The price / rent multiple is not analogous to a P/E ratio. Rather, it is similar to an Enterprise / revenue multiple. The distinction is important because, as an investor in apartment properties, I can tell you that the Net operating income margin (roughly analogous to an EBITDA margin for C-Corps is much, much higher in San Francisco than in other places. For example, the NOI margin in San Francisco is usually about 75%. In Merced California, it is about 30%. Once you subtract Capital Expenditures, the 30% is cut almost in half. Basically what I’m saying is that the net cash flow, after Capital Expenditures, in many “C” and below locations is basically zero. Thus, the price has to go very low to entice investors to buy there. This is not irrational behavior.
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
#72I 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.
My parents' retirement fund consists largely of an apartment building, a substantial portion of which is rented by section 8 (ie low income) tenants. The variance in cash flow is pretty dramatic, from both an expenses and a non-payment of rent perspective. Tenant protections are robust enough that, more than once, they've ended up in a situation where it takes four months of missed rent + legal fees before a non-paying tenant could be evicted, which is a cool $10k chopped right off of their income. To say nothing of the occasional expenses you wouldn't see in higher-income properties: the same tenant protections mean that units can become almost hazardously filthy before the landlord can intervene, and when they leave, they obviously don't tend to clean up.
Higher rents effectively function as an insurance policy for these expenses, and your insurance policy is obviously going to overcover rather than undercover. Higher risk (ie variance) investments mean higher returns, for the simple fact that the value of a high-variance investment will be lower than that of a low-variance one with a given expected return, for obvious reasons.
The only reason to be ignoring variance If your goal is shitty advocacy instead of intellectual honesty, which, as others have pointed out, is obviously the case with the authors of this study.
Re: American landlords derive more profit from renters in low-income neighborhoods
#73Small 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.
You don't necessarily have to feel good or bad. Just evict them out. Whether they lost their job is irrelevant.
Re: American landlords derive more profit from renters in low-income neighborhoods
#74I'd say that's the standard actually. Landlords steal whatever they like, including deposits, because with most of these situations the tenants are too busy finding the means to continue existing to have any to spare for litigation. I am not surprised by how many HN commenters seem to still have their rents sorted by their parents. Landlords are predominately thugs.
Most landlords steal and are thugs. Also most HN commenter's rent is paid by their parents. Did you actually have these thoughts or did you read them in some sort of "Angsty Teen Thoughts" handbook?
>Also most HN commenter's rent is paid by their parents.
I don't know if I agree with this generalization...
Re: American landlords derive more profit from renters in low-income neighborhoods
#75A 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).
That is highly dependent on the quality of renter and quality of your property. One of the key values of having multiple rental is the economies of scale, for example:
* Property advertisement - Preparing material and advertising for 1 property can be more expensive than multiple properties
* Material for fixes - Purchasing material for 1 property can be more expensive than multiple properties
* Vacancy - The cost of vacancy for a single rental is higher than having multiple rentals. The other rentals may off-set the cost of the vacancy lot for a period, without requiring external cash flow.
* Experience - Multiple properties will give you the opportunity to experience different issues and allow you to take proactive steps to diminish certain risks.
Re: American landlords derive more profit from renters in low-income neighborhoods
#76Earlier quoted context omitted.
Most landlords steal and are thugs. Also most HN commenter's rent is paid by their parents. Did you actually have these thoughts or did you read them in some sort of "Angsty Teen Thoughts" handbook?
>Also most HN commenter's rent is paid by their parents. I don't know if I agree with this generalization...
I don’t agree with this. But, I bet you anything that most HN readers do have relatives they could call on if they found themselves without a job and not able to pay rent.
Re: American landlords derive more profit from renters in low-income neighborhoods
#77Earlier quoted context omitted.
If you had just left the issue alone then everyone would assume his comment was referring to malevolent Christians. As a Jew I find it disappointing that you have chosen to echo the antisemitism he was smart enough to retract from the discourse. These ways of thinking need to be censored and entirely destroyed. Delete your comment immediately.
Calling out anti-semites or their methods is not echoing anti-semitism. I've edited the actual parens out but I'm not deleting the comment. People are free to flag it if they disagree.
I agree with you. Calling out anti-semitic speech as "that's not OK here, even if you first flash it overtly and then make it slightly less obvious" seems to me to be the exact opposite of that accusation.
Re: American landlords derive more profit from renters in low-income neighborhoods
#78Earlier 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.
My parents' retirement fund consists largely of an apartment building, a substantial portion of which is rented by section 8 (ie low income) tenants. The variance in cash flow is pretty dramatic, from both an expenses and a non-payment of rent perspective. Tenant protections are robust enough that, more than once, they've ended up in a situation where it takes four months of missed rent + legal fees before a non-payi…
Ah the variance is a good point. In addition to the these higher average costs (unpaid rent, extensive repairs). Especially since the average landlord is small, an cannot average over hundreds of properties.
Re: American landlords derive more profit from renters in low-income neighborhoods
#79Earlier quoted context omitted.
The point is that, according to that narrative, you could be "less evil" than the other landlords. You can afford to "protect your investment" less than they do and it would still be a "good investment" (just not "an exploitative great investment"). You would be offering a better option and that should be enough to feel good about yourself.
>The point is that, according to that narrative, you could be "less evil" than the other landlords. You can afford to "protect your investment" less So, don't kick out people who don't pay their rent immediately? Sounds like a recipe for achieving all of the "acclaim" for being a slumlord with none of the actual profit...
You can’t kick people out immediately if they don’t pay their rent. It’s been awhile so I’ve forgotten all of the terms.
In my relatively landlord friendly state, it is a long process.
1. You have to give them a written notice and they have 7 days to pay rent.
2. Then you have to go and file an eviction notice with the court and wait up to another week for them to send a notice to the tenant.
3. Then you have to wait for a court date. The tenant can basically say anything and buy time.
4. If you are successful, you have to wait for few days to schedule a police officer to come out and you have two hours to put all of their stuff on the street. You have to have at least 5 people(?) to move their stuff out.
At any time the tenant can pay the rent and stop the process. If you do everything right, it can take two or three months and you can’t go into the property while they probably tear it up.
If you want to recoup your costs, you have to go back to court to get a judgement and if they don’t pay you have to go back again to try to get their wages garnished.
Each step comes with fees.
Re: American landlords derive more profit from renters in low-income neighborhoods
#80Earlier quoted context omitted.
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…
the "ruling class" would probably be not really interested in dealing with housing at all and would be more worried about people pointing out the lack of diversity at top C-level positions at major influential corporations.
That's... the exact opposite of how it works.