
If landlords get wiped out, Wall Street wins, not renters - bkohlmann
https://www.bloomberg.com/news/articles/2020-05-12/if-landlords-get-wiped-out-wall-street-wins-not-renters
======
yardie
I've got to hand it to Bloomberg for finding 3 of the most extreme cases of
the, "think of the poor rentseekers" they could find. I know a few landlords.
After meeting them I know I could never seriously become one. We were having
drinks while one was on the phone working on evicting someone. Apparently, he
didn't have a choice, dems the rules.

1\. The woman sitting on 27 units and only making $24k, is seriously over
leveraged. Sounds like she took on more debt than she could reasonably manage
and expect her tenants to be the safe bet even though she isn't.

2\. Family owned Mott St apartments. Something is wrong with this story as
well. If they owned the properties for a century (1st wave Taosinese
immigrants I bet) they should be printing money. Chinatown rents are high for
old, low amenities buildings. There is a whole lot more to this story because
someone is lying.

3\. Something tells me they refinanced one too many times and pumped the
equity out of their property. Property bought in the 90s is worth 3x as much
today so where is the renters money going exactly?

~~~
foxyv
When my parents were renting houses we spent a lot of time on them. Most of
the money from rent goes to the mortgage, property tax, insurance, and
maintenance. You can get some back on maintenance if you put in some sweat
equity. This was how they were going to afford retirement, by working their
asses off.

There is very little left over as positive income. Maybe 10% if you are lucky,
which makes up a little for the huge headaches. It can be really bad if you
get bad renters. You get some back as equity over time and that is nice,
unless the housing market crashes.

As for evicting people, it sucks. Once you start eviction you are stuck paying
someone else's mortgage. In fact you are also paying to evict them too. Some
renters go from house to house just paying a deposit and first month's rent
then sitting on the house for as long as possible. If you try to be nice to
them and give them more time they will bankrupt you.

In the meantime they are actively trashing the house, peeing on walls, keeping
dogs in the fireplace like it's a kennel without cleaning it for months,
putting holes in walls, flooding bathrooms, and spreading feces inside wall
spaces. Then when you finally get them out by offering to give them back their
deposit (Cheaper than eviction) they move in next door and trash the next poor
landlord's place.

If you are doing background checks and credit checks you can keep the above
from happening for 95% of cases. However the moment you start being nice and
renting to that poor family on section 8 funding because "Someone has to" you
are back cleaning poop out of your walls after paying their mortgage for 6
months and being called a "Slum Lord" because the people you rented to have
trashed the pristine house you put hundreds of hours into.

~~~
strict9
> _Once you start eviction you are stuck paying someone else 's mortgage._

This is actually the _your_ (the landlord's) mortgage, not someone else's.
That is one part of the risk of an investment vehicle that allows more tax
write downs than most other investments.

Just like other investments, the pain is much less dramatic if you aren't over
levered. If you are, profits are good until they aren't. Higher risk comes
with that higher reward.

~~~
folkhack
This is exactly it. The notion that they easily shift that ownership of the
mortgage onto their renters saying "stuck paying someone else's mortgage"
feels like mental gymnastics as it 100% is your name on that debt and not your
renters.

~~~
braindouche
A lot of landlords don't seem to really understand that their rental
properties are a business and an investment, and thus inherently have risk.
Fewer still really comprehend that the little landlords generally are carrying
a lot more risk than the bigger property management companies. They just keep
being shocked and offended when they seemingly discover this risk for the
first time all over again.

~~~
foxyv
I think you're right, a lot of people underestimate just how risky the real
estate market is. Back in the 90s it was seen as a low-risk endeavor. Pretty
much guaranteed money and tons of cheap leverage to max out returns. After
all, everyone needs houses and the population just keeps going up faster than
houses could be built. Especially with immigration.

However the cheap leverage and massive influx of foreign investment kinda fell
off which made prices drop like a rock in 2008. I wouldn't be surprised to see
it happen again in late 2020 and 2021 when a bunch of people see balloon
payments from deferred mortgages.

------
Joeboy
I don't know about the US but speaking for the UK, landlords have had a
ridiculously easy ride in recent decades. As a result, people with spare money
customarily invest it in buy-to-let properties, the cost of housing has
rocketed, and vast amounts of cash are continuously siphoned from poorer
people to richer people. We don't have to vindictively celebrate these people
getting wiped out, but anything that discourages customary amateur landlordism
has to be a good thing.

