I’ve calculated if it would pay off to build a house with four units on a piece of land that I already have. It would barely pay for itself after 30 years but let’s be honest, 30 years is when the first big renovations are in order. I’m not sure if the “landlords are rich leeches” - trope holds up outside expensive cities with inherited properties.
Good luck getting 11% a year in the stock market. I think your stats include the pandemic and I don’t think we’ll see increases like that again, at least we can’t count on it.
11% has been a financial planning standard since time immemorial (ok, well, since after the great depression). If a hedge fund or other investment isn’t hitting 11%, you should be in S&P or NDQ which flattens to 10% over time… or “only” 6-7% after adjusting for inflation.
The last 30 years are considered “below average”. The market only grew 9.9%/year on average. Which apparently that 0.1% is a big deal for investors.
Here’s a fairly good breakdown on SOFI. Obviously, we’ll never know what the future holds, but 10% over time is the “bad return” that rich people talk about.
Sure, but I think this example also commingles labor with ownership (as is often the case).
Like you said, your plan involves building a four-family home. That’s labor and worth fair remuneration. It’s just that, in order to get that remuneration you’d be taking payment from tenants who build no equity for their money. Yeah, you’ll have to renovate in 30 years, but you’d still have property and the money paid in rent while they don’t.
A landlord can also simultaneously do valuable work supervising and managing a property. That’s not mutually exclusive with profiting from ownership, and we can separate how we evaluate the two. It even comes up with billionaires: Bill Gates obviously did work worth payment as CEO of Microsoft, it’s just not where he got most of his fortune. It can simultaneously be true that he’s a talented guy who deserved to be paid, but most of his fortune came from exploitative business practices and profiting off of the labor of others.
Also, to be clear, there’s a difference between structural and individual criticism. Obviously slumlords are pieces of shit, but there’s a difference between that and someone who really does work as a property manager doing right by their tenants, or a family renting out a part of their home to make ends meet. I can think that landlords should be judged on an individual basis, while landlording as a thing shouldn’t exist.
“Landlords are rich leeches” is still true because the vast majority of property in the US is not owned by hard working people who are investing their earnings owning a handful of properties at most, but by property companies and hedge funds.
The big money’s isn’t in the rent, the rent is just to pay the mortgage and upkeep. It’s that you’re getting in debt that someone else is paying for you while they gaurd your asset which is only gaining in value, you then sell that somewhere in the futute.
On average, the same amount of money dropped into the NASDAQ will have much better overall returns. Real estate ROI is about 4% per year, where the stock market has held close to 11% over the long haul nearly a century.
For small-time landlords, it’s often about “I have a place for me or a family member to live if things go bad”. For bigger ones, it’s the tax-shelter and the low volitility of real estate, as well as diversity in case you need to sell when their stock is down.
I’m not sure what you used to calculate it, but it definitely isn’t only “expensive cities with inherited properties”… I did the math on the last house I rented: lived there for 8 years. It was a duplex in a city in a very cheap cost of living state. Just my rent alone for those 8 years more than covered what the entire duplex was purchased for 3 years prior to me moving in. That means if both sides were occupied, which it was for all but 1 month in the 8 years I was there, it’s paid for in full in 4 years. Even if you “have to renovate” in 30 years, hell even 15 years, you have 10 years of pure profit even after considering insurance and property taxes and probably even maintenence costs…
Maybe your area doesn’t have high demand for rentals or you under-valued your rent price, but there wouldn’t be so many people doing it if it wasn’t profitable.
I’m on your side mostly but the property prices going up in those 30 years would net you a fortune alone. You could likely sell it as is and triple your money
The old saying ‘buy land because they aren’t making anymore of it’ is true. As the world population grows, owning large amounts of land will be scarcer and scarcer. Most young people can’t afford a home in any western nation across the world and it’ll only get worse the world over as time goes on and the population continues to grow.
It really depends on the nature of the rental and your area. If instead of building a house you build 4 closely stacked duplexes and charged each one double what the mortgage would be you’d definitely make money, but you’d also be an extortionate leech. In my area someone built 4 nice duplexes on a double lot (probably around 1.5 acres) and is now renting them at $1800 each. The land was probably less than $55k and the cost of construction was likely less than $1 mil. At 5% interest on a 30 year loan their monthly payment would be $5,600, but they’re bringing in $14,400 per month.
$1800 for rent is an extortionate price in my area (it’s big city apartment rental prices, with a pool and gym), even after interest rates went up.
On the other hand, I knew a couple who were landlords for nearly 20 years. They rarely raised the rents and even in 2022 they were still charging <$1000 per month for a full house because that paid the costs and for them it was an investment, not a source of income.
