> These stories that come out of the woodwork every time tenants are mentioned are why I’ll never be a landlord.

My wife and I own a number of (8) rental properties. My wife manages them and we rarely have problems with tenants.

I will tell you what I think is the secret. My wife figuratively crawls up the ass of all prospective tenants. She needs to see credit history, pay stubs, and proof of punctual rent payments in their current situation (if applicable).

I don't think many landlords do this type of background checking because it's extra work and it can come across as confrontational.

But you'd be amazed at the number of prospective tenants who don't come back after being asked for that information.

Last time I rented from a private person, they asked me for some basic information. I sent them my last 3 pay stubs and a credit check in a short email. They accepted me on the spot, and said most people can't even manage to write a proper email.

Every time we advertise for a new tenant we get many calls that go like this:

"Do you do criminal background checks?"

"Yes."

"Ok, thank you, goodbye."

To me that's very up-front. There might be a lot of people who would try to hide disqualifying information, hoping you don't find it.

There are probably a limited number of landlords who rent to felons, and they have to just make 1000 calls to find a place.

They also get it on both ends. Felons make 41% less than their same age counterparts [1]. Thus they are both felons, and have lower income (as well as a higher likelihood of evictions, etc).

I've been reading Evictions: Poverty and Profit in the American City on recommendation from HN and it has been eye opening. They don't make 1,000 calls, but there are several stories of people making a little over or under 100 different calls because of prior evictions and/or felony convictions. The quantity is only magnified by the fact that they're limited to apartments that are ~$500/month (which is already ~75+% of their monthly income). The book is heavily anti-landlord, although I'm not versed enough to say whether that's the truth or if there is a heavy bias.

I don't know what the solution is. There's a delicate balance of trying to give people a chance to recover or rehabilitate without also forcing landlords with cheap property to enter into blind negotiations and potentially damaging their own property. Frankly, Section 8 seems like a bad solution, and that we should go back to government owned and leased housing where you won't be evicted for complaining about sub-standard conditions because the landlord knows you can't afford a lawyer.

I think the real problem is it's just such a one-sided market in so many places due to market capture by property owners, plus just outright over-representation in lawmaking. If there were a lot more landlords desperate for any renters they can get to avoid going bankrupt on their units, there would be more options for everyone.

As for public housing, there used to be housing projects in the city I live in. The murder rates within those blocks were probably higher than in any country in the world.

> most people can't even manage to write a proper email

So true. I get so many emails like “we can move in tomorrow” or “hook me up”. If they call, voicemails are only marginally better. Makes screening easier though as I simply do not respond.

What rental market is this? In big cities where the majority professional class rents competition has been stiff. I had to meet and interview with my last landlord about my career and income.

Los Angeles, North Hollywood. Super competitive.

Here is "The Secret" from my wife's friend who keeps trying to talk us into buying rental properties. Especially applicable for places like Seattle that have a lot of eviction restrictions and tenant selection restrictions.

For a multi-room home:

1) Find a foreign female student to act as the primary tenant. It is easy to target rental availability to this market.

2) Let her find additional roommates.

Foreign female students usually are well-funded by rich parents. And, if a resident of a "single family home" (the first tenant) is seeking roommates they can discriminate more than a non-resident landlord can.

The last thing I want to do is get into the landlord business so I keep pushing back.

Note, when I was a kid, my mom had a hell of a time evicting a Section 8 tenant. It took months and they left behind tons of garbage and damage. It was tough on my mom because she felt so duped by the lady that rented her house while we were living in another part of the country. My mom was a struggling single mom too, our family of four lived in a basement of her friend for several months until the eviction cleared. And then it took a week to clean up the home before we could move back in.

foreign student seems risky as hell, man. All they have to do is walk and you're left holding the bag. Further more they're not tuned to what is "normal" for the area.

In uni one of the Chinese master's students fell asleep with a hotplate turned on and burned down the apartment a couple down from us. Students gonna student.

Not so amazed on this end. A landlord that demands a lot from a prospective tenant upfront without any indication that it's going to be reciprocated in terms of responsiveness to maintenance issues, understanding when crises (like pandemics) come up, etc., is a red flag. It means you're going to be seen less as a customer who's paying for a service and more as a simple monthly source of cash. Those are the types of landlords that will shamelessly pull all kinds of tricks: jack up your rent annually, remodel nearby units when they want you to move out, and otherwise do whatever they can while skirting the law (if that) to get as much of your paycheck as possible. If your credit is screwed up, they'll make it worse. If you're in a bad way, they'll introduce even more instability into your life. It's generally not worth it.

