That’s normal. The idea is you buy the house with a mortgage to then lease (let) out to tenants. The tenants then pay you rent equal to the mortgage plus a bit extra on top, which you use to pay the mortgage and make a profit.
Around here, it’s not really linked. The heat of the apartment market is directly tied to the projected ROI, based on the demand of rental properties and the demand of rent itself. Like Bitcoin mining, sometimes the ROI gets really low or even negative in the short- or medium-term. The friction between the two factors tend to warm or cool one of the markets, but it takes times.
Consider/remember this. Many landlords aren’t paying a mortgage, and don’t need to tie rent to “a house’s value at the time of purchase”. They still profit when rent is below the average mortgage, or if rent is well above it. The only thing they care about is maximizing profits regardless of how full/empty their units are. Similarly on the renting side is lifestyle renters. They don’t rent “because I can’t afford a mortgage”. They rent because they don’t want to be tied down. They aren’t ready to settle and might or might not move 1000 miles next year.
Those two categories are fairly numerous, and both present forces that influence the rental market independently from the purchase market. It means that places with less long-term demand like Detroit, Philly, or Houston have ownership TCO far lower than rent rates. Flip-side, there are just as many cities on the other side of the spectrum. The average rent in Austin is $2000/mo cheaper than mortgage payments on a starter home. In San Francisco, that difference is almost $3000/mo.
The rent is rent. It doesn’t have to cover the mortgage all the time. It’s not like someone rent is locked in for 30 years. And some bigger businesses will take the hit knowing the appreciation of the house will catch up or know they will buy a majority of the houses in the area and then raise rent that way to eventually be higher than the mortgage.
I never understood this sentiment. For single family homes the market sets the price. It’s not like when you buy a house and use it for a rental all of sudden it’s cheaper or more expensive in some way. You could make a price/demand argument but then again the underlying demand is housing not money hungry landlords. If there was not an underlying housing demand, no one would rent and it would fail as an investment.
How does the community serve those who want to rent? Apartments? Now that is where we can agree. Apartment valuation is calculated on operations not on the market. The only way to raise value of an apartment is to raise rent (or reduce expenses in some way but at some point you can only do so much). At least with SFH you have appreciation that landlords can factor in for return.
Lastly, 2 of my rentals were foreclosures. If anything I’m performing the city a service by buying these properties and adding value. If you had to choose, would you rather live next to a vacant house or a rental?
To answer your question, it’s fair for a renter to not build equity because they don’t pay for upkeep or have the risk associated with the loan. You have to put skin in the game at some point.
Edit: there are some good points for the other side of the argument if you keep reading. I don’t know what the answer is but I’m not convinced that restrictions or to disincentivize rental operations is the answer.
never understood this sentiment. For single family homes the market sets the price. It’s not like when you buy a house and use it for a rental all of sudden it’s cheaper or more expensive in some way. You could make a price/demand argument but then again the underlying demand is housing not money hungry landlords. If there was not an underlying housing demand, no one would rent and it would fail as an investment.
Close. You’re right there’s no profit without demand. Now, consider what happens when certain entities with way more money than most of us comes along and decides they want to induce artificial scarcity by buying up and leaving empty a ton of houses.
Lastly, 2 of my rentals were foreclosures. If anything I’m performing the city a service by buying these properties and adding value. If you had to choose, would you rather live next to a vacant house or a rental?
They both kinda suck. I’d rather live next to someone who is invested in the property.
To answer your question, it’s fair for a renter to not build equity because they don’t pay for upkeep or have the risk associated with the loan. You have to put skin in the game at some point.
I could agree with this if rent was pegged to a percentage of the mortgage value. The issue is that the landlord makes a purchase and now owes, let’s say, 1k/mo for everything. Rent, taxes, fees, etc.
They want to rent that place out, great. Maximum rent should be LESS THAN that 1k, because the landlord is already getting theirs, they’re getting equity, and the only thing they have to do is upkeep they’d have to do regardless.
Apartment valuation is calculated on operations not on the market
Apartment valuation in my area spiked until the ROI crossed 10+ years. People stopped buying apartment buildings for a while except as owner-occupied with renters to assist. But in my area, none of those reach anywhere near a net-zero mortgage. The market absolutely still has an effect on valuation in most areas.
But two towns over, people are selling apartment buildings with 2-3 year ROIs, and they’re being swept up by one of a small handful of investors. Building maintenance is terrible, and there’s very little interest in the legal risk of being slumlords except those who are already slumlords over 40-50 buildings or more.
I beleive housing should be a privately owned venture, at least for suburb housing where the entire plot is included. Outside of that social schemes should purchase/build properties for rental purposes.
Like you said, the housing market is in demand. But how much of that demand is manufactured by landlords purchasing more property to rent versus real buyers looking to buy-to-occupy?
Your argument for cost of maintenance is part of the equation, however the rent costs should be the cost of maintenance and upkeep with a modest margin for investment. However that’s not the case. Landlords want to take their cake and eat it. Rent is now the cost of the mortgage, AND maintenance/upkeep AND profit. Its a win for landlords and a lose for renters. If the renter is capable of paying the inflated rental costs on a regular, then they should be owning their own home. The current status-quo is unfair.
