I think OP meant how much people were paying in rent. "We're working for our landlords"- bulk of people's salary is spent on rent, so it's more profitable to become a landlord rather than grinding and paying rent.
In high COL cities like SF, rent doesn’t even cover the carrying costs of a mortgage.
And if they paid the place off, say a $1.2M home, they might $5,000/month in rent. That’s a screaming 4.2% return on their money (ignoring property taxes, insurance, maintenance). Including those it 2-3%.
If you think of it in share market terms, it's a 4.2% dividend from a stock with a long-term price growth rate of ~7%. Not only that but you can use leverage (e.g. like a margin trader) in the form of a mortgage. In the USA, you can even lock your interest rate for 30 years, and only re-fix the rate when it drops!
Have you tried being a landlord, if it is very profitable? If not why not?
The best way to be profitable as a landlord is to inherit a paid-off property and rent that out.
But if you aren't that lucky and have to actually pay for the property you rent out, it is very difficult to make a profit, let alone one that beats just putting the money into an index fund.
I lean towards renting out housing at market rent in my city to be unethical, so I refuse on ethical grounds to become a landlord. In the long term if the opportunity (e.g. money) arises I would like to build housing charging at-cost rent, but that'd be a charitable activity rather than a profit-seeking one.
I live in New Zealand, which is quite addicted as a country to profiting from real estate. The ability to leverage your money into an asset that provides both enough cashflow to cover costs and interest servicing as well as appreciates in value ~7% annually means that for most people, becoming a landlord is the most reliable path to easy wealth.
Yes, you can become a margin trader, but the cashflow management is much harder, the margin interest rate is higher (here at least), and it is much more difficult compared to buying an existing house and renting it out.
> becoming a landlord is the most reliable path to easy wealth
I think anyone who thinks that, has not actually tried buying a house to rent it out (or thoroughly done the numbers at least).
> provides both enough cashflow to cover costs and interest servicing
Here's the problem, it does not. Try finding a property that you can buy and then rent for more than your total costs. I've been looking for more than 10 years and have yet to find such a thing. Maybe price/rent ratios are different in New Zealand.
I can't speak for everywhere in the world, but in New Zealand it has usually been possible to cover total costs with rent. It's not possible right now due to higher interest rates. I believe this is common in many other countries (e.g. Australia, Canada, UK etc.).
I think that's where the "Nvidia money" comes into play. I live in a VHCOL area and according to redfin/Zillow data, almost every house recently sold near me were paid for with between 40-60% down payment. If that's the case, mortgage starts to become manageable if you rent the property out.
Edit: for context, it is the orange county area where average home price is $1.4m afaik.
> If that's the case, mortgage starts to become manageable if you rent the property out.
Sure, with a large enough down payment you can make the mortgage low enough to be cash flow positive if you rent it out.
This does not make it profitable though! You'd have to consider the opportunity cost of putting that huge amount of money into a down payment instead of into some ETF.
Rent (or mortgage) is typically the single highest expense for most people, always has been. If your are paying more than a third of your income in rent, you need to downsize or get a better job.
Agreed, 1/3 rule definitely does not work in VHCOL areas. I pay 28% in rent, that cuts down the commute and allows us to live at a stone's throw from good schools, grocery stores and small airports.
In high COL cities like SF, rent doesn’t even cover the carrying costs of a mortgage.
And if they paid the place off, say a $1.2M home, they might $5,000/month in rent. That’s a screaming 4.2% return on their money (ignoring property taxes, insurance, maintenance). Including those it 2-3%.