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American landlords derive more profit from renters in low-income neighborhoods

citylab.com

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Re: American landlords derive more profit from renters in low-income neighborhoods

#31

Post by Lndlrd »

Ctrl+F "exploit", appears 24 times in this 13-paragraph article.

> "Defining exploitation as being overcharged relative to the market value of a property"

The ratio they've based their narrative on is called GRM (gross rent multiplier): https://en.m.wikipedia.org/wiki/Gross_Rent_Multiplier

GRM is one of many factors when analyzing investment options. Other important factors include appreciation and expenses (maintenance, property management, etc). Cap rates are a better indicator than GRM (because they include expenses) but still not comparable across asset classes due to appreciation (HCOL++) and unaccounted overhead (LCOL--).

I own both (LCOL oil region, HCOL tech region). If the numbers were equal anyone would only choose the tech region, because of urbanization and future expectations for those industries. It's the same reason P/E ratios on tech stocks are so much higher than on oil stocks. So cap rates are higher on my LCOL oil region properties (approx 6, vs 4 in the tech region). But that's just market forces. If cap rates were equal why would anybody buy in the oil region? Even if you exclude the market's predictions for the future (oil vs tech), the LCOL has additional overhead (more properties at equal value).

Reducing the conversation to cap rates and ESPECIALLY reducing the conversation to GRM - relabeling GRM to "exploitation ratio" - shows these prestigious authors (MIT & Princeton) aren't interested in answering any real questions. They're too smart to believe GRM indicates exploitation. They therefore must have an agenda.

The most interesting question raised is who funded their study, else why are they spending their time forging this narrative?

Re: American landlords derive more profit from renters in low-income neighborhoods

#32

Post by coldtea »

jessaustin wrote: post #24
kjbfojbejib wrote: post #12

Can confirm, I work for a company that helps landlords finance the purchase and repair of rental properties. In certain very LCOL urban areas around NYC and Philadelphia, we have individuals with tens of millions of dollars of property spread out among ~$150k buildings. They inspect their portfolio with armed bodyguards, and they very often own other businesses in the same neighborhoods that throw off money in small…

...certain very LCOL urban areas around NYC and Philadelphia... That's "Low Cost Of Living", right? That's not a synonym for "poor", so I'm not certain such situations actually exist in those metro areas?

>That's "Low Cost Of Living", right? That's not a synonym for "poor"

It is.

>so I'm not certain such situations actually exist in those metro areas?

Huh?

Re: American landlords derive more profit from renters in low-income neighborhoods

#33

Post by eli_gottlieb »

kjbfojbejib wrote: post #12

Can confirm, I work for a company that helps landlords finance the purchase and repair of rental properties. In certain very LCOL urban areas around NYC and Philadelphia, we have individuals with tens of millions of dollars of property spread out among ~$150k buildings. They inspect their portfolio with armed bodyguards, and they very often own other businesses in the same neighborhoods that throw off money in small…

Funny how we have two fresh accounts posting in this discussion, one of which insists that the study authors must have an "agenda", and another of which gives an "aside" that exploitative slumlords "are almost all involved with (((close-knit religious groups)))".

Sounds like the ruling class is a bit agitated that we're noticing what's going on, and wants to misdirect our attention.

Re: American landlords derive more profit from renters in low-income neighborhoods

#34

Post by coldtea »

TheBeardKing wrote: post #10

A 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.

>so why he spent his free time managing all those rental houses is beyond me. He had over 20, and managed them all himself

How much time do you believe it takes to "manage" those 20 houses? A month a year at most.

(Source: have friends with low 10s of houses).

Re: American landlords derive more profit from renters in low-income neighborhoods

#35

Post by bkohlmann »

DataWorker wrote: post #14
spo81rty wrote: post #11

I think you also have to take in to account the higher risk of renting to lower income individuals. They are more likely not to pay. They are probably also more likely to trash the place.

I think you don’t understand “take more profit.” That means they have considered those costs and still they “take more profit” even considering those costs. That’s what profit means.

Having read "Evicted" - the book positively mentioned in the article - I came to understand how difficult it was to be a landlord in LCOL areas. The effort required to evict or collect on non-paying tenants made it a full time job with significant costs associated (psychological and financial).

