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I’m in this situation and I’m renting out my house while working overseas, where I am living in a rental property. Just because the market has been perverted by capital doesn’t mean there aren’t legit purposes for a rental market.
Not for profit, there isn't. Profit as a concept in contemporary economics already doesn't pass the sniff test, but housing especially doesn't.
The person in the tweet doesn't claim to be making a profit at all. She's basically saying she isn't going to sell the apartment, so if she didn't rent it out, then it would just sit empty.
The way the real estate market is currently set up, a property sitting empty still generates profit as a financial asset. This is the major issue with rentier capitalism, not your average middle class homeowner with an extra property for rent.
The way the real estate market is currently set up, a property sitting empty still generates profit as a financial asset.
Please expand.
Home value goes up over time.
Yeah but you're paying taxes and maintenance. It's actually not a great investment vehicle if it's sitting empty, it's just generally very safe.
Safe is the point. At least in the US, property taxes are substantially cheaper than anything you could do with liquidity, plus you can tap into the value partially or wholly without actually incuring much risk, or even taking that long. Owning property allows you to have collateral for loans and other financial investments which have larger yields, but require something up front. It is entirely possible to get a loan against a house for an investment, then pay it off with the yield of a previous investment so you don't have interest accruing. As long as you are savvy and intelligent with the investments, it is reasonably sustainable, especially if you are profiting off the property anyway. Who cares about an extra loan payment if you aren't the one paying it.
Who cares about an extra loan payment if you aren’t the one paying it.
This all stems from someone claiming an empty property still generated profit. You seem to be arguing that if someone else is paying your mortgage (i.e. a renter) then you can profit by borrowing against the equity in the property. I agree with you, but I don't see the sense in borrowing against an empty place as you are just giving some of your profits to the lender.
The benefit of the ability to borrow against it comes from being able to take part in other investment opportunities. Someone has a company they are starting, you can take a mortgage to invest in it and a year later potentially pay off the mortgage (depending on the size) and it can be empty or not. There are other financial vehicles that have a similar pattern. Even taking a mortgage on a property to take advantage of stock shorting or w/e.
Short answer, if appreciation (the increase in value over time) exceeds costs (taxes, maintenance, mortgage interest, minimum utilities, etc), you are profiting (unrealized capital gains) just by owning the house, similar to stocks and bonds.
Understood. This stems from someone claiming that renting it out for profit is in and of itself wrong. Applying what you said, all renting is criminal according to their logic.
Why rent it out if you’re not making a profit?
In her case, so she has a place to move back to if she comes back. Although I have a friend who has a few properties that he rents out basically at cost (mortgage, taxes, insurance, maintenance) and has them as an investment properties.
So rent goes where if not in profit? Maintenance??
Taxes, maintenance, a management company but probably most of all the interest on the insanely large loan you took out to get it. We “bought” a house with a 30 year loan and if we were to rent it out right now at market rate, there would be no profit. We would probably take a small loss other than the opportunity to hold the property hoping that the price of housing continues to rise. It hasn’t risen since we bought the house a couple of years ago. If you’re old enough to remember 2008, then you also know that it doesn’t always go up. Sometimes it goes down pretty dramatically and you’re left holding the bag.
If the house sits empty between tenants, those costs don’t go away. So for me, in my one bathroom house, that would be $2,400 a month (not including maintenance.) Where is that money gonna come from? I don’t have it because I’m paying rent somewhere else to try and make more money to dig my way out of this hole in this hypothetical situation.
So why not sell? To sell it, we have to pay 6% to real estate agents. If we actually owned the house, not just a massive soul-crushing loan, fine. But we don’t. So that 6% is a SHITLOAD of money when you borrowed all of it besides the 15% down payment that was two people’s life savings plus begging for more from relatives. So selling means half your combined life savings and the money you begged from relatives, poof gone.
Most people have a mortgage like this and amortized interest rates mean that in the beginning, 90% of the money you give the mortgage company goes straight to interest because you pay off 30 year’s worth of interest up front so that they’re sure they get their profit (and because paying the full 5% interest on a note that big every year would be impossible for most people.)
