From: stephen@sprunk.org   
      
   On 31-Mar-15 07:42, Adam H. Kerman wrote:   
   > Stephen Sprunk  wrote:   
   >> On 30-Mar-15 21:20, hancock4@bbs.cpcn.com wrote:   
   >>> But property taxes can, and do, go up faster than rents, and the   
   >>> landlords do end up losing money.  In the short term, they still   
   >>> have a mortgage to pay, so they'll have to eat the loss in the   
   >>> hope rents will eventually catch up.  In the long term, the   
   >>> property will be abandoned if rents don't catch up.  (Other urban   
   >>> conditions play a part, too).   
   >>   
   >> Absent rent controls, rents _will_ go up to keep pace with taxes;   
   >> the tenants have no choice since _every_ landlord will be raising   
   >> rents.   
   >   
   > This I don't agree with. Yes, there are individual cases of tenants   
   > overpaying. Generally, they won't do that.   
   >   
   > A tenant simply doesn't care about the landlord's operating   
   > expenses. He won't pay more than the place is worth to him. Two   
   > buildings of approximately the same quality (ignoring location value)   
   > should be rented for similar amounts.   
      
   It's not a matter of tenants caring.  If every landlord's land values   
   (and thus taxes) go up 3%/yr due to general inflation, then they will   
   all increase their rents at least 3%/yr so they don't lose money.  The   
   tenants either pay the higher rents or become homeless.   
      
   If politicians raise the _rate_ in a particular jurisdiction, then every   
   rent in that area will go up faster than inflation.  Some of the tenants   
   will move to other jurisdictions, though, so rents will go back down,   
   which means property values will go down, and the total tax collected   
   may be more _or less_ than before the rate increase.   
      
   >> Aside from slumlords, who operate on a very different financial   
   >> model, landlords _don't_ lose money or abandon properties.   
   >> Slumlords' profits come from not reserving money for normal   
   >> maintenance--and when the bill comes due, abandoning the property   
   >> is cheaper than fixing it.  It's not as good a long-term return as   
   >> letting good tenants pay your mortgage off, but it works well   
   >> enough in the short term, particularly when you _want_ the building   
   >> to be condemned--or when you need a front to launder money from   
   >> another shady business. . . .   
   >   
   > Shift taxes from the improvements to land, then slumlords pay   
   > relatively high taxes on land that has a building with significant   
   > deferred maintenance, since the negative incentive for having a poor   
   > quality building goes away.   
      
   Slumlords don't fail to maintain their properties due to taxes on   
   improvements; _the tenants_ provide the disincentive.  Why spend $10k   
   remodeling a house in the slum when the tenant will just cause $10k in   
   damages when you evict them the next month?   
      
   >> To give you a sense of scale, Warren Buffet's $1.5B development   
   >> near me is a mere 433 acres (175 ha), probably too small to assure   
   >> a profit if he had to get bank mortgages like most developers. . .   
   >> .   
   >   
   > Hehehe. Most developers aren't in a position to buy a bank when they   
   > need to give themselves a mortgage.   
      
   He's even smarter than that; his insurance businesses mean that people   
   _pay him_ to borrow money, so he can turn profits doing things that   
   others can't do profitably even with cash, much less loans/bonds.   
      
   S   
      
   --   
   Stephen Sprunk         "God does not play dice."  --Albert Einstein   
   CCIE #3723         "God is an inveterate gambler, and He throws the   
   K5SSS        dice at every possible opportunity." --Stephen Hawking   
      
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