They finally sold their rental homes and made about $70k over what they originally paid on each house. Doing the math that comes out to be a roughly 8.5% annual percentage return without counting the rent gained each month. That’s a fairly solid investment without being a sucky person.
Being a landlord isn’t a way for someone who doesn’t have wealth to acquire it. It’s a way to park your existing wealth in quickly appreciating assets preferably purchased from other losers when they lose their asses and collect monthly rent too.
If on day one you have 700k and you purchase an existing property and in 30 days after you rent it out your property is still worth 700k and you are now ahead of the game in 30 days not 30 years.
If you purchased at a reasonable time a year later its worth 750 and you’ve collected 84k 1% of property value per month.
quickly appreciating assets preferably purchased from other losers when they lose their asses and collect monthly rent too.
I wouldn’t say quickly appreciating, though. It’s a fairly slow growth rate for someone with that kind of money. They diversify into real estate because it creates some tax protections (your costs) and it’s fairly stable. Like buying into a terrible small business, but one that magically won’t fail. The things that could cause total loss to real estate are usually handled in standard insurance, unlike a business that can just tank.
The thing is, as you and the other person said, it’s all about the big companies who own tons of real estate AND the big companies that manage rental properties.
Yeah, well, here they don’t. Currently, building from new costs about 3200€/m2, provided you own the ground already.
Average rent for a newly built, low energy appartment with fibre to the home and covered parking including a wallbox (so, basically the optimum you could build with a high rent in mind) around here is about 9 to 10€/m2. So that’s 26 years before the building is paid off and that does not include interest for a loan or upkeep for the building. With 4 percent of interest which seems to be the lower end of the market right now I’d never break even.
I’ve calculated if it would pay off to build a house with four units on a piece of land that I already have. It would barely pay for itself after 30 years but let’s be honest, 30 years is when the first big renovations are in order. I’m not sure if the “landlords are rich leeches” - trope holds up outside expensive cities with inherited properties.
I think the main money maker isn’t rent. It’s owning (or at least having a mortgage on) property that doubles in value every ten years.
The rent often just pays for the mortgage and upkeep. The main payday comes when they sell it all off to the next parasite.
Real Estate long-term ROI - 4% per year
NASDAQ long-term ROI - 11% per year
It’s about diversity, and the various tax advantages to owning the property/business/etc.
Good luck getting 11% a year in the stock market. I think your stats include the pandemic and I don’t think we’ll see increases like that again, at least we can’t count on it.
11% has been a financial planning standard since time immemorial (ok, well, since after the great depression). If a hedge fund or other investment isn’t hitting 11%, you should be in S&P or NDQ which flattens to 10% over time… or “only” 6-7% after adjusting for inflation.
The last 30 years are considered “below average”. The market only grew 9.9%/year on average. Which apparently that 0.1% is a big deal for investors.
Here’s a fairly good breakdown on SOFI. Obviously, we’ll never know what the future holds, but 10% over time is the “bad return” that rich people talk about.
Sounds like a dangerous game, it assumes that property always appreciates value faster than inflation progresses.
It would be a dangerous game if the politicians and their donors weren’t also playing it and rigging it in their favour.
That’s risk
Would you like to look up a graph of home prices over the last century?
Sure, but I think this example also commingles labor with ownership (as is often the case).
Like you said, your plan involves building a four-family home. That’s labor and worth fair remuneration. It’s just that, in order to get that remuneration you’d be taking payment from tenants who build no equity for their money. Yeah, you’ll have to renovate in 30 years, but you’d still have property and the money paid in rent while they don’t.
A landlord can also simultaneously do valuable work supervising and managing a property. That’s not mutually exclusive with profiting from ownership, and we can separate how we evaluate the two. It even comes up with billionaires: Bill Gates obviously did work worth payment as CEO of Microsoft, it’s just not where he got most of his fortune. It can simultaneously be true that he’s a talented guy who deserved to be paid, but most of his fortune came from exploitative business practices and profiting off of the labor of others.
Also, to be clear, there’s a difference between structural and individual criticism. Obviously slumlords are pieces of shit, but there’s a difference between that and someone who really does work as a property manager doing right by their tenants, or a family renting out a part of their home to make ends meet. I can think that landlords should be judged on an individual basis, while landlording as a thing shouldn’t exist.
“Landlords are rich leeches” is still true because the vast majority of property in the US is not owned by hard working people who are investing their earnings owning a handful of properties at most, but by property companies and hedge funds.