Just FYI, I am a home owner. I know the costs of mortgages, the risks that are involved and the maintenance costs of keeping a home running.
They should abolish buy to let mortgages. How is it fair that a renter literally pays for the mortgage by proxy but doesn’t have a stake in the home.
That’s interesting. In my state, rental rates are just plain higher than mortgage rates. Maybe that’s why I’ve never heard of buy to let mortgages.
That’s normal. The idea is you buy the house with a mortgage to then lease (let) out to tenants. The tenants then pay you rent equal to the mortgage plus a bit extra on top, which you use to pay the mortgage and make a profit.
Around here, it’s not really linked. The heat of the apartment market is directly tied to the projected ROI, based on the demand of rental properties and the demand of rent itself. Like Bitcoin mining, sometimes the ROI gets really low or even negative in the short- or medium-term. The friction between the two factors tend to warm or cool one of the markets, but it takes times.
Consider/remember this. Many landlords aren’t paying a mortgage, and don’t need to tie rent to “a house’s value at the time of purchase”. They still profit when rent is below the average mortgage, or if rent is well above it. The only thing they care about is maximizing profits regardless of how full/empty their units are. Similarly on the renting side is lifestyle renters. They don’t rent “because I can’t afford a mortgage”. They rent because they don’t want to be tied down. They aren’t ready to settle and might or might not move 1000 miles next year.
Those two categories are fairly numerous, and both present forces that influence the rental market independently from the purchase market. It means that places with less long-term demand like Detroit, Philly, or Houston have ownership TCO far lower than rent rates. Flip-side, there are just as many cities on the other side of the spectrum. The average rent in Austin is $2000/mo cheaper than mortgage payments on a starter home. In San Francisco, that difference is almost $3000/mo.
The rent is rent. It doesn’t have to cover the mortgage all the time. It’s not like someone rent is locked in for 30 years. And some bigger businesses will take the hit knowing the appreciation of the house will catch up or know they will buy a majority of the houses in the area and then raise rent that way to eventually be higher than the mortgage.
Because earthy cats like us don’t make the rules.
I never understood this sentiment. For single family homes the market sets the price. It’s not like when you buy a house and use it for a rental all of sudden it’s cheaper or more expensive in some way. You could make a price/demand argument but then again the underlying demand is housing not money hungry landlords. If there was not an underlying housing demand, no one would rent and it would fail as an investment.
How does the community serve those who want to rent? Apartments? Now that is where we can agree. Apartment valuation is calculated on operations not on the market. The only way to raise value of an apartment is to raise rent (or reduce expenses in some way but at some point you can only do so much). At least with SFH you have appreciation that landlords can factor in for return.
Lastly, 2 of my rentals were foreclosures. If anything I’m performing the city a service by buying these properties and adding value. If you had to choose, would you rather live next to a vacant house or a rental?
To answer your question, it’s fair for a renter to not build equity because they don’t pay for upkeep or have the risk associated with the loan. You have to put skin in the game at some point.
Edit: there are some good points for the other side of the argument if you keep reading. I don’t know what the answer is but I’m not convinced that restrictions or to disincentivize rental operations is the answer.
Close. You’re right there’s no profit without demand. Now, consider what happens when certain entities with way more money than most of us comes along and decides they want to induce artificial scarcity by buying up and leaving empty a ton of houses.
They both kinda suck. I’d rather live next to someone who is invested in the property.
I could agree with this if rent was pegged to a percentage of the mortgage value. The issue is that the landlord makes a purchase and now owes, let’s say, 1k/mo for everything. Rent, taxes, fees, etc.
They want to rent that place out, great. Maximum rent should be LESS THAN that 1k, because the landlord is already getting theirs, they’re getting equity, and the only thing they have to do is upkeep they’d have to do regardless.
Apartment valuation in my area spiked until the ROI crossed 10+ years. People stopped buying apartment buildings for a while except as owner-occupied with renters to assist. But in my area, none of those reach anywhere near a net-zero mortgage. The market absolutely still has an effect on valuation in most areas.
But two towns over, people are selling apartment buildings with 2-3 year ROIs, and they’re being swept up by one of a small handful of investors. Building maintenance is terrible, and there’s very little interest in the legal risk of being slumlords except those who are already slumlords over 40-50 buildings or more.
I beleive housing should be a privately owned venture, at least for suburb housing where the entire plot is included. Outside of that social schemes should purchase/build properties for rental purposes.
Like you said, the housing market is in demand. But how much of that demand is manufactured by landlords purchasing more property to rent versus real buyers looking to buy-to-occupy?
Your argument for cost of maintenance is part of the equation, however the rent costs should be the cost of maintenance and upkeep with a modest margin for investment. However that’s not the case. Landlords want to take their cake and eat it. Rent is now the cost of the mortgage, AND maintenance/upkeep AND profit. Its a win for landlords and a lose for renters. If the renter is capable of paying the inflated rental costs on a regular, then they should be owning their own home. The current status-quo is unfair.
Just FYI, I am a home owner. I know the costs of mortgages, the risks that are involved and the maintenance costs of keeping a home running.