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Average tenancy length is two years (https://www.residentrated.com/blog/2019/6/10/average-us-rent...). So you'll have more money on your hands if you drop your rents by one third rather than leave it vacant for a year. Of course, the actual effect would be smaller than one third since tenancy length is endogenous.

However, this serves to illustrate: keeping rents high is rather a combination of being bad at mathematics, tacit collusion among landlords and protesting rent control.




Average tenancy and rent are not independent variables here. At very high market rates, I don't doubt tenancy lengths aren't that long; everyone is looking for the next best deal.

But a dramatic drop in rent will result in someone locking in that rate and literally never leaving. Taking that apt off the market essentially forever.

I know a few people with rent controlled apartments in SF who have held them for decades so their rent is impossibly low. They'll never leave. At least one hasn't even lived in SF for many years now but the rent is so low it's worth it to them to keep it as an occasional weekend crash pad even though they live elsewhere.


IIRC, sometimes rent thresholds are baked into financing documents. It's pretty unpalatable for a landlord to drop rent rates & then end up with a capital call from their lender -- especially while facing eviction moratoriums. So instead, they offer 1-time incentives (e.g. 3-mo free) instead.

These things are never as simple as they seem...


Your stat is for the country as a whole, not SF. Of all the folks I know that rent, the strategy is to get a rent controlled unit, one you’d be happy with for a long time, then never give it up.

I’ve been renting for 8 years and I’m the shortest tenancy in my building (as an example).

And the math about keeping it empty doesn’t factor in the sales price. A realtor explained it to me - if you have a 3 unit building, the sales price can go up by several hundred thousand dollars if one of those units is empty. That could easily be 5+ years worth of rent, so keeping a unit empty for a couple years can be a financially smart move. The reason is because evicting a tenant (owner move in) is a very expensive and lengthy process that few buyers are willing to put up with.


I haven't found anything about tenancy durations while searching, but the owner is actually living in the building so having a free unit after buying that house is pretty much a given.


In this case yes, the owner was living in the building, but the empty unit thing applies for other units too. You'll get the highest price with a completely empty building. Especially if it falls under the exemptions for condo conversion.


As an aside, your building sounds excellently stable, with the possibility of a real community building.


People with rents 1/3 under market are extremely unlikely to move, especially when rent is a high percentage of their after tax income. Leaving it vacant is a completely reasonable strategy if the landlord has sufficient cash reserves.


You cannot use average here, since the actual length is affected by how good of a rent deal you have to start with, and in the case, if the tenants start with a good deal (for them), they are less likely to leave after the average period has passed. I don't know if you meant the same thing with the word "endogenous".


What's meant by "tenancy lengths are endogenous"? For me, "endogenous" refers to biological processes. I'm missing the connection to tenancy duration.


We're modeling rent drops using tenancy length as an input. However, tenancy length is also affected by rents compared to market. Since the output also affects the input, we have endogeneity in an econometrics sense and blindly estimating the equation will give us wrong numbers.


Ahhhh, it's a closed-loop feedback system, a function that depends on itself. Endogenous. Got it. Thanks!


They meant the statistical, not biological term. In this case, the possibility that reducing rents may effect tenancy lengths. https://www.investopedia.com/terms/e/endogenous-variable.asp


Yep, you were right. Thanks for the link!




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