[t2015_08_25]

I like the cut of your jib.

I've been considering buying rental properties to supplement my income, but something deep inside somewhere, based on living close to people well below my income level as one of a 4-unit building, prevented me from doing it.

When I tried to compute how much rent I would charge, I realized I would be profiting simply by taking money from them because they have been unable to accumulate capital at the pace I have been. While that does indicate some skill on my part - hey, I scrimp and shop wisely - I don't feel it morally qualifies me to skim from others. That would be paying myself twice. When I scrimp and shop wisely, I benefit from having extra savings, but using that savings to get more from others without adding more value is something I don't feel right doing.

I could morally accept money as a landlord based on my labor doing maintenance and time spent bookkeeping, I suppose. That - speaking as a current tenant - does have some value, but I just don't think it would be much, approximately that of a day laborer or accountant for several hours a week. So screw it, i'll make a lot more money creating something of real value.

Thank you for helping me recognize and articulate this, branchless.

[OrwellianChild]

I'm really confused... The thing of value you are providing as a landlord is housing. How is it skimming? Putting money towards a house/condo instead of investing it in business has an opportunity cost. You lose out on the profits from dividends/interest/cap gains. That has to be replaced. If you charge too much rent, other people will under-cut you. The price is set by available housing. Where is the deceit?

Do you feel you would owe people the freedom to use your property free-of-charge? What about the mortgage payments you endure? The maintenance/upkeep (roofs, siding, carpet, plumbing, electrical, all amortized over the life of the building)? Should this be a loss you take in order to let someone else sleep in your house?

Disclosure of bias: In Seattle where I live, the cost of real estate is higher than the prevailing rents, when you factor mortgage payments, maintenance, utilities, HOA, etc. This makes it a little easier for me to see the equity in pricing between rentals and owned homes. It may be different in your parts of the world.

[t2015_08_25]

It's got nothing to do with deceit or skimming, it's power. There is no fraud, it would be simply taking advantage of people beyond the amount of value that I would be interesting in providing.

Your allusion to a market that would correct the price doesn't account for a market which no tenants can enter because none of them can afford the entrance (a 20% down payment).

They'll get the benefit of housing no matter how much I would charge, but if I charge more than the value of the maintenance and accounting them I would be exploiting them, taking advantage of their inability to produce capital in the time it's taken me to produce it. And everyone else who is in the position I am could exploit them just as easily so the market doesn't help there.

It's like gas prices: if so many gas stations can compete, how come they prices aren't driven down to nothing? Because of the entrance cost to the market. You can't start a well and refinery, so you have to go to one of the established ones.

For luxury items like phones, art, fancy cars, etc., I don't care about charging people a lot of money. But for water, air, food, medical and housing, which people have no choice to acquire or consume I'm not going to gouge them.

This is not some rational choice about what a person or market theory can or should do, this is my personal code of ethics.

[OrwellianChild]

Not trying to change your mind, and I appreciate the chance for a dialogue... Your perspective seems based on the idea that housing (shelter) is a basic need and should be provided for, and at some fundamental level I'm inclined to agree. (In my mind, it would be pretty basic housing...)

I did want to call attention to your gas prices example... Gas prices are driven down to approximately the cost of getting more oil out of the ground, refining it into gasoline, and transporting it to your local Chevron. These are costs inherent to "making gas" - it's not free. The same goes for housing, so whether you'd have renters pay it or have the government pay it for them, someone's going to have to cut down trees, pour concrete, level land, install plumbing, etc.

This is this "value" of the housing I'm talking about, which is separate from the moral right to shelter that seems to guide your judgement on the issue. Thanks for being willing to engage me in the discussion!

[kamaal]

>>Your perspective seems based on the idea that housing (shelter) is a basic need and should be provided for

There is a very unfortunate problem with this line of thinking. It takes a lot of effort/money to build a house. You need to procure raw materials, pay for human labor and various other expenses, this is apart from acquiring land.

And the problem with this kind of 'equality for all' argument towards housing is you are assuming, that a good quality home should either come at a cheap price or some one being ready to pay and make up for everybody else. Both of them are problematic, why should every single economic link in the chain related to building a house suffer? Or why are we expecting some people to pay taxes and have houses built for every one else?

You don't have the right to anything unless the cost of achieving that is literally free or negligible.

[branchless]

This is so wrong it hurts. The cost of the "house" is the land. Building houses has never been cheaper. Just like everything else has never been cheaper.

[jdenning]

I don't think this is correct - construction costs are currently below the all-time peak, but they have been steadily increasing. According to the National Association of Home Builders (NAHB):

"The average construction cost of a single-family home in the 2013 survey is $246,453. This average is significantly higher than the 2011 average construction cost of $184,125, and is the highest it has been since 1998. Although the cost of construction per square foot remained relatively stable in 2009 and 2011 ($82 per square foot, and $80 per square foot, respectively), it jumped to $95 per square foot in 2013."

Also, regarding the relative impact of land cost vs construction costs:

"NAHB’s most recent construction cost survey (conducted in August and September of 2013) shows that although lot sizes are shrinking, both the cost and size of the home are on the rise. The average home in our survey was built on 14,359 square feet (about a third of an acre) of land, had 2,607 square feet of finished area, and sold for $399,532. The average share of the home’s sales price which goes to construction cost jumped from 59 percent in both 2009 and 2011 to 62 percent in 2013. Finished lot costs, accounting for the second largest share of the sales price, dropped from 22 percent in 2011 to 19 percent in 2013."

The situation might have changed since this survey in 2013, but this is the most recent information I was able to find.

EDIT: Source - http://nahbclassic.org/generic.aspx?genericContentID=221388

[branchless]

Glad to help. Spread the word and don't accept the empty US rhetoric that "it's just business, baby".

Good for you for having some back-bone.

Deriving income by adding value is fine. The rentier just takes.