[r_smart]

>Rent shouldn’t be anywhere near comparable to mortgages.

How am I supposed to rent you a house if the rent you pay is less than the mortgage I have on the house? How do I build a pool of money to use for repairing the things that inevitably break?

[newacctjhro]

You're building equity with the difference between rent (plus repairs etc) and the mortgage. The renter isn't.

[saiya-jin]

Yes, and you are exposed to myriads of risks that tenant isn't either - property market crash, tons of possible environmental disasters, issues with plumbings, fires, damage done to property, gradual degradation of, well everything.

Another thing is the amount of time and energy invested into acquiring, renovation, maintenance and improvement of the property.

Financially any of those, especially market crash can ruin you for life - how do you want to price this massive risk in rental price?

Ever tried to buy a property? For mortals getting mortgage, its such a stressful experience even for simplest type - obtaining already existing and equipped flat, that it easily breaks relationships and marriages.

I understand the tenant point of view to try to pay as little as possible and have as big choice as possible, I am also in that camp, but there is other side (and I don't mean some super rich or people inheriting big properties by being lucky with birth).

[bluedevil2k]

All this, plus you forgot taxes & insurance. Not even homeowners insurance, but liability insurance in case someone hurts themselves on your property. You need to cover times it's not occupied, pay for a property manager, any legal costs when a renter abandons the property and you need to instantly evict them, clean up costs between each tenant.

Building equity on a property backed by a mortgage is such a slow process that the only way to make profit (in my real estate market) is to eek out a thin margin every month and cross your fingers nothing breaks.

[michaelscott]

Yes, and you are exposed to myriads of risks that tenant isn't either - property market crash, tons of possible environmental disasters, issues with plumbings, fires, damage done to property, gradual degradation of, well everything.

A property investment, like any investment asset, is a bundle of risks as well as rewards. Yes, you as the owner take on the risk of things like market crashes, insurance and repairs but you also own an expensive asset which you can sell at any time (a renter cannot). You need to deal with the risks and rewards of a property like you would any other asset.

[r_smart]

Right, and you price the rent based on that risk profile. A price that is absolutely going to be higher than the mortgage, unless as another commenter pointed out, there are incentives & tax breaks that cover the cost you would otherwise bear.

[michaelscott]

The risk profile is carried by the asset owner, not the person making use of the asset. I buy equities, fixed income assets and bonds based on my risk profile, not someone else's.

[r_smart]

Riiiigggghhhhtttt....and at a selling price determined how?

[lallysingh]

Yup, but the difference is that some of your appreciating asset is being paid for by someone else. In some cases that's worthless, in others quite valuable.

As for pricing, the market does that for you.

[anoncoward111]

When it works, it works really well.

When it goes wrong, it fails catastrophically.

That is to say, the variance of slumlording and poker arr probably equal :)

[lallysingh]

Yes, investments involve risk. If you believe that another cataclysmic crash is coming to the real estate market, then stay out. If you think it's unlikely, it can be a relatively low risk investment for the returns.

[anoncoward111]

I definitely agree, but I wouldn't say the market crash is the biggest risk.

Tenants who damage the property and withhold rent are way worse.

[dyeje]

The renter also isn't assuming responsibility for keeping the property in repair. The owner assumes all the risk.

[dragonwriter]

> The renter also isn't assuming responsibility for keeping the property in repair.

That depends on the terms of the lease.

[LyndsySimon]

It’s pretty standard for residential leases in the US, though.

[dragonwriter]

It's pretty standard for residential leases for at least some maintenance responsibilities to be assigned to the tenant (I think that it tends to be more of them assigned this way for leases of detached single-family homes than for apartment leases.)

[karambahh]

Depending on the local regulations, you can turn a (long term) profit while a rent inferior to the mortgage repayments.

Can't get on the specifics as it varies country to country and even local regulations but as anecdotal evidence, I'm currently looking at a property in my hometown, with a mortgage of 80k€ (cost of mortgage 7k€, 10 years). This property would rent at 4000€/y, resulting in a yearly loss of roughly 4000€ (you read that right).

With local incentives and tax shelters, I would still net 18k€ in gain over 10 years. On a 80k€ property, that's a 21% ROI....

[r_smart]

Assuming the laws don't change. Also, you're just externalizing the cost to everyone who pays taxes. Not my favorite business model, but carry on.

[karambahh]

Absolutely, assuming the laws don't change.

Wrt "externalizing to eveyrone who pays taxes", you'd be absolutely right if I hadn't omitted, for brievity, the reason why you get such large tax breaks and subsidies: you undertake to rent at preferential rates (roughly 20% under market price). In effect, you run a small scale public housing operation.

The subsidies are related to rennovation works you specifically agree to pay for, obviously at the start of the project. The largest tax breaks are in effect at the start of the project as well so the risks, while they do exist, are very limited.

The biggest risk is that you buy a run down property (which rennovation you agree to finance) in a run down part of a town. At the end of the ten years, you might have a reasonable property that's unsellable because the area has tanked even further.

[michaelscott]

The rent you charge is for providing a domicile, I as a renter couldn't (and shouldn't) care whether this is enough to deal with repairs, especially since you as owner are certainly not repairing things every single month.

