American landlords derive more profit from renters in low-income neighborhoods • Hacker News Board

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

#41

Post by ratsmack » Sat, Mar 23, 2019, 3:21 PM UTC

bluedino wrote: post #30

I’d bet this has to do with vouchers. If you qualify, a city will give you a predetermined amount for rent assistance and then you cover the other 20-30%. Landlords know this. The housing assistance organization guarantees the payment. http://www.hacm.org/doing-business-with-us/section-8-landlor... This causes section 8 landlords to inflate their rents. If a regular person had to pay for the apartment, there is no wa…

> ... are not maintained ...

Section 8 housing must be maintained to minimum standards which are well defined. If not, the renters can report the facilities for being deficient.

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

#42

Post by magnetic » Sat, Mar 23, 2019, 3:22 PM UTC

bluedino wrote: post #30

I’d bet this has to do with vouchers. If you qualify, a city will give you a predetermined amount for rent assistance and then you cover the other 20-30%. Landlords know this. The housing assistance organization guarantees the payment. http://www.hacm.org/doing-business-with-us/section-8-landlor... This causes section 8 landlords to inflate their rents. If a regular person had to pay for the apartment, there is no wa…

Is there a public database of section 8 rentals/properties?

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

#43

Post by koolba » Sat, Mar 23, 2019, 3:22 PM UTC

bluedino wrote: post #30

I’d bet this has to do with vouchers. If you qualify, a city will give you a predetermined amount for rent assistance and then you cover the other 20-30%. Landlords know this. The housing assistance organization guarantees the payment. http://www.hacm.org/doing-business-with-us/section-8-landlor... This causes section 8 landlords to inflate their rents. If a regular person had to pay for the apartment, there is no wa…

> However, by subsidizing a majority of the rent, the low income people will live there. The buildings are cheap to buy, are not maintained, boom, lots of profit for the landlords.

Also the tax laws of CA in particular actively discourage you from improving properties. Rent growth is effectively capped whereas property tax growth (a percentage of property price) is only capped as long as you do not perform major renovations.

That combination incentivizes renters to remain fixed ("I'll lose my years of rent control!") and property owners to do the bare minimum ("Why should I improve the property if it'll cost me more taxes and I can't charge more?").

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

#44

Post by krapp » Sat, Mar 23, 2019, 3:22 PM UTC

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…

>An an interesting aside, these individuals are almost all involved with close-knit religious groups to which they contribute great deals of capital.

Before an edit, the above comment referred to "close-knit religious groups" surrounded by triple parentheses[0]. These are used by white supremacist and anti-Semitic posters to denote or refer to Jews. They are not, to my knowledge, an idiom commonly used in any other context.

If you're going to go there, "kjbfojbejib," remember that editing your post doesn't also edit people's memories. I assume you were just trying to be funny but that kind of humor is not welcome here. Nor is that kind of prejudice, if you were being sincere.

[0]https://en.wikipedia.org/wiki/Triple_parentheses

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

#45

Post by [deleted] » Sat, Mar 23, 2019, 3:23 PM UTC

paulddraper wrote: post #28

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.

> even considering those costs But there is an overall expected value premium to be paid on low-risk purchases (or to be gained on high-risk purchases) On average, you will lose money by purchasing insurance. (That's how insurance derive a profit.) However, people are generally happy to do that, because they value the certainty of it, even if overall it's the arthemtically subpar choice. I expect that you will make p…

[deleted]

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

#46

Post by tzs » Sat, Mar 23, 2019, 3:24 PM UTC

mruts wrote: post #26

This is such a ridiculous article. Of course landlords are going to charge a premium in poor neighborhoods, because their risk is higher. They need to match the market's risk adjusted returns, so they need a higher return to balance out the higher risk (volatility) and match the market's Sharpe ratio. This isn't "exploitation" this is an efficient market that is working as it should. Moreover, there is a reason landl…

If risk is higher, wouldn't expenses also be higher? And wouldn't the higher expenses due to the risk offset the higher rent charged due to risk, so there wouldn't necessarily be much effect on profit?

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

#47

Post by tetromino_ » Sat, Mar 23, 2019, 3:26 PM UTC

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…

I have no idea about Philadelphia or the area "around NYC" that kjbfojbejib was talking about. But for NYC itself, here's the official landlord watchlist (ranked by number of violations and complaints) that was compiled by the public advocate's office: https://landlordwatchlist.com/landlords

Good resource for finding where not to rent, if you have the option.

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

#48

Post by pytester » Sat, Mar 23, 2019, 3:30 PM UTC

patio11 wrote: post #29

Small scale operation of rental properties may be the most common small business in America, so if one actually believes this thesis then one has an easy option to compete down the differential while feeling good about oneself, with very low capital and expertise requirements. Prior to doing so, I would advise one to ask landlords what their experience has been in the neighborhoods you want to sink $X00k into.

>one has an easy option to compete down the differential while feeling good about oneself

Would you really feel good about yourself evicting somebody on to the street who hasn't kept up on their rent because they lost their job at Walmart?

It's difficult to argue that it isn't a necessary part of protecting your investment.

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

#49

Post by iguy » Sat, Mar 23, 2019, 3:34 PM UTC

stoic wrote: post #39

iguy wrote: post #9

Earlier quoted context omitted.

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…

My point is that a theory that says their business practices follow from moral failings doesn't explain anything about the world. Some businesses just mysteriously seem to always be run by bad people.

Conversely, assuming that every businessman is about equally greedy forces you to look elsewhere. Their loans are almost by definition high-risk, that's why they are expensive. Low-risk borrowers are a different market.

The fact that we can learn something by thinking about their business does not mean anything like "defending". It's just that sometimes the lessons are clearest with extreme examples. We can learn interesting things from studying drug gangs, pirates, kidnapping schemes, too.

We can also ask questions about whether the world would be made better by prohibiting loansharking, and I actually don't know enough to have an opinion. But it's clear to many that prohibiting drug-dealing has had some nasty side-effects.

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

#50

Post by AmVess » Sat, Mar 23, 2019, 3:38 PM UTC

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.

That depends on the local market and what you can charge for rent, and what your tolerance for pain is.

When I first started buying houses to rent, I had a rental unit in a LCOL area, and I spent a lot of time dealing with tenants and rent issues. It was a constant problem, so I sold the house. I might have broken even on the venture.

I ended up with a handful of starter homes near nice schools, and had a much higher class of renter as a result. Far less work, vastly fewer headaches.

I also had a FT job, so didn't have the time or energy to chase down rent checks.