The big money’s isn’t in the rent, the rent is just to pay the mortgage and upkeep. It’s that you’re getting in debt that someone else is paying for you while they gaurd your asset which is only gaining in value, you then sell that somewhere in the futute.
On average, the same amount of money dropped into the NASDAQ will have much better overall returns. Real estate ROI is about 4% per year, where the stock market has held close to 11% over the long haul nearly a century.
For small-time landlords, it’s often about “I have a place for me or a family member to live if things go bad”. For bigger ones, it’s the tax-shelter and the low volitility of real estate, as well as diversity in case you need to sell when their stock is down.
I’m not sure what you used to calculate it, but it definitely isn’t only “expensive cities with inherited properties”… I did the math on the last house I rented: lived there for 8 years. It was a duplex in a city in a very cheap cost of living state. Just my rent alone for those 8 years more than covered what the entire duplex was purchased for 3 years prior to me moving in. That means if both sides were occupied, which it was for all but 1 month in the 8 years I was there, it’s paid for in full in 4 years. Even if you “have to renovate” in 30 years, hell even 15 years, you have 10 years of pure profit even after considering insurance and property taxes and probably even maintenence costs…
Maybe your area doesn’t have high demand for rentals or you under-valued your rent price, but there wouldn’t be so many people doing it if it wasn’t profitable.
Germany, not the US here. The market isn’t a no rules free for all here.
That’s basically our problem here, too few new appartments are getting built because of this.
If it’s a poor investment, why do it?
That’s the point, I won’t. And so do many others and that’s why we have a shortage of appartments for rent here right now.
I’m on your side mostly but the property prices going up in those 30 years would net you a fortune alone. You could likely sell it as is and triple your money
Wouldn’t that depend a lot on the area?
Well yes it would but not entirely.
The old saying ‘buy land because they aren’t making anymore of it’ is true. As the world population grows, owning large amounts of land will be scarcer and scarcer. Most young people can’t afford a home in any western nation across the world and it’ll only get worse the world over as time goes on and the population continues to grow.
Some areas are losing a lot of their value. Waiting for population growth to fix that is playing the really long game
It really depends on the nature of the rental and your area. If instead of building a house you build 4 closely stacked duplexes and charged each one double what the mortgage would be you’d definitely make money, but you’d also be an extortionate leech. In my area someone built 4 nice duplexes on a double lot (probably around 1.5 acres) and is now renting them at $1800 each. The land was probably less than $55k and the cost of construction was likely less than $1 mil. At 5% interest on a 30 year loan their monthly payment would be $5,600, but they’re bringing in $14,400 per month.
$1800 for rent is an extortionate price in my area (it’s big city apartment rental prices, with a pool and gym), even after interest rates went up.
On the other hand, I knew a couple who were landlords for nearly 20 years. They rarely raised the rents and even in 2022 they were still charging <$1000 per month for a full house because that paid the costs and for them it was an investment, not a source of income.
They finally sold their rental homes and made about $70k over what they originally paid on each house. Doing the math that comes out to be a roughly 8.5% annual percentage return without counting the rent gained each month. That’s a fairly solid investment without being a sucky person.
Being a landlord isn’t a way for someone who doesn’t have wealth to acquire it. It’s a way to park your existing wealth in quickly appreciating assets preferably purchased from other losers when they lose their asses and collect monthly rent too.
If on day one you have 700k and you purchase an existing property and in 30 days after you rent it out your property is still worth 700k and you are now ahead of the game in 30 days not 30 years.
If you purchased at a reasonable time a year later its worth 750 and you’ve collected 84k 1% of property value per month.
Most owners are in the top 10% to start with.
I wouldn’t say quickly appreciating, though. It’s a fairly slow growth rate for someone with that kind of money. They diversify into real estate because it creates some tax protections (your costs) and it’s fairly stable. Like buying into a terrible small business, but one that magically won’t fail. The things that could cause total loss to real estate are usually handled in standard insurance, unlike a business that can just tank.
The thing is, as you and the other person said, it’s all about the big companies who own tons of real estate AND the big companies that manage rental properties.
Guidelines for buying rental properties say they should pay off in 10 years.
Yeah, well, here they don’t. Currently, building from new costs about 3200€/m2, provided you own the ground already.
Average rent for a newly built, low energy appartment with fibre to the home and covered parking including a wallbox (so, basically the optimum you could build with a high rent in mind) around here is about 9 to 10€/m2. So that’s 26 years before the building is paid off and that does not include interest for a loan or upkeep for the building. With 4 percent of interest which seems to be the lower end of the market right now I’d never break even.