~~~
AnthonyMouse
The answer to this is to increase the housing supply. Housing costs increase
when demand increases and supply doesn't. Increase supply at the same time and
rents don't increase faster than inflation.

Buying property and renting it out is expected to yield returns. There's
nothing wrong with that. It actually increases access to housing by allowing
people who can't afford to buy property to still live somewhere in the
meantime. The problem is when you're not just buying a $200,000 house whose
value tracks inflation and renting it out, but buying a $200,000 house as the
value quintuples and all of that money goes to the landlord while the tenant's
rent quintuples as well.

~~~
tonyedgecombe
_The answer to this is to increase the housing supply._

People have been saying that for decades but we seem unable to achieve it.
Meanwhile the proportion of people in rented accommodation has been increasing
and the proportion of home owners has been falling.

Perviously landlords in the UK were getting a tax advantage that home owners
didn't have access to. This seems to be slowly shifting.

 _Buying property and renting it out is expected to yield returns. There 's
nothing wrong with that._

Actually I think there is something wrong with that. Personally I won't use my
easy access to capital to deny the younger generation the ability to buy a
house in the way I was able to.

~~~
sokoloff
Lots and lots of people are better off renting than buying and those people
need to have a supply of housing.

If no one can make money renting properties, where will this supply of rental
properties come from?

~~~
tonyedgecombe
Some people are better off renting but right now we have a lot of people in
middle age with families who are stuck with insecure housing. It's bad enough
now but it's going to become a nightmare when they get to retirement age.

The UK had a pretty good housing situation that was developed after the end of
the second world war. It was disassembled by Thatcher.

------
sooheon
Henry George's single tax[1] is criminally excluded from the Overton window.
Tax rent-seeking, not productivity.

[1]
[https://en.wikipedia.org/wiki/Georgism](https://en.wikipedia.org/wiki/Georgism)

~~~
centimeter
Georgism is not socially efficient, but LVT (which is similar, in that it's a
single tax on land) is.
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)

~~~
ethanbond
Out of curiosity, what do you perceive as the difference here?

Progress & Poverty, George’s own book, proposes the LVT.

In any case, not to let the narcissism of small differences derail this too
much: LVT is the right thing.

~~~
centimeter
Georgism proposes to tax _the value derived from_ land, whereas LVT proposes
to tax the market value of the land itself.

The primary problem with the Georgist proposal is that it involves a lot of
arbitrary determinations of value. The goal is the same, but the much simpler
mechanism of LVT can actually be implemented with reasonable accuracy and
efficiency. It's not totally trivial - it's kind of hard to figure out the
value of land if you were to counterfactually remove all the improvements, but
it's simpler than determining something as abstract as the value derived from
it.

~~~
sooheon
The single tax, LVT, and Georgism are synonymous.

> Georgism proposes to tax the value derived from land

Incorrect, it's almost completely the opposite. The Georgist proposal is
rather to tax the economic rent on land, not the value derived from it. Recall
the classic example of the landlord leaving his lot in downtown Manhattan
undeveloped. No value is derived from the land, the upside for the owner is
purely in speculation (benefitting only from improvements to neighboring
land).

~~~
centimeter
> The Georgist proposal is rather to tax the economic rent on land

How do you determine that? Also, here’s the wiki description, which matches
what I said very closely:

“ economic value derived from land (often including natural resources and
natural opportunities) should belong equally to all members of
society.[3][4][5]”