People who bought recently, have a mortgage and a single home that they rent out are not making any profit in areas with expensive housing. It’s not like houses are cheap to “buy” in the first place. They get you good.
Why buy at all then? Because I don’t like landlords telling me what I can and can’t do. So much so that I gambled it all on “buying” a place.
Loan interest payments are absolutely not something that should be converted by rent - you just take someones labour to pay for something in order for you to eventually own it.
Regarding the intentionally low liquidity market - that bullshit is by design. The government to allow (much less mandate) real estate agents to not get payed in fixed amounts is just grotesque. They dont provide any service and are not really responsible for anything.
I think we have a cap at 2% (but EU is slowly working towards banning any financial advice where the adviser gets payed in % of something because then it's in their interest for the price to go up). But most importantly, I can draft the contract myself (or ask a lawyer to do it for a minimal fixed fee if Im too lazy to look online for examples) & pay nothing to real estate agents. I can't imagine paying an extra 6%, that shit is formed basically as taxes, but go directly to private entities instead.
What in saying is that actual landlords and real estate agents have an interest in hiking prices for something they have extra but its a necessity for everyone.
Wait, why would people buy houses with 30y loans just to rent them?
“Loan interest payments are absolutely not something that should be covered by rent - you just take someone’s labor and to pay for something in order for you to eventually own it.”
Where will the money come from then? I’m not rich, I can’t afford to lose money every month renting out a place for less than it costs me. I also can’t afford to sell it. The concept sounds great to me though, I shouldn’t have to pay any interest just for a place to live. Hell, I shouldn’t have to pay anything at all. Help me go burn down the mortgage company and tax office and then I can let people live there for free if I have to leave town for a few years. Everyone wins. Except the people with money to lend of course, so you’ll need to have cash to buy a house, which means only the rich will have houses.
“Wait, why would people buy houses with 30y loans just to rent them?”
Because you didn’t buy it to rent it, you bought it to live in, but your situation changed. You need to move for work or family and that move may be temporary. You can’t sell your house without taking a massive loss and anyway, you’ll probably just get laid off again in the city you moved to to find work. Or maybe the aging parent you left to care for finally died and you want to come home, maybe you took a 2 year gig in another country to try and make more money. Maybe you dream of coming home to retire there after you spent all your good years working somewhere shitty.
The alternative is to sell your house and buy another one in the new place which can be financially disastrous (ask me how I fucking know) or sell and rent, knowing that you might well never be able to afford another house due to interest rates rising.
I’m not selling my only home and taking a massive financial loss to help reduce housing prices by 0.00001%. Fuck that.
For the record I’ve never rented my house out because I dislike the idea of renters as much as I dislike landlords. But in retrospect, I wish I had done exactly what we’re talking about in this thread because then I could at least go home, even if the renters trashed the place, at least I’d have a place. Now I can’t go home, I’m just trapped in this new place.
Some people on Lemmy seem to be under the impression that everyone who “owns” a home is a French Duke lounging around in Ibiza eating soft cheeses and drinking fine wine with your rent money. It’s weird and I don’t understand it because if you’ve ever tried to buy a house and used the “what will my monthly payment be” calculator, then you would know that being a landlord is not profitable unless you have a lot of cash, a lot of houses and/or decades of time.I would actually line more people to be ready to go "burn things down", literally is optional, figuratively is a must.
Things that are in abundance but can be made scarce by hoarding (relatively speaking, and as a movement that you as one person can't go against so you rent your place out as others that can in fact do) annoy me. So yes, burn the system down, we can do things (net) better. And lenders in regulated markets are not even a big part of the problem (outside of general financial crisis of various reasons).
And no, absolutely this is not a system you fight as an individual not participating in it somehow. These are important, big, and complicated reforms that will get a lot of push back from lobbies, but ultimately need the support of majority.
And also 'can't afford to sell' imho shouldn't be a thing in equal society, it's such a reduction on movement and options for a lot of people that don't get advantages as others do for no particular reason in their power.
About the French Duke (lul), but for real - a huge part of gen-z (not supported by parents or a fund) have given up on ever owning a house (much more so alpha gen I assume). And that is a huge mental fatigue owners don't have or easily forget if they had it.
