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

#131

Post by mruts » Sat, Mar 23, 2019, 7:57 PM UTC

tzs wrote: post #46

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?

Higher expenses and the risk premium are orthogonal to each other. The higher the standard deviation of returns, the more premium will be charged to offset the uncertainty.

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

#132

Post by scarejunba » Sat, Mar 23, 2019, 7:59 PM UTC

If you read Evicted you'll find out what it's like to be a landlord in these places.

I considered it a bit because of the profit margins but it's a nightmare of a thing to do. Low income people have a disproportionate number of behaviours non-conducive to being rented to. They'll do things like put food down the sink, block it, then wash food in the tub and block that and so on. They'll smoke in the place and damage it. They'll stop paying rent because they wanted to treat themselves. Multiply that with the fact that you have to deal with a large number of them because your margins may look good but your absolute return is low and you will have trouble every month.

No moral judgment here. Just that it's not free to compete here. I, for one, do not have the stomach to evict a single mother with four children every month from my rental property that she's wrecked.

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

#133

Post by twblalock » Sat, Mar 23, 2019, 8:00 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.

You can pay property managers to deal with the day-to-day management of the properties, vetting new tenants, collecting the rent, etc. You can still come out ahead. I know a few people who do this and they don't spend much time on their rental properties.

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

#134

Post by JamesBarney » Sat, Mar 23, 2019, 8:02 PM UTC

pmiller2 wrote: post #128

JamesBarney wrote: post #112

Earlier quoted context omitted.

I think a lot of this is also landlords make up a smaller percentage of the market as you go up in price and when you get to a 1.8 million dollar home the rent will never justify costs to a landlord. Two facts cause this. The first is it's always a better deal to live in a property than rent it out.(100% occupancy, no expenses to find tenants, no evictions, etc). Plus there are non-financial reasons people prefer to…

You don’t even have to go that far to make the argument. As a landlord, I would vastly prefer to be renting out 10 homes worth $180k (preferably in different markets) than one worth 10x as much just to diversify a little and avoid capital concentration issues.

That would actually drive prices in the other direction. Pushing up the price to rent ratio on cheaper homes.

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

#135

Post by twblalock » Sat, Mar 23, 2019, 8:02 PM UTC

angel_j wrote: post #116

In California, you must have a special license to do almost any business, but be a landlord. You need a license to do people nail's (nail technician). And in some cases, there a special taxes applied to that industry (like legal cannabis). Landlording needs this (not nail techs). Keep up your certification, provide quality living conditions, and pay extra tax to offset the housing problem. Furthermore, we should have…

> Furthermore, we should have non-profit, non-governmental institutions running low-income housing, not slum lords.

Low-income housing run by governments is infamous for its slum conditions.

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

#136

Post by everybodyknows » Sat, Mar 23, 2019, 8:08 PM UTC

hejdnrndk wrote: post #119

krapp wrote: post #109

Earlier quoted context omitted.

>To be very clear: your accusation is false, there was never any special parentheses, and I invite an admin to confirm that if they can. There were, I saw them, other people saw them, they were copied into eli_gottlieb's comment. His comment is flagged now, but it's still visible to some users. Whether an admin can or does confirm it is irrelevant. You made a green account, and you screwed up with some 4chan nonsense…

I guess a troll is going to troll, but the idea that some coded message was in my comment is just insane. I unequivocally deny any use of “triple parens”. Full stop.

Could an admin with access to edit history please straighten this out?

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

#137

Post by FireBeyond » Sat, Mar 23, 2019, 8:08 PM UTC

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…

If you think the payday loan industry is not -immensely- profitable, you're wrong. It's an exceptional thing to get into, either running or investing, if you have lower ethical boundaries.

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

#138

Post by coldtea » Sat, Mar 23, 2019, 8:09 PM UTC

jessaustin wrote: post #69

coldtea wrote: post #32

Earlier quoted context omitted.

> 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?

I don't live there, but I've been to the places we're talking about. They don't have grocery stores, and the few stores that sell food cost a lot more than the stores I'm used to, for food that isn't so nutritious. The people there don't make exorbitant amounts of money, but they'd be better off if they had better access to affordable products. They are poor because the areas they inhabit have high costs of living. H…

They are poor because they don't make enough money. And they can't arbitrarily move, because they can't find jobs just like that, or afford another place, just like that.

They're not some middle class people who because poor because their only store is a Dean and Deluca.

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

#139

Post by bunderbunder » Sat, Mar 23, 2019, 8:09 PM UTC

FireBeyond wrote: post #130

pytester wrote: post #121

Earlier quoted context omitted.

>of course the rent will have to be higher to provide the necessary return on capital Rent is set by supply and demand. There's no law - economic or otherwise - saying that it is necessary for landlords or anybody else to yield a return on capital. In reality if the value of a home is falling or flat landlords do often try to raise rents in order to recoup losses and sometimes this leads to even greater losses as ten…

> it is necessary for landlords or anybody else to yield a return on capital. In my town there is a proposal afoot called The Missing Middle,to improve availability of medium density / multi family dwellings. A vocal group is furious. Furor that the economic impact study showed that their current and predicted home values over the next ten years is expected to decrease from an 11% year over year increase, to a 7% yea…

This also highlights a simple, mathematically inevitable truth: Homes cannot be both affordable and a good investment at the same time.

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

#140

Post by pmiller2 » Sat, Mar 23, 2019, 8:15 PM UTC

koolba wrote: post #43

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 reno…

Regarding the Bay Area (as I’m not familiar with other jurisdictions’ rent control regimes), capital improvements do allow a rent increase beyond what would normally be the case, but I’m not sure if it justifies the investment. Just an FYI.