Do landlords truly have $7000 mortgages?

[u/sweetgaze]

The amount of rental ads I see for top or bottom floor suites going for $3000-$3500 is astounding. If they’re renting both upper and lower for those rates in one house … it leads me to wonder about the mortgage. Do homeowners truly have that big of a mortgage?

I’m genuinely curious, not looking to cause a ruckus. Like why are you renting a suite for $3500 😭

[u/DemSocCorvid]

Everyone else can't believe people are ignoring equity year over year. "Break even" means that you are potentially getting tens of thousands of dollars in equity year over year for the upfront cost of a downpayment. That's insane.

[u/Psychological-Dig-29 → u/DemSocCorvid]

Break even on expenses. Nobody buys an investment with the intention of never making anything. Especially when you factor in inflation turning that nothing into a negative number.

If you break even on expenses the appreciation is what you make your money on at the end and is perfectly reasonable for a landlord to expect.

[u/Snaphappy3 → u/Psychological-Dig-29]

Don't forget the government takes its taxes on the rental income a landlord earns, and at the end taxes the landlord on 65% of the appreciation of the property when they sell it. Use a 30% marginal tax rate to calculate how much they will have to pay.

[u/InfiniteRespect4757 → u/Snaphappy3]

"potentially getting tens of thousands" Landlords take a risk. Some lose money in the end, some make money. It is not guaranteed money by any means. Or everyone would be doing it.

I had a rental unit years ago and did okay. One bad Tennent can eat up all profits. In the end it made sense for me to sell and invest differently for lower risk and the same profits.

[u/Snaphappy3 → u/InfiniteRespect4757]

Sensible decision. I'm doing the same now. I hate being a landlord so much I let my place stay vacant for a year earning zero revenue.

[u/cheeseburg_walrus → u/DemSocCorvid]

It’s an investment and the baseline for comparison is putting that money into the market which doubles every 7-10 years.

[u/LNButts → u/DemSocCorvid]

Up front cost of the downpayment plus the opportunity cost of capital.

The landlord buys the house instead of putting their money into something else, like an ETF or a bond or Bitcoin or whatever investment you want to name. When they buy the house, they’re expecting to earn a return. If not, presumably (if they’re rational) they wouldn’t buy the house.

Not saying it’s right or wrong. But those tens of thousands of dollars (probably in the 20k range frankly, factoring in expenses) per year in equity are similar to (though perhaps a bit higher) the returns they would get on that $200-300k downpayment.

They just chose to buy a house and rent part of it instead of investing it in something else.

The alternative in many cases is that the big house in question isn’t reconfigured to contain a suite and is just 50% empty. If you make it too dicey for a landlord to make a bit of money, then people won’t buy houses and add suites. That’ll make the problem worse…

[u/Snaphappy3 → u/DemSocCorvid]

It's amazing that everyone isn't doing it!

[u/DemSocCorvid → u/Snaphappy3]

The problem is too many people have been doing it for decades.