Also, best wishes with things, lets hope it changes for the better soon (even if the 'better' isn't a better system but just better pay ... which afaik is the only real solution to getting some capital, investing, play the dirty game, get ahead of others that can't participate etc).
“I would actually like more people to be ready to go "burn things down", literally is optional, figuratively is a must.”
That’s one thing we agree on for sure! The way things are trending is not sustainable and people will only put up with so much, so things will have to change at some point.
Thanks for letting me vent haha. I hope you get your own money pit and plant some nice trees in the yard someday.
Haha, literally plant seeds or like just feed seeds to chickens or something is the luxury dream of mine, increasingly so.
Quite a lot of trends in a lot of aspects affecting life quality (human & nature) are horrifying. And to think we are way past the point of French revolution in wealth inequality, and Russian as well. 8h shifts 5 days a week, commute, lack of options, financial obligations and necessary costs, etc really keep people down & from protesting. I like that unions are striking, things must change somehow.
Mortgage, maintenance, insurance, taxes
Loan interest payments are absolutely not something that should be converted by rent - you just take someones labour to pay for something in order for you to eventually own it.
Same with taxes - both on rent profit and real estate itself.
Maintenance, insurance, electricity, water, etc tenants cover, bcs that is the thing they are using & costing landlords. And those things are absolutely not 6%~12% (as average re yield) of the real estate price. Its just profit from labor transferred to non-productive factors.
So people should just pay a tiny fraction of the cost of home ownership to rent somewhere? If that were the case, only the absolutely most wealthy people could afford to own and rent places out. It wouldn't make sense for anyone else to buy it, and those ultra wealthy would be the only ones profiting.
Financing isn't a cost of ownership.
And higher rents result in higher real estate prices. With lower rents housing prices would fall to their intrinsic fair value.
Also a lot of people invest in real estate without external financing (unless it's way too cheap & an opportunity - a few years back b2b loans were at 1% vs 4+% now). Investment companies on the other hand ofc optimise cost of financing with target yields and leverage.
ultra wealthy would be the only ones profiting
I don't understand. They do that now, at a much larger scale, I work for them :D. And with low rents everyone would benefit more on average.
Financing isn’t a cost of ownership.
For all but the ultra wealthy, it absolutely is. Which is my point.
Im decently wealthy, but clearly still working class. As is pretty much everyone else I know around me. Plenty of them have 1 to a few rental properties. I know one guy who just basically covers his costs with rent, and uses them as investments. But all the others use it as a stream of income. So the claim that only the ultra wealthy profit from it makes no sense, and if you think the people you work for are the only ones in the market, then your perspective is terribly inadequate.
My in laws are also sitting on a property that they could rent out for income, and while they are well off, they are not ultra wealthy either.
I didn't say that. Most of the middle class wealth arose from real estate, however Im saying that the "ultra rich" benefit a lot more from real estate than people you describe. But building several housing complex for 10s of millions each absolutely nets you more that a studio apparent in some basement.
Also, what Im saying overall here, regular people would get more real estate in it were not so profitable. Government housing projects that lower market rents are then terrible for ... 'decently wealthy', so none of that?
Also, its not that the usual case is that a landlords would be less 'wealthy' than the tenants they have. So however you look at it, it's a market where your goal is to up the rent as much as possible ("it wasn't me, it's the market, tho my costs didn't even change, lul") over people less fortunate than you that usually don't have another choice.
And no, I don't understand how financial expenses would be cost of ownership. Sure, you can't do it or it doesn't make sense not to take a loan, but that's financial stuff, not ownership stuff, the same way as you job isn't the cost of ownership for a house. It might be in your case, ofc, but there are steps in between.
I didn’t say that.
Sure seemed like you did when you responded to my claim that they would be the only one profiting from it, by saying that is happening now.
Also, what Im saying overall here, regular people would get more real estate in it were not so profitable.
Maybe, but the issue is that if you couldn't use your financing in your calculation on how much rent to charge, only those who can outright buy properties (i.e. the ultrawealthy) would be the ones who could profit from it.
but that’s financial stuff, not ownership stuff
But if you have to finance to own, then it is part of the cost. I don't possibly see how you can argue again this. One could easily decouple the maintenance and taxes from it in the same exact way and say you have to work for the money to pay these things, so it doesn't count.
