly would be more profitable to put the same capital outlay into the stock market, with the added advantages of liquidity and no renter headaches. Most individual landlords are renting out houses they have already owned for a few years, so their mortgage is not based on today's price, and that is where their profit margin primarily comes from.

syzarian 4y ago

Your analysis is incorrect and overly simplistic. Being a landlord is not always profitable. The fewer rentals one has the more likely it is to be unprofitable. Economies of scale work in the rental market just like they do in other markets. Landlords can depreciate their properties and write off maintenance expenses and homeowners can not.