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Why would a landlord charge a rent of $2000 if he pays $2200 on his mortgage? The rent you pay covers all the landlord's costs, and then some.

pwinnski 4y ago
In most cities, rents are lower than mortgage payments, because rent is a multiple of when the house was purchased, usually not the price to purchase the house this year. If I buy a house in 2009 when the market is depressed, and by 2023 the value of that house has gone up immensely, but my mortgage is still based on my 2009 purchase, I can charge less to rent it out than it would cost someone to buy it. Or I can charge the going rate, and hope I find someone willing to pay it. But if I'm on the other side of the table, it is usually cheaper and easier to rent a house from someone who bought it years ago than it is to buy a similar house myself.
- dahfizz 4y ago
  But you see the same benefits if you buy. As a renter, your rent goes up every year, but a mortgage is locked in and safe from inflation, rate hikes, and market volatility for 30 years. Renting _this year_ may be cheaper than buying _this year_, but renting for a lifetime is always more expensive than buying unless you move constantly.
  - pwinnski 4y ago
    You only have to move once or twice in 30 years for home ownership to not make a ton of sense. "Constantly" seems like hyperbole. This also assumes that you aren't facing high maintenance costs. One popular rule of thumb suggests setting side 1% of the total value of the home for maintenance every year, and if the value of the home is rising, that set-aside is also rising. By more or less than rent? Depends on many factors.
jedberg 4y ago
> The rent you pay covers all the landlord's costs, and then some. That's not true at all. Most landlords are cash flow negative for the first 10 years. What a landlord can charge is based on what the market will bear, not their expenses. And market is made of all landowners, including the ones who have no mortgage and can afford to charge less. Also, in California, the landlord who has owned for 30 years pays about 10x less in property taxes than a new buyer, so they can give a discount for that too. In almost all cases, if you were to purchase the house you rent, you'd pay significantly more in mortgage+taxes+maintenance than when you were renting.
pwinnski 4y ago
A landlord charges what the market will bear, and a unit sitting empty for a month is expensive, so sometimes they'll charge slightly less. If that doesn't quite cover their own costs, well, they're in this for the long haul, usually, and they'll make it up eventually. Landlords often don't rent out houses immediately after buying them. They must first either invest in repairs and upgrades to justify a higher rental price, or wait until the housing market itself justifies a higher rental price. For most landlords I've known, their first rental unit involved renting out their own paid-off or almost-paid-off house, and living in a new one they bought. Listing a new unit sometimes means being underwater for the first year or two, but they tell themselves that they're building equity and eventually rents will rise to more than cover their costs--which is eventually true.
- dahfizz 4y ago
  > A landlord charges what the market will bear Yes, but people wouldn't choose to be landlords if "what the market will bear" wasn't profitable. If renting didn't cover the landlord's costs (on average, over time), then nobody would be a landlord. > but they tell themselves that they're building equity and eventually rents will rise to more than cover their costs--which is eventually true. This is also true for you if you buy a house. Renters have their rent go up every year. Owners are always ahead after 30+ years.
  - pwinnski 4y ago
    Is your argument that landlords are by and large rational actors? Yes, I will concede that landlords are by and large rational actors, although I'm not sure that means as much as you seem to think it does. A landlord is investing, and usually willing to consider returns over a long term. Landlords I have known are not profitable every year, and almost never from day one on any given property. I have known one landlord--and heard of others--who have seen multiple years of profit on a property get wiped out by a single bad tenant. But that's okay! Most landlords (not the big corporate landlords for which the economics are very different) console themselves in unprofitable times with the knowledge that at least they have the underlying asset, and it should increase in value over time. > Renters have their rent go up every year. Owners are always ahead after 30+ years. Look, if the only thing you care about is $X out every month, then sure, fine. Buy a house, don't look back, and whatever you do, don't every tote up every penny you've spent on everything related to your house and chart it against S&P Index returns over the same period of time if you'd rented a smaller apartment instead.

pwinnski 4y ago

In most cities, rents are lower than mortgage payments, because rent is a multiple of when the house was purchased, usually not the price to purchase the house this year. If I buy a house in 2009 when the market is depressed, and by 2023 the value of that house has gone up immensely, but my mortgage is still based on my 2009 purchase, I can charge less to rent it out than it would cost someone to buy it. Or I can charge the going rate, and hope I find someone willing to pay it. But if I'm on the other side of the table, it is usually cheaper and easier to rent a house from someone who bought it years ago than it is to buy a similar house myself.

dahfizz 4y ago
But you see the same benefits if you buy. As a renter, your rent goes up every year, but a mortgage is locked in and safe from inflation, rate hikes, and market volatility for 30 years. Renting _this year_ may be cheaper than buying _this year_, but renting for a lifetime is always more expensive than buying unless you move constantly.
- pwinnski 4y ago
  You only have to move once or twice in 30 years for home ownership to not make a ton of sense. "Constantly" seems like hyperbole. This also assumes that you aren't facing high maintenance costs. One popular rule of thumb suggests setting side 1% of the total value of the home for maintenance every year, and if the value of the home is rising, that set-aside is also rising. By more or less than rent? Depends on many factors.

jedberg 4y ago

> The rent you pay covers all the landlord's costs, and then some. That's not true at all. Most landlords are cash flow negative for the first 10 years. What a landlord can charge is based on what the market will bear, not their expenses. And market is made of all landowners, including the ones who have no mortgage and can afford to charge less. Also, in California, the landlord who has owned for 30 years pays about 10x less in property taxes than a new buyer, so they can give a discount for that too. In almost all cases, if you were to purchase the house you rent, you'd pay significantly more in mortgage+taxes+maintenance than when you were renting.

pwinnski 4y ago

A landlord charges what the market will bear, and a unit sitting empty for a month is expensive, so sometimes they'll charge slightly less. If that doesn't quite cover their own costs, well, they're in this for the long haul, usually, and they'll make it up eventually. Landlords often don't rent out houses immediately after buying them. They must first either invest in repairs and upgrades to justify a higher rental price, or wait until the housing market itself justifies a higher rental price. For most landlords I've known, their first rental unit involved renting out their own paid-off or almost-paid-off house, and living in a new one they bought. Listing a new unit sometimes means being underwater for the first year or two, but they tell themselves that they're building equity and eventually rents will rise to more than cover their costs--which is eventually true.

dahfizz 4y ago
> A landlord charges what the market will bear Yes, but people wouldn't choose to be landlords if "what the market will bear" wasn't profitable. If renting didn't cover the landlord's costs (on average, over time), then nobody would be a landlord. > but they tell themselves that they're building equity and eventually rents will rise to more than cover their costs--which is eventually true. This is also true for you if you buy a house. Renters have their rent go up every year. Owners are always ahead after 30+ years.
- pwinnski 4y ago
  Is your argument that landlords are by and large rational actors? Yes, I will concede that landlords are by and large rational actors, although I'm not sure that means as much as you seem to think it does. A landlord is investing, and usually willing to consider returns over a long term. Landlords I have known are not profitable every year, and almost never from day one on any given property. I have known one landlord--and heard of others--who have seen multiple years of profit on a property get wiped out by a single bad tenant. But that's okay! Most landlords (not the big corporate landlords for which the economics are very different) console themselves in unprofitable times with the knowledge that at least they have the underlying asset, and it should increase in value over time. > Renters have their rent go up every year. Owners are always ahead after 30+ years. Look, if the only thing you care about is $X out every month, then sure, fine. Buy a house, don't look back, and whatever you do, don't every tote up every penny you've spent on everything related to your house and chart it against S&P Index returns over the same period of time if you'd rented a smaller apartment instead.