Profit is a byproduct of free exchange of labor. Most people wouldn't labor if it was net negative for them.
Profit is a byproduct of
free exchange oflaborFTFY
Value is added regardless of whether the labor was freely exchanged.
That said: rent isn't a result of any labor at all
I agree, however, a good landlord who maintains their property and promptly resolves issues will have to invest an element of time and money into the process.
That being said, fuck landlords in general.
a good landlord [is one] who maintains their property
That job exists - they are called maintenance workers: plumbers, electricians, roofers, handymen...
What makes a landlord a landlord - and not a handyman - is the ownership of property and extraction of rent for its use. It is definitionally not the labor involved in maintaining it.
If landlords want to be paid for maintaining properties they can get jobs as maintenance workers.
The value of a landlord in theory is that they rent at a rate lower than what the mortgage would be, since the renter isn't going to own the property at the end of it. And in turn the renter is wanting short term accommodation. The issue is various conditions have led to home prices always going up.
The value of a landlord in theory is that they rent at a rate lower than what the mortgage would be
I don't mean to sound rude, but this might as well be fan fiction.
Ok
Landlord is the role of owner, not maintainer/manager of the property. Sure, they can be the same sometimes (even then most of the actual work gets outsourced to professionals), but anyone can enlist the help of a real estate manager. We usually tend to call them janitors.
Also there are huge open funds specialising in real estate (for rent revenue, for dev/resell potential, or both) that have like a 100 property managers that just need to keep their tenants happy. What that actually means is that investors pool their moneys into a fund with fund managers that buys real estate, finds tenants that wound pay a higher rent under certain conditions (eg I want a huge concert hall in the center of our office complex), fund has the capital to make it happen & evicts the current tenants (unless they can match the rent of the place with a concert hall but without actually having it).
Exactly. Profit actually muddies intrinsic value added since the main driver is purely financial, not actual irl. And you can make a (steady) profit on/with things that don't add value.
What is intrinsic value?
Depends on the case, but for an average house the cost of building one. How the location affects pricing wouldn't change (land/space is still limited & some places offer things that others dont).
Its just that without rent invectives more houses would again be privately owned simply because less investment capital would bother with it & push the sectors profitability up.
Edit: if I misunderstood your question --> wiki/Intrinsic_value_(finance), wiki/Intrinsic_theory_of_value, wiki/Intrinsic_value_(ethics)
Ah I see, yeah I would disagree there is such a thing as intrinsic value.
Its just that without rent invectives more houses would again be privately owned simply because less investment capital would bother with it
I don't know if I agree with that, because of current governments goals of keeping house prices ever rising, land, even empty, would be useful for risk management. It also may lead to that land being used for very short term housing, aka AirBnB. It could also lead to psuedorent type arrangements where banks offer loans with much lower downpayments, but with extremely long terms.
What government has an interest in rising housing prices? Isn't their job the opposite of that usually? Im not familiar with that.
And regulators/government should prohibit such predatory practises as long loans (no central bank would even allow that atm anyway, not under Basel). Basically my point is that housing, healthcare, public infrastructure, etc should be non-profit imo (so, no dividends/profit payouts, only for r&d or lowering price points and profit sharing to clients).
What government has an interest in rising housing prices? Isn't their job the opposite of that usually? Im not familiar with that.
A government who for decades has encouraged home ownership as the safest way of building wealth. A government who a massive number od their constituents are home owners.
And regulators/government should prohibit such predatory practises
Are they predatory? How else can someone live if they can't afford a down payment and can't rent?
Basically my point is that housing, healthcare, public infrastructure, etc should be non-profit imo (so, no dividends/profit payouts, only for r&d or lowering price points and profit sharing to clients).
I understand
Oh, yeah, politicians working for themselves, that's the exact same reason why taxes on rent are usually kinda low/treated specially.
Yes, really long loans are predatory or if you want to look at it from a different perspective, a result of a non-functioning system. Financial obligations tax mental health, trap people, make enormous cumulated profits on capital without any work & negligible risk.