This is not the same as LVT. LVT doesn’t try to determine the source or type
of value, and Georgism does.

~~~
bhupy
Every single LVT proposal includes an extremely important stipulation:
deducting improvements from the total value, and only taxing the resulting
amount. The core thesis is that you don't want to dis-incentivize productive
economic activity, and simply holding onto land is unproductive.

LVT (and Georgism writ large) propose to tax the _unimproved_ value of land.
This is a form of discriminating the source/type of value.

------
abeppu
The gist of this seems to be "small-time landlords aren't rich; they have thin
margins" while ignoring the fact that they do in fact have a lot of _wealth_
especially relative to their tenants.

I've recently been listening to the audio version of Piketty's more recent
book, Capital and Ideology. I think noting the difference between wealth and
income, and the wage-share vs capital-share (more his 2013 book) is helpful
framing for the question of "how badly should we feel for small landlords?"
But the rest of this lobbying piece is echoing the more recent book much more
clearly. It participates in creating and perpetuating a set of beliefs and
values.

The concept pitched here is that "most landlords are small-time, having only a
handful of units". But if the big ones are big, e.g. if there's a power-law or
similar distribution, don't forget that most tenants (or most units) might
have much larger landlords, which don't look like the people discussed here.
Their own copy implies it: "Over 43% of rental units ... are owned by small
businesses" -> "A majority of rental units are not owned by small businesses".

The largest landlord in my city, with over 5K units and a value of over $3B,
received PPP funds, b/c its number of "real" employees is relatively modest.

And even the small ones are too used to having the law or policies bent to
their needs. I live in a multi-unit building in a popular neighborhood, which
should probably be worth >$3M, but is taxed at an assessment of ~$135K. And my
landlord is probably by most standards not bad.

I walk by some buildings near me that were quite likely torched by their
owners to get out old, low-paying tenants. Arson is pretty hard to prove, but
it can work out quite well for the owners.

Whatever I feel for landlords, it's not sympathy.

------
helen___keller
Investment properties are like stocks, except that retail investors are much
more likely to be leveraged and much less likely to be diversified.

It sucks to lose your savings but this is just how the free market is. If you
dump your life savings into a penny stock, you might get screwed over there
too. That's the free market, if you don't like it then invest in bonds or
atleast diversify.

I suspect in some number of months, stock values are going to begin taking
real hits, and when that happens I suspect we will start seeing the lost-my-
retirement-to-SPXL sob stories

~~~
Ididntdothis
“It sucks to lose your savings but this is just how the free market is“

There is no free market. It gets constantly manipulated to the benefit of
favored groups. 2008 made this very blatant and we see the same thing now
again. And the little guy is certainly not part of the favored groups.

~~~
helen___keller
Well, that's true. Maybe I should have said, "that's just how the free* market
is"

If you're a retail investor, nobody's coming to bail you out. Diversify or
face the consequences of your leveraged risk assets collapsing.

------
fred_is_fred
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.

~~~
klmadfejno
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.

~~~
ethanbond
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.

~~~
klmadfejno
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.

~~~
aries1980
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).

------
jacknews
The pain has to be shared, and particularly, lenders should be making
accommodations, waiving (not simply deferring) interest payments, etc.

------
generalpass
Landlords have at least one asset. The vast majority (all?) of their tenants
have zero assets.

This is a measure of wealth, but Bloomberg makes the same mistake that all of
these borderline propaganda rags make which is to compare incomes.

~~~
lobotryas
It’s not wealth if you are still paying off a mortgage on the rental unit.
Even if you owed the rental unit outright the “it’s wealth” argument is
foolish. What’s the point? Sell your only source of income and live off the
money until you become homeless or die?

It’s like saying a farmer is wealthy because he owns a tractor and a plot of
land. Absolutely asinine.

~~~
generalpass
> It’s not wealth if you are still paying off a mortgage on the rental unit.
> Even if you owed the rental unit outright the “it’s wealth” argument is
> foolish. What’s the point? Sell your only source of income and live off the
> money until you become homeless or die?

> It’s like saying a farmer is wealthy because he owns a tractor and a plot of
> land. Absolutely asinine.

These are all assets that can be liquidated for something. The renters have no
such assets.

The landlords are just as capable of going and getting a job as anyone. Most
landlords are not employed full time simply because there isn't enough work to
be done as a landlord to justify 40 hours of labor every week, at least until
a substantial number of units are being rented out. The income the landlord
receives is typically declared after all costs of ownership, which include any
mortgages. So, the work of the landlord results in a greater share of their
asset ("equity").

The jobs their tenants have likely do nothing to increase the value or share
in an asset.

------
dvduval
I read little about rent price depreciation, but it seems to me this is
already happening. People will move to cheaper housing, and the existing
mortgages will be untenable.

------
eli_gottlieb
Time to bring back penny auctions.
[https://en.wikipedia.org/wiki/Penny_auction_(foreclosure)](https://en.wikipedia.org/wiki/Penny_auction_\(foreclosure\))

~~~
moneytide1
This is somewhat unrelated, but when I see "penny" I now think of zinc. After
1982, American pennies were minted as >95% zinc.

