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Comment by fred_is_fred | Hacker News Reader

The first lady cited in the story is overextended and if I am supposed to feel bad for her, I don't. She took a risk in taking out 1.2 million in mortgages and should reap the profits or losses from said risk.

Then there's these people- "The townhouse they bought 24 years ago was at the center of their plans to fund retirement. Now they may have to dip into their retirement savings to cover the mortgage." Why isn't that mortgage paid off yet? Sounds like they made some bad decisions. And any place bought in Boulder 24 years ago could be sold for at least 3x what was paid.

Edit: these are 2 separate people discussed in the story.

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This whole story is written into a narrative to weep for landlords.

24 properties and can't pay mortgages, does she owe money on all 24 properties... or could she sell some of them she owns and reduce her debt load maybe?

> Many landlords operate on thin margins, typically 9 cents for every $1.

What kind of horseshit figure is this!? Someone tell me what they mean, do landlords have a 9% profit margin on a static piece of property and that isn't enough still?

> Many landlords aren’t any better off than their tenants and certainly aren’t rich enough to credibly pull off a bow tie, says Jan Lee, who manages two buildings in New York’s Chinatown that his family has owned for nearly a century.

Owns 2 properties in the most ridiculous real estate market in the US but doesn't make money, ok. Oh wait, it's that he can't pay property taxes this year, even though he hasn't had a mortgage for 70 years and is coming out of a 10 year bull run.

There is a popular strategy known as 'BRRRR' where the investor uses capital from a refinance to buy another unit, and so on. It's a fast way to pick up and rehab lots of units.

In my opinion if you were to do this, you should sell a few properties here or there to have 6-12 months of cash reserves on each property.

It's tricky. One person takes out a loan to start a small business and it fails due the virus. Another takes out a loan to purchase properties and be a landlord who also gets wiped out. Economic rent is a societal problem. But landlords aren't actually reaping in the profits most of the time, and it might be argued that they're providing useful services to people. On the other hand, most go into it with the hope of just sitting on stuff and making passive income for low amounts of work. If landlords are doing societal good, it's mostly accidental, and at best a local maxima of a well function system.

I'd say in the scheme of suffering going on right now this doesn't feel like the most deserving of sympathy. Taking out huge loans is a risk. As a society, this is not a good way for members to build wealth. But they're not villains by any means.

I agree with your assessment - they are not villains, but they also don't need a bailout from me or you, because they took a risk in making the investment. It should not be a guarantee because if it is we may as well just let the government me the landlord.

I think it's more than "might be argued" that providing housing to people seeking a rented place to live is a useful service to people.

What’s tricky? The small business owner employs people. The landlord merely purchases the right to keep productivity off of valuable land.

Agreed that they are not villains, but nor should we act like they’re doing some service. No one pays their rent because they believe their landlord is adding value. They pay it for access to the jobs, amenities, services that the community (not the landlord) provides.

You pay rent in return for the right of use of the property.

Generally you do this because you either do not have the necessary credit to obtain your own property, can not afford the transaction costs of buying/selling a property in your desired timeframe, or simply want the convenience of not having to maintain it yourself.

None of this is really the point. Generally when people pay for a service, if they stop paying, the company is allowed to stop providing the service. Eviction laws already impose a higher bar on “stopping service” in the case of rental housing, but an outright moratorium on evictions is just another way the government response to COVID wipes out small/independent business for the benefit of mega corporations.

No one should be forced by government decree to offer their property or services for free. I’m sure at some point there is a Constitutional issue to be argued.

I think I'm going to launch a new business format where we lease out air for people to breathe, and then convince them that I'm doing them a service by allowing them to breathe it.

In any case, I'm not asking for a moratorium on eviction per se. I'm a proponent of giving landlords 100% of the revenues created by their property, but 0% of the revenues created by the things around their property. The Land Value Tax (LVT) mentioned elsewhere on this thread is exactly that.

If politicians decide to make it illegal to charge rent, or to evict people who don’t pay their rent, they should be anticipating the short and long term effects, and they should be expected to compensate property owners.

In this case it’s fair to note as TFA does that the burden will be disproportionately borne by individual landlords holding low income housing. The more units someone holds the more diversified and the less likely this new government policy will wipe them out. Perhaps it is the law of unintended consequences that a policy like this will cause long-term harm to renters by centralizing the market and reducing competition.

Also worth noting that the end result of a foreclosure is not just the renter losing their home, but maybe the landlord as well.

I don’t understand your quip about renting air. I can understand somewhat being angered over turning a residential home into a short-term AirBnB. But buying a property and renting it is making housing more accessible not less, and a market of individual landlords each buying one house and renting it is extremely competitive.

If we were debating whether the government should pay landlords monthly for their vacant units we could agree that bailouts are not appropriate. But forcing someone to rent their personal property for free is not generally ethical or legal.

Real Estate taxes are an interesting debate. It’s worth mentioning that whatever the tax rate, the cost of taxes is largely borne by the renter. In fact taxes are a major component of rent cost.

Assuming you bundle no services at all (landscaping, utilities, etc.), a property generally cannot rent for less than their taxes, interest, upkeep/depreciation, and a risk adjusted return. There are a massive number of options for investors, they won’t choose to invest in a vehicle which doesn’t cover those four basic things.

There are some very narrow circumstances where an investor might depend on equity appreciation to make up for an operating loss. This is more akin to speculating than investing and is significantly more risky.

Land lords handle maintenance, property ownership work, snow shoveling, some utilities appliances, some degree of social policy enforcement, etc.

Not all small businesses employ other people.

As mentioned below, landlords ought to be entitled to 100% of the gains of those efforts. It is the gains due to community investments that they are not entitled to.

In countries I lived in, it is the tenants' responsibility to maintain the property and its surroundings. Tenants need to move the lawn, cut the trees back, shovel snow, get out the weeds, remove algae off the patio, etc.

For flats, concierge service and maintenance is built in the monthly payment, usually included of the lease fee that the landlord pays (about £3/sqft/mo in the UK).

Landlords are always profiting. Their total equity increases at ridiculous rates with minimal risk. I don't understand why we use a different definition of profit for landlords and for other operation. Profit is the derivative of wealth, the derivative of their wealth is positive, thus they are profiting, even if they don't intake enough money to pay for rent.

Second statement is an oversimplification of many in that scenario; e.g. my mother. Single Mom for 30 years, built a career, bought a house in her mid 40s. 2008 recession erased her career, unemployed for 5 years after, now rebuilding. Still has a mortgage on her townhouse.

Let's not assume poor decision making when there are plenty of factors outside of the average blue collar workers control that directly impacted their ability to to the right thing.

This doesn't seem to be her case though - she owns "27 low-income apartments" - I don't know if those are buildings or just apartments, but 1.2 million in mortgages owed after 2 months is insane if it's just 27 individual apartments. And she only made $24,0000 last year on all that? These numbers are just insane to me.

Edit: Ah, 1.2 million total, not currently owing.

Her total mortgate exposure is $1.2m, not her currently owed amount.

$24k is a yield of only 2% so yeah she's on razor thin margins... which does explain why she's immediately in jeopardy from the slightest economic wobble (not that this is a slight wobble).

Ah, that makes way more sense. Thanks! Me read bad sometimes.

This really becomes a question of leverage. If she only put down 20%, then her return on invested capital is 10%.

Probably $27k of income per month with $29k of expenses, implying a $1.2M loan due in a few years? Just speculating.

Being a landlord is much less profitable than intuition would lead you to assume.

Indeed. I find the people who complain most loudly about how easy and profitable it is to be a landlord generally have no first-hand experience on the topic.

Indeed!

Just talk to professional landlord about cap rates. Generally you aim for 10%+ cap rates, which are exceeding difficult to find with the exception of a few markets.

If your cap rate is less than 10%, you’re on thin margins and a new roof would probably push you into the red.

It’s definitely work and a lot of risk unless you were gifted property in a high demand urban area or vacation hotspot.

Putting your money in VOO or a bunch of FAANG stock will prob net you a lot more for a lot less work based on how the government needs to keep the equity markets appreciating.

Real estate purchased decades ago in hot spots might be easy money, but buying it these days is just for diversification of assets for me.

She's probably not counting appreciation and principle reduction. Her 1.2 million in mortgages is probably on ~2 millionish in property. Last year she probably saw their value go up a few percent while paying down 40k in principle.

Her profit is probably in the 6 figures and the 24k is cash flow.

Hopefully. She's probably just considering the profit that enables her to eat.

There are a lot of games you can play with the IRS to reduce the amount of profit that you show from rental properties. You can count depreciation, property taxes, mortgage payments, utilities, maintenance, improvements, and a whole host of other expenses. Particularly with depreciation thrown in, it's not uncommon for small-time landlords to show losses on their rentals.

But even if it's low-income housing in Connecticut, that's got to be close to $500-1000/month in rent per unit. Accounting for some amount of delinquency or vacancy, that's still $150k-$300k in revenue, and I think I'm being conservative. Something doesn't add up with this story.

Everything you listed count as legitimate expenses.

I know, I am a landlord.

Depreciation, as it is normally calculated, is somewhat nonsense on properties, especially over the past decade as they have increased by leaps and bounds in value.

Not to mention the depreciation has to be recaptured at the time of sale.

Not if you die first!

You are depreciating the built structure, not the land. It’s land values which increase.

You can't really decouple the two. There is a value that the land is assessed at, and a value that the structure is assessed at. Both have increased.

Yes you can. In fact, every property tax assessment in California decouples them.

But it's not just a cute game we play to get out of taxes

It's an accounting strategy that we are using for all fixed assets. All things have a useful life, and we just need a way to account for that. Not all improvements to a property will be durable. (Only land has durable value, which is why we only depreciate the portion of the purchase price that was for the improvements to the land)

The new roof we put on a property has a limited useful life. The kitchen remodel has a limited useful life.

If a property is not well maintained, then it may not be worth much in the distant future. If it is well maintained it may be worth more later.

If there is residual value, then we pay the tax when we recapture that value at a sale. If there is no value left at the end, then we don't.

Also, not all houses exist in San Francisco, where a dilapidated tool shed can be worth $1MM and be expected to double every year. Many markets are not very hot in terms of price appreciation. In my midwest market, I'm not even sure there has been any notable appreciation in the last decade. (And if there was, please don't let the county assessor know.)

The quoted scenario is about a second home purchased as an investment property. They likely have a great deal of equity in that home as well as their primary residence. If they do not have much equity in their investment property, they have either been extracting money from it for 24 years or failed to manage it as a business. They are not in the same class as "average blue collar workers", many of whom do not own even their primary residence.

Anyone who owns a 2nd home in Boulder is not a blue collar worker.

That conflates type of work with payment. Plumbers or other specalties like say underwater welders can make quite a bit of money and those certainly are blue collar jobs. Not common mind you but still blue collar.

I'm pretty sure the townhouse they're talking about is a second income property. And the lady with 27 units that claims to make $24k/year is ignoring the equity building in her properties. If she ends up with $2 million of property after 20 years she's ignoring $100k/year.

Lots of business owners, farmers, landlords, etc. give the same sob story and conveniently forget they're going to end up with multi-million dollar properties, farms, businesses by the time they retire.

I can see how it's tough with no cash flow right now, but how is that any different than your mom ending up unemployed? Excluding the current situation, no one cares about normal people losing their jobs, but now that the business / landlord class is in a negative cashflow situation we should all be thinking of them.

Do you feel bad for people who lost their job because of COVID? What dummies! They should have picked a pandemic-proof job or just “learned to code”!

If you do feel bad for them, then your statement just exposes your own bias and hypocrisy, my dude. Landlords are people too.

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