Central banks restrict max durations on mortgages/loans as is (also like what clients minimal disposable income after loan payments must be each month, age, max ratio of loan to property value, etc). And yes, if nothing else changes, that is bad for young people trying to buy a house, start a family, central banks acknowledge that, but their job is monetary policy/stability, not social policies - the government is the one not doing their job.
There is no such thing as intrinsic value
Well yes and no. Profit is a byproduct of profitable labor, not all labor. If you're hunting for food for energy, but don't catch anything (or catch less than you expended), that was labor but it was not profitable. Which is a criticism I didn't really point out before either, but my argument was more to say when there is free exchange of labor it is much more often profitable.
Most people wouldn't labor 40+ hours a week for the wages they are getting if they had alternative methods of obtaining food, healthcare, and housing. There is no real-world "free exchange." You have to deliberately ignore the coercive part to pretend it doesn't exist, because it is obvious. People need to participate in the economy to survive.
I agree it is coercive, but not because of a need for food or shelter. That need is the natural state of humanity, there is no one imposing that need on you. There is no one coercing. But I absolutely agree there are plenty of other coercive factors.
Would you accept if I say "exploitative" instead of "coercive?" I just think for the economic model to price things efficiently, inelastic goods like being alive need to be external to the model. I disagree with describing what we have as a willing exchange.
There definitely can be exploitative factors, just like coercive factors, and housing for example to an extent is exploitative, as in exploited by politicians. But I don't think food sales are really exploitative.
Labor theory of value. Read theory people. It makes you better informed.
I've read a lot about labor theory of value. I think it's wrong though. Value is 100% an individual decision, there is no inherent value, in my opinion. And none of Marx's theories are "scientific". And before someone says it, maybe Adam Smith argued LTV, I don't know, I've never read any Adam Smith- doesn't change that I disagree with LTV
Ah, the subjective theory of value. It is an interesting paradox.
Thanks for the link, I didn't know the history behind it- I just remember vaguely someone chastising someone for calling LTV Marxist and saying that Adam Smith believed in it.
Profit as a concept in contemporary economics already doesn't pass the sniff test
I'm not sure what you mean by this. Do you mind explaining?
Profit no longer serves the only productive class, the working class, in any fashion.
Ofc, stuff that you can't really live without (or be considered poor without) cannot be market priced/for profit because the only thing stopping soaring prices would be a revolution/revolt ... and we were pretty pacified throughout our upbringing. Even silly/obvious things - like people automatically condemning (financially poor) looters of megacorps with unimaginable private profits.
You are so brave to post this on lemmy
The issue is (the normal and accepted practice of) charging people "market" rates for something that is a necessity.
Like healthcare, housing market isn't free because the demand part of the market isn't free.
People tend to mistake choice (the amount of available products that do the same - eg 100 colors of the same 100× overpriced cornflakes) with free market.
You are not going to go live in another country to work there and be homeless. And, if you could buy the place instead of renting, ofc you would want to do that. Even if you dont have the full nominal amount of moneys, as long as your credit payments (eg bank financing) would be lower than rent (well, actually just if the interests payments are lower than rent), you are just losing money paying rent. Even in case of like a really long loan, if you decide to sell the real estate after a year, every penny that you paid to you borrowed nominal is now "yours again" since the loan diminished by that amount and the selling price is within that margin/about the same-ish.
The profit incentive of current owners (ie the ones that just happened to have the opportunity to buy that real estate before you did, or were even born) is the main driver for hiking prices/rents.
And all of the free actors on the market, which are owners that control the supply part of the market, have exactly aligned interest of charging higher rents (that consequently/additionally result in higher real estate prices bought as investments) ... guess where the market is headed. Not only at higher market prices, but also supporting other hurdles to buying real estate.
I worked in another country for a few years, renting was defiantly the better choice at the time. I wasn't going to be there long enough to break even when I sold, and the headache of buying a property in a country that you don't have citizenship, trying to get financing, ect. just wasn't worth it.
Oh, that's true, especially if countries dont have any bilateral agreements. But these are unnecessary complications that should be resolved (like, I can buy stock on basically any open market in seconds with very clear and registered ownership).