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> It perplexes me, and the rest of our neighborhood, how someone can float a mortgage, much less an investment mortgage, without a renter. In the USA it is hap
by lr1970 2y ago
> It perplexes me, and the rest of our neighborhood, how someone can float a mortgage, much less an investment mortgage, without a renter.
In the USA it is happening all the time because, surprisingly, landlords have little skin in the the game. LLC is the name of the game. Each investment property is "owned" by its own LLC that bares 100% of risks and liabilities associated with the property and shields the landlord from the creditors. The property is financed entirely through commercial loans from the banks or other lenders. If the property does not generate enough profits for the landlord they quietly take all the liquid assets out of the LLC and stop paying their loan and property taxes. It takes long time (often years) for banks and local governments to start legal proceedings against the said LLC. During this period of time the property is sitting there boarded up. Finally the LLC files chapter 7 -- liquidation and all its assets, close to zero at that time, are given to the creditors.
You may ask why the banks give loans to such high risk entities? First of all, if the property is bringing profits the loans are being paid of and it is the majority of the cases. Secondly, if the loan fails the banks do not have much skin in the game either. They slice and dice the loans and package them into "real estate investment vehicles". Then they sell the packages similarly to how they did it before the financial crisis of 2008. The terms and abbreviations are different now but the gist of it is still the same.
EDIT: typos
- erickf1 2y agoLandlords have 100% risk. Look what happened to California, when the state said tenants did not have to pay rent. Same for Washington, NY, IL, etc... The vast majority of people with rental properties are just regular people trying to make a living.
- carlosjobim 2y agoThe majority are not regular people trying to make a living. They are old people trying and succeeding in getting rich by doing nothing.
- djbusby 2y agoWhere can we find stats on this? Lots of claims in this thread feel good but don't point to number-sources. I do know a few retirees who rent-out the home they raised their family in and live in a new primary. But my town also has some developers who build and rent.
- carlosjobim 2y agoLook at national stats of wealth distribution by age. Most of that wealth is real estate.
- swagasaurus-rex 2y agoMy landlords have basically frozen rent since 2010. I pay half of what the people in the houses around me do. I'm very thankful to have landlords that aren't greedy.
- carlosjobim 2y agoIn that timespan you have probably paid off their mortgage. They still have the entire property and you still have nothing. Who should be grateful?
- yurishimo 2y agoIf their fixed costs are low, the tenant could be making more through investments after staying in the same house for 15 years. Buying makes a ton of sense if you're going to live somewhere for a long time of course, but if you start out not sure and you have a nice landlord that doesn't take advantage of you with perpetual rent increases every year, then it can make sense to ride it out and invest your "inflated" income every year instead. By the time the tenant moves out, they have a nice portfolio to leverage for a new property and the landlord has gotten a decent return on their investment with a stable tenant. In this scenario, it seems to me that main driver of disparity in our society is landlords' push to always increase rent even when the mortgage is being paid 2x or 3x over each month, just because it's allowed. I'm not saying we need rent controls necessarily as a way to fix the problem, but that is one problem that rent control solves. Perhaps paired with some other scheme (3% max increase per year for first 5 years of renting, then capped at 1%?) we could find a more equitable way to account for inflation of repair costs while not screwing tenants with "forced" moves every few years when the rent becomes unaffordable.
- NewJazz 2y agoWait don't the assets include the property?
- Uvix 2y agoYes, but if they can't find renters, the property is worthless anyways, so why bother keeping it?
- thelastgallon 2y agoNo bank loans 100%, investment homes require 25% downpayment.
- oooyay 2y agoNon-sequitur to this but VA loans do. That said, VA loans are watched like a hawk for this. It's considered fraud if the loan is not on your primary residence and you cannot rent any portion of it.