American landlords derive more profit from renters in low-income neighborhoods
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Re: American landlords derive more profit from renters in low-income neighborhoods
#2"Those are whopping margins, and the reason for this discrepancy is that rental markets have very different dynamics in expensive cities like New York and San Francisco than less expensive cities like Milwaukee. In low-cost cities, landlord profit rates rise steeply alongside neighborhood poverty. But in expensive cities, the reverse is true. In expensive cities, landlords make money through appreciation and gentrification (which is bad enough for the poor). In lower-cost, more economically hard-hit cities, they make it on the backs of the poor."
In expensive cities the underlying real estate appreciates and you make your money on that when you sell. The cash flows are mostly to cover maintenance and property tax but in some hot real estate markets rents won't even cover operating costs. In stagnant areas the property value is either stable or decreasing so you make your money on rent.
Low rent, high appreciation properties are attractive to investors who don't need cash flow. If you need cash flows you have to go the other way. This isn't surprising to anyone.
Re: American landlords derive more profit from renters in low-income neighborhoods
#3[dead]
Re: American landlords derive more profit from renters in low-income neighborhoods
#4Paying one fourth of apartment cost in rent yearly makes no sense. There should be something more in play here the analysis is not going deep enough or simply incorrect
Re: American landlords derive more profit from renters in low-income neighborhoods
#5Well, yes, that's the way the efficient frontier in the risk-yield curve works.
Re: American landlords derive more profit from renters in low-income neighborhoods
#6Paying one fourth of apartment cost in rent yearly makes no sense. There should be something more in play here the analysis is not going deep enough or simply incorrect
Access to credit?
Re: American landlords derive more profit from renters in low-income neighborhoods
#7Well, yes, that's the way the efficient frontier in the risk-yield curve works.
Efficiency in markets usually at least implies closely following the truth, as I understand it. Is the risk higher at the low end of the market?
Re: American landlords derive more profit from renters in low-income neighborhoods
#8Re: American landlords derive more profit from renters in low-income neighborhoods
#9Paying one fourth of apartment cost in rent yearly makes no sense. There should be something more in play here the analysis is not going deep enough or simply incorrect
It seems they literally define "exploitation rate" as rent over purchase price. Then later they add in some estimate of costs of repairs.
But it would be much more interesting to actually see the books. I'd bet a lot of money that the tenants in expensive neighbourhoods are much more likely to pay on time, every month, and to leave when the contract is up. And in addition, the labor in dealing with each tenant is paid for out of $2000 not $200 rent, so more is left for the owner.
In other news, payday loans in sketchy parts of town come with higher interest rates than 20%-down home loans in good neighbourhoods. Does anyone think this is because payday loansharks are uniquely greedy human beings? They are just operating a very different business with different costs.
Re: American landlords derive more profit from renters in low-income neighborhoods
#10A guy I used to work with once told me that instead of buying a $100k rental house, you should buy three $30k rental houses. We're in a LCOL area, and him and his wife easily made over $200k in salary alone, so why he spent his free time managing all those rental houses is beyond me. He had over 20, and managed them all himself.