If the rent is more than the mortgage why would I rent? Beyond potential credit problems (which can generally be solved within a matter of months barring egregious exceptions) and maybe conveyancing and transfer fees (which can be negotiated into a mortgage loan), you'd have to be a fool to rent.

[ghaff]

>If the rent is more than the mortgage why would I rent?

Because owning a property involves putting money down, maintaining, being exposed to market value fluctuations, etc. on a very expensive and relatively non-liquid asset.

Sure, buying would mostly have been the right financial decision in the Bay area at least over the past decade for most people. But, especially if I don't want to deal with home ownership, can find an attractive rental property, and want to maintain flexibility, paying a premium to rent can absolutely make sense.

[michaelscott]

Of course in certain conditions it is preferable to rent (haven't laid down roots, still building the beginning of a career etc), but as a purely financial decision for a regular, long term domicile it doesn't make sense to pay a premium to not "deal with home ownership". It's not like running a business.

[ghaff]

>It's not like running a business.

It sometimes feels that way :-)

I don't really disagree with you although the risk-adjusted finances of rent vs. buy are less clear than a lot of people make them out to be in the absence of 20-20 hindsight. Especially if you reach a point where you're fairly locked into an area for whatever reason, it mostly makes sense to buy if you can. If the work associated with owning a house is a big deterrent, there are lower-effort alternatives like many condos.

[dragonwriter]

> If the rent is more than the mortgage why would I rent?

Because the you don't have the savings for the downpayment to qualify for the mortgage with the payment at issue.

Because property ownership cones with more expenses than just he mortgage, many of which remaining with the owner in most leases.

Because no one is selling single units of the type you want at the time, but someone is renting them out.

Because you're bearish on the housing market and prefer the risk of paying too high a rent at the end of a relatively short lease term to longer-term exposure to risk of loss of property value.

Because you intend to have a federally controlled, even if state legal, substance on the property, and want to control your exposure to risk from civil forfeiture.

Etc.

Etc.

Etc.

[michaelscott]

As with conveyancing or transfer fees, a downpayment can be negotiated into a mortgage loan. Extra expenses should remain with the owner, since it is their asset. Everything else you've mentioned would be a corner case at best and not applicable to the average person looking for somewhere to keep the rain off their heads.

[dragonwriter]

> As with conveyancing or transfer fees, a downpayment can be negotiated into a mortgage loan

Sure, but it drives up the mortgage cost (both because the principal is higher and because interest rates are higher with lower downpayment), so the rent being higher than the actual landlord's mortgage doesn't mean that it is higher than your mortgage for an equivalent property purchased at the same time.

> Extra expenses should remain with the owner, since it is their asset.

Whethe it should or not, those costs can be a reason to prefer renting over ownership even with a slight premium of rent over mortgage cost.

[ianai]

I’m more talking about renting an apartment vs owning a house. They’re fundamentally different goods/services but their dollar value tends to be closer than they should be. Renting a house shouldn’t be profitable or should be only slightly due to selling one very heterogeneous good.

Apartments generally suck compared to owning a house. You’re literally paying to have a manager over you. You’ve probably got stairs to lug everything up/down. You’ve got neighbors above you making you listen to their crap - and if their apartment floods because they did something dumb or just a freak occurrence, you’re flooding too. Etc etc. but it makes sense for that to be profitable when a complex can operate with economies of scale.

[ghaff]

Lots of small landlords with a multi-family house they also live in also find having a tenant make sense--though there are of course problem tenants.

In general, rentals (other than vacation places) just aren't a very good fit for houses. People tend to buy houses in part because they want to adapt the house and property to what they want. A rental house would typically have to be furnished; otherwise no one's really going to really have the right furnishings for it. And houses generally have more complex maintenance needs than apartments.

People buy apartment-like or town house-like housing in the form of condos/co-ops because they're willing to trade off the space and freedom for reduced home ownership headaches. But most people renting don't want either the incremental cost of a house or the implications of filling up a house and dealing to at least some degree with a property.

[r_smart]

>Renting a house shouldn’t be profitable

If I can't make money by renting you my house, why would I incur the risk of letting you live in it and potentially damage the property rather than have it just sit empty? Why would I want to deal with the hassle of making sure things are up to code? If all I can do is break even until I eventually sell it, then why not just invest my money elsewhere?

[Nadya]

I think that is precisely for the reason. To prevent people from purchasing housing they don't need so that houses would be more affordable for people to purchase and live in. Rather than paying a premium to live in a house someone else owns but doesn't plan on living in.

Houses would be incredibly cheap if there were no incentive for wealthy individuals to own multiple properties when they could invest their money elsewhere. The price of houses would have to be affordable enough for people to actually purchase them over choosing to live in an apartment complex.

Apartment complexes can house more individuals in a small space - so if it incentives to build houses change to building more apartments that isn't necessarily a bad thing when trying to house people...

[alexgmcm]

Traditionally those letting houses owned the houses outright - the mortgage was paid off.

"Buy-to-let" has changed this but perhaps that is not a good model.

[ghaff]

>Traditionally those letting houses owned the houses outright - the mortgage was paid off.

So, in other words, they have a bunch of money invested in an asset that, if they sold it, could otherwise be earning some rate of return in some other investment.