The article did not make mention of this in it's accounting of "profit."

Re: American landlords derive more profit from renters in low-income neighborhoods

#36

Post by ccvannorman »

Lndlrd wrote: post #31

Ctrl+F "exploit", appears 24 times in this 13-paragraph article. > "Defining exploitation as being overcharged relative to the market value of a property" The ratio they've based their narrative on is called GRM (gross rent multiplier): https://en.m.wikipedia.org/wiki/Gross_Rent_Multiplier GRM is one of many factors when analyzing investment options. Other important factors include appreciation and expenses (maintena…

Thank you for addressing my concern with the claim. My immediate thought on the article title is that low income properties come with a host of extra work and risks that "higher class" areas do not have, and the higher margin on paper is the market's reflection of this fact.

I am an aspiring real estate investor and of course have considered low income properties. The forums online are chock full of the same question and the resounding response is "Yes, on paper you can make more money, if $bad_thing doesn't happen -- e.g. $bad_thing { a, b, c, d, e ... z } happened to me or someone I know and they actually lost money over 5yr. Good luck!"

Re: American landlords derive more profit from renters in low-income neighborhoods

#37

Post by krapp »

eli_gottlieb wrote: post #33
kjbfojbejib wrote: post #12

Can confirm, I work for a company that helps landlords finance the purchase and repair of rental properties. In certain very LCOL urban areas around NYC and Philadelphia, we have individuals with tens of millions of dollars of property spread out among ~$150k buildings. They inspect their portfolio with armed bodyguards, and they very often own other businesses in the same neighborhoods that throw off money in small…

Funny how we have two fresh accounts posting in this discussion, one of which insists that the study authors must have an "agenda", and another of which gives an "aside" that exploitative slumlords "are almost all involved with (((close-knit religious groups)))". Sounds like the ruling class is a bit agitated that we're noticing what's going on, and wants to misdirect our attention.

I mean, one or both of those accounts could be your own alts, as far as anyone knows.

I don't think the "ruling class" are so concerned about people "noticing what's going on" that they sent shills to create a couple of green accounts to post on Hacker News. That the rich exploit the poor is not exactly a shocking revelation to anyone.

Certainly, you're not helping keep things focused by implying shills and saboteurs are at work here.

Re: American landlords derive more profit from renters in low-income neighborhoods

#38

Post by pytester »

justinalanbass wrote: post #19
DataWorker wrote: post #14

Earlier quoted context omitted.

I think you don’t understand “take more profit.” That means they have considered those costs and still they “take more profit” even considering those costs. That’s what profit means.

Actually... According to the research source landlords do charge more due to increased risk: "Because landlords operating in poor communities face more risks, they hedge their position by raising rents on all tenants." https://www.journals.uchicago.edu/doi/abs/10.1086/701697

>Because landlords operating in poor communities face more risks

>Since losses are rare, landlords typically realize the surplus risk charge as higher profits

The author of this study appears to be confused as to what risk is.

Behind a paywall unfortunately, so it's difficult to tell if he's just made two contradictory assumptions in his abstract or if there's something deeper going on.

I suspect slumlords actually yield higher profits because of basic supply and demand - slumlording is a market, after all, that most would find it distasteful to get in to (who wants to evict somebody who lost their job at walmart on to the streets?).

It's sort of like the "low salaries for teachers/charity workers" effect in reverse - there are certain kinds of work (or investments) that people can be proud of and certain kinds that they aren't.

"Risk" sounds more laudable than "there's a restricted supply of investors who are prepared to be assholes to protect their investments, though.

Re: American landlords derive more profit from renters in low-income neighborhoods

#39

Post by stoic »

iguy wrote: post #9
hamilyon2 wrote: post #4

Paying 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 pai…

I wonder why you still managed to use the term "loansharks" when trying to defend their quite obviously predatory business practices.

"Higher interest rates" doesn't even begin to define the exploitation of these people who are desperate for cash. The rates for these loans are on the order of 400%, which makes the comparison laughable.

It's almost like saying "the US national debt is $22 trillion, which is more than the average American makes in a year."

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