I normally perform brick and mortar store purchases with plastic, but during
the recent furlough I would make small local purchases at random cash
registers and calculate my subtotal such that I could absorb as many pennies
from the register that I could (not sure of price per pound of zinc currently,
but perhaps there will be a convergence point where the weight of the penny is
worth more for its zinc than its Federal Reserve declared value).

The reason for this is that I want to build a small backyard sheds worth of
zinc bromide batteries. HDPE is a common plastic (milk jugs, oil containers,
etc) and I've found lots of it scattered around my city (lazy, disenchanted
citizens dumping illegally, but you and I know that no one is going to catch
them - which is advantageous to me since I need this easily recyclable
material).

HDPE does not react with a bromine solution. I need this material to house my
electrodes suspended in a bromine based electrolyte (zinc electroplating
gravity battery lasts "indefinately"). Even beyond that - HDPE is useful to
mold into whatever sturdy shape you need (for some reason Youtubers are making
slingshot hilt molds).

The reason your comment prompted my tangent is because I'm listening to the
audio of "Capitalism: A Love Story" and simultaneously parsing HN output and I
am so bored with all of these beat-around-the-bush definitions of wealth,
money, equity, derivatives, etc when the people peddling these terms are going
into your grocery stores to spend your labor on individually packaged (not
HDPE, probably PETE) baked and seasoned treats, or worse fast food prepped by
bored&athletic young people who have sentenced themselves to spending months
or years of their capable lives slapping together cheaply sourced ingredients
using probably natural gas heating elements.

In the 2030s, the people coming to power will have spent thousands of hours on
the internet and playing video games where they learned how to operate
(regardless of parental lethargy and ignorance).

They will be annoyed with the inefficient world they were bred into.

~~~
sudosysgen
Hopefully. Another unrelated thought is that History is really waking up. It's
crazy seeing things finally happening, hundred year old books becoming
relevant again, and true unpredictability come back. As one said a bit over a
hundred years ago, there are decades where nothing happens, and weeks where
decades happen.

------
amykhar
>But Washington stopped short of offering renters comparable relief on the
assumption that those in distress would likely qualify for the $1,200 checks
the Treasury began mailing out in April, as well as beefed-up unemployment
benefits.

I have to laugh at this because Americans were told a) you're getting a
stimulus check and b) you can't be evicted.

I am almost positive that many people used the stimulus check as found money
and blew it rather than using it for rent. The mindset being that if they
can't be evicted now, they'll cross that bridge when they get to it.

------
mindslight
The pain needs to propagate up the debt ladder now that it has overflowed the
first layer of rent payers. When landlords aren't getting their incoming
payments, there should be growing political will to do this - freezing
mortgage payments, interest, and a large part of real estate taxes.

It's either now, or a future crisis when the black hole of debt has grown even
larger.

~~~
jeffbee
Why freeze taxes? You're proposing that land owners are allowed to capture all
of the upside of a booming economy, and then should be protected in falling
economies? Why? They are demonstrably to better-off among us. If a
jurisdiction had the ability to forego that revenue, I'm sure they can find a
better place to cut it (like suspending sales taxes on food, or payroll
taxes).

~~~
mindslight
Because that's the debt chain. Real estate taxes are a recurring payment
levied by a city on a fictitious asset valuation, the same as a mortgage. And
I did say a "large part", chiefly the part that goes to paying municipal bonds
(the next link in the debt chain).

I understand we all want to see landlords reap the full rewards of their bad
decisions, but the article is correct that this will just allow the
administrators of the next higher level to mop up, with nothing fundamentally
changing. When the eviction freeze is over, tenants will be right back on the
debt treadmill, with an even more distant and less empathetic landlord.

~~~
jeffbee
Honestly could not parse your argument. We should suspend taxes because we do
not intend to pay bond holders?

~~~
mindslight
Taxes and bonds, along with landlords, are steps in the long path of economic
rent payments that start with tenants paying rent. Many tenants are not paying
rent. Therefore, rather than trying to turn the screws harder on the tenants
(as resuming evictions would do), or making some unlucky middlemen go bankrupt
today (just to be replaced with increasingly centralized middlemen as the
article points out), we should examine and aim to pause the entire chain of
economic rent payments that starts with the tenants.

