[refurb]

Being a landlord isn’t that profitable.

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%.

[BirdieNZ]

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!

It's very profitable!

[jjav]

> It's very profitable!

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.

[BirdieNZ]

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.

[jjav]

> 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.

[BirdieNZ]

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.).

This suggests it's common in the USA too: https://www.moneypenny.com/us/resources/blog/how-much-renter...

[jjav]

My neighborhood has several hundred pretty cookie-cutter houses so not a lot of variation.

Except for the few largest models, rents are right around $4000/month +/- a few hundred depending on amenities and lot size.

To buy one of the average neighborhood houses you're looking at tying up ~$240,000 in a downpayment and then you'll have an ~$8000/month expense. That's just mortgage + insurance + taxes. If you wanted to rent it out you should also allocate some extra each month for a maintenance fund. And if you need help managing the renters, a property management firm will take ~10%.

If you were thinking of buying this for an investment for that sweet profit landlords supposedly make, you also need to consider the opportunity cost of that 240K downpayment. It could've been earning a safe ~$1K/month or so.

So... I need to be able to rent out this property for about $10K/mo just to barely break even. But I can only rent it for $4K/mo, maybe $4.5K/mo tops. There's no profit to be made here.

This is just one example but I have hundreds of these over the last >10 years from my county. I grew up hearing how owning rental properties was the road to riches so I always wanted to get in on that. But as I keep looking at the numbers for years and years, the reality is that it is exceedingly difficult to find any property where you can make money by buying it and renting it out.

The people I know who are actually making profit from renting properties are either because they inherited a free house, or older folks who lived their house for 30+ years and paid it off, moved to a small apartment and rent out their old home.

[esalman]

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.

[jjav]

> 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.

[refurb]

It's incredible how many people miss this point.

Locking up $2M in an asset has a cost. It's not "free".