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

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.

If the home value is flat or even falling, then of course the rent will have to be higher to provide the necessary return on capital to bother owning the rental property in the first place!

It’s not like capital is required to be deployed to rental stock in certain proportions. There is whole world of potential investments, and based on their risk and return will have a whole world of dollars competing for them.

Rental units that appreciate fast enough are just held vacant in some markets, so much so that Vancouver had to abundantly tax it to try to stop it.

Rental property appreciation is an absolutely key variable in the profitability calculation. In many markets it totally dominates the equation over the actual rental income figure.

The interventions we already have are largely responsible for the problem in the first place. Governments intervene massively to increase the cost of housing as a backdoor give-away to incumbent homeowners.

Doubling down on intervention will not work because there are diametrically opposed requirements—-politicians want high and monotonically increasing home prices but low and stable rents.

Not a landlord, but know a few - all who do it as a side gig or who started out that way. Everyone tries to be nice up to the point that it makes financial sense.

Say I get into the landlording business as a side. I have a simple equation: I need to make X amount of profit to make the time investment worth it. The alternative is I invest that time in my regular career and try to climb the ladder. If I make less than X a year as a landlord, I should just sell the property and focus on my career.

For people with well paying jobs (e.g. engineers, SW, etc - and I don't mean SV salary - just the usual for, say, a Mechanical engineer in any major city), many/most of the higher income neighborhoods are pointless - they simply cannot make that X amount from them. That leaves the lower income neighborhoods.

Now if they do their work well and pick the right places, they may be making 1.2X (you'll always target making higher than X). Then at times they decide to be "less evil" in the way you think. They're willing to lower their profit down to X. But often that's still not "nice enough" in the eyes of many, and you'll still need to evict, etc.

So they face two choices: Be viewed as somewhat evil in other's eyes and keep the property, or sell it and just stick to the career. In both cases, the tenant suffers.

Landlords can't fix this problem. Legislation can shift the market dynamics. If you want change, don't waste time shaming landlords.

I also didn't mention the obvious other factor: Landlords want to spend Y hours a month on this business. Trying to help tenants who are in trouble suddenly increases the number of hours they spend. That automatically increases the threshold X, pushing their existing business into a zone where it isn't worth the time. And after all that, many/most of those tenants will never really recover.

I have a few coworkers who got into the landlord business and quit after some years. Hearing their complaints, some of them were nice.

A local radio show did a really nice piece where they followed a low income semi-homeless family around for a year and learned their history. The family was fine for a number of years, but as it happens when you are low income, you cannot afford to have a safety net. They had some stressful events, and things cascaded, and they became homeless on and off. After a number of years of this, they managed to get really good housing assistance (state/city - don't recall) - I think almost a 2000 square foot house to live in, albeit in a crappy neighborhood. But their lives changed greatly for the better.

While I was listening to the show, I couldn't think of anything landlords could do to help them. The tenants weren't irresponsible people - they just had life events. Government helped them out, but that has its own problems - for every one they properly help out, many can't get help - not enough tax dollars to go round.

Years ago, before I started thinking of business, I would express sentiments like yours to businessmen - that life isn't all about profits, and they could still have a good life with a lower margin. A common response was they're trying to make a living, and not give charity. When I finally analyzed it from the math above, I see the point. If I can make more money by quitting the business and working in industry, then insisting I stay in the business and make less really is charity. It's pretty much always the case that the person who is suggesting a lower profit margin does not run a business and has a relatively secure, decent job. A lot of businesses, even when making high margins, are suffering existential crises. Yes, the money is good now, but 2 years from now I may be out of business. There's less volatility in a regular job.

tldr: No easy solution, and the current situation is mostly a result of ordinary people doing ordinary (and not greedy) things. I can only see legislation helping.