Rent-seeking sucks. People just want a place to live.

I can tell you that we haven't pulled any of the tricks that you outlined (nor any other tricks that I can think of).

I think we treat the tenants fairly. My wife's background checks are her way of assessing whether someone can actually pay the rent that we're asking for. If the applicant makes $20K / year and the rent is $1300 / month, both parties are just asking for trouble if they sign a lease.

> People just want a place to live.

Can I stay at your place?

I do indeed have a couch. Take your shoes off when you enter. We're renting, I want my deposit back.

Suppose you had a car worth $400k.

What assurances would you want before loaning it to someone to drive cross-country and back? Would you want to see their driving record? Would you want to know their financial situation?

I would be wondering why I live in a country where my only transportation options were walking or begging a wealthy car owner to let me borrow their vehicle for 150% of their car note.

I have one way worse. My Dad rented a couple houses for extra income when I was a kid. One tenant was evicted for reasons I cant remember. To get revenge they spread bird seed or grass seed all over the living room carpet and then turned the sink on and stopped the drain. When my dad came into the house later the seeds has sprouted and were growing out of the wet carpet.

That's actually really creative. Horrible, but creative nonetheless.

My simplified understanding is that this is what REITs are for. They're an investment vehicle for companies looking to build real estate they don't have the capital for. They raise through a REIT and you wind up with a dividend of some kind out of what they make from tenants. It minimizes the risk for a general investor.

Disclaimer: I know very little about them, this is not a recommendation I probably have some details wrong, just something I've seen floated around.

Edit: Someone want to jump in with what they are then? Not like I said go do this right now or something, would genuinely like to learn what I'm wrong about here. Downvoting without a response continues to be the weakest part about this community.

My understanding is that the appeal of owning real estate yourself is housing mortgages gives you: (1) the cheapest leverage available to retail investors and (2) a loan that can't be margin-called. In an upmarket, this leverage lets you juice your returns. Say you only have $200,000. Then by getting a mortgage of $800,000 you get ownership of a house worth $1M. This gives you the right to the cashflow from renting the house out and in an upmarket, the appreciation in the house price. If the house appreciates in value by 20% or $200,000, then with your $200,000 investment your return is 100%. Buying REITs in he form of an ETF doesn't offer you either the cheap leverage nor the margin call-proof loan.

Another difference is that REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands, but usually real estate retail investors own are for housing.

The tax treatment of directly owning real estate is also extremely favorable to landlords in the US, particularly mom-and-pop scale landlords. Many will have businesses which make an economic profit and many of that subset will positively cash-flow, but for tax purposes deemed depreciation will cause their business to operate at approximately break-even or at a loss (offsetting other income). Then, when they sell the property, they either get extremely favorable treatment on exchanging for other properties (to defer taxes until post-retirement), ability to exclude capital gains, or capital gains treatment on income which was effectively business income [0] (and would therefore ordinarily be taxed at a much higher rate).

[0] This might be a little weird to wrap your head around. Suppose I am a landlord and, over the years, depreciate a building by $200k. That is a "phantom" cost. On my balance sheet, it decreases my cost basis in the building and decreases my taxable profits from the rental business. When I sell the property, because I've shifted that rental income into depreciation, my cost basis has fallen, so my gain on sale rises by $200k, but that $200k is now taxed at 0~20% not plausibly 50%+ (top individual bracket + state taxes + self-employment taxes).

(I have somewhat better than casual understanding of this because my father worked in real estate all his life and other family run mom-and-pop real estate operations, but feel free to run past your friendly local tax advisors.)

Taxation is another important advantage direct real estate investment has over REITs. Thanks for sharing it!

> a loan that can't be margin-called

What do you mean by this? That the loan can't be eagerly collected in full? That the repayment is on a schedule?

Say you have $100,000.

You could buy a house worth $500,000 with 20% down and a 30 year note. As long as you pay the mortgage, it doesn't matter how much the market value of the property changes. A drop of 40% in real estate prices that lasts for five years is not necessarily a problem.

On the other hand, imagine you put $100,000 into a brokerage account and were able to get 2:1 leverage. You could then borrow $100,000 and buy $200,000 of stock.

However, if the market runs into a bad patch and that stock decreases in value to $120,000, your equity is now only ~16.7%. This is below the minimum margin requirement (25%) for your account. Your brokerage calls you up and says you need