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Comment by cheriot | Hacker News Reader

> The systemic problem is that investors are buying up residential property inventory

Are you assuming that it's somehow sensible to buy property and leave it empty? Owner vs rental doesn't change the number of homes available.

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> Are you assuming that it's somehow sensible to buy property and leave it empty?

Yes if it has been financed in certain ways.

An empty space is assumed to be rented at the same rate as it was before being empty and that empty rent can normally be tacked onto the end of the financing as it is assumed to be a "temporary" thing.

However, if that space gets occupied for less money, the basis of the real estate adjusts and the financer can call up the owner and demand more cash since the basis changed.

Consequently, I have seen quite a bit of real-estate remain empty for years just to avoid having to adjust the cash basis.

This is one of those stupid-ass financial things that absolutely needs to get blasted in law.

whoever that is doing the money lending is taking the hit by assuming the rental income from prior periods during a vacated period.

So if they don't care, then why would _I_ care that they don't care?

There is no problem if this is just one person or one business. There's no issue with allowing people some time to find the next renter.

The problem is that when everybody leverages to the hilt and the whole area collapses, the rent prices stay high even when there's no one renting--which is bad for renters. And this continues in a gigantic game of chicken until some of the owners finally run out of cash and go bankrupt and everything collapses simultaneously which also isn't good for the end renter.

It's like the 2008 Wall Street crash. Lots of people knew what was going on. However, everybody knew that they were equally screwed whether they were responsible or not. So, they just rode the train and hoped they could cash out to the next sucker before the disaster.

And then we get the joy of everybody wailing that they need a bailout.

Keeping it empty would remove it from the housing pool, driving rents up.

I think the comment is saying that investors are using cheap loans to buy up properties and rent them out. This increase the supply of rentals and drives rent prices down.

It's sensible in San Francisco because having an active renter makes a property worth significantly less.

Why? You basically cannot kick evict a renter or raise their rent.

Doesn’t that depend on the age of the building? I thought rent control was 1970s and earlier? That being said, SF is generally very tenant/sub tenant friendly in its laws.

Even still, landlords fear legal repercussions so much that they're willing to let a lot slide. When I moved out of my SF apartment, a plant I had had damaged the floor and my landlord was willing to eat the cost provided we moved out swiftly. Replacing the floors probably set him back a couple grand, but evicting tenants could be far more expensive.

From what I've seen of SF rentals and landlords, that's potentially the most money he had spent on maintenance & renovations in a decade, while collecting some of the most profitable rent in the country.

With a price to rent ratio of 53, San Francisco has the least profitable rent in the country.

https://smartasset.com/mortgage/price-to-rent-ratio-50-large...

Yes, if you bought today. What's the point of your post?

It makes intuitive sense for San Francisco to be "the most profitable rent in the country" as you claimed, but the surprising and counterintuitive truth is that it's the opposite.

Are you claiming that landlords who purchased property in SF 15+ years ago aren't making extremely high profits off rent?

The point is they could make even more by selling and using the money to buy in places with higher rent/buy ratio.

They've made more money from appreciation than from rising rents.

Can you please link me a list of cities with a better buy:rent ratio when comparing 2008-2011 SF to 2021 SF? Assuming you were to buy and rent now, since that's the conversation we're having. I have some friends who would be really interested. I just tried to find some on my own, and I could not.

I don’t think you understood his point. Obviously, those homes have appreciated. His point is that people who own property right now in SF stand to make more money by simply selling their property, and using the proceeds to purchase property in other cities around the country, with better ratios.

Appreciation, by itself, will naturally drive this ratio down because of rent control laws. The value of the home is the denominator in that fraction.

How is that relevant to the original post?

I don’t think you can make a claim and then dismiss counter-claims based on relevance. You decided that relative profitability of rent in different cities was relevant here.

Sitting empty it's hemorrhaging cash, which isn't a great quality for investors.

Capital gains in the markets I'm familiar with - and this is an international problem - dwarf any rental income.

In Auckland, New Zealand, average capital gains exceed $40,000 per month. Land banking is incredibly lucrative.

> In Auckland, New Zealand, average capital gains exceed $40,000 per month. Land banking is incredibly lucrative.

On what property value?

Average property price in Auckland is 1.2M NZD. Property prices rose 20%+ last year in Auckland. So the capital gains quoted aren't really average, the average rate is half of that.

Sure there are outliers; but if your property costs 2.4M NZD (1.7M USD) then those numbers are accurate. Either way, land is the best investment right now and I don't see it crashing any time soon.

"Land can only go up". Even with COVID and closed borders.

Depends why you’re buying the property. If you need to clean it, for example get it out of a country or if you got it from questionable means, property is a great place to park it. Look at all the empty store fronts in NYC before the pandemic. Keep your rent artificially high so it maintains the value and your only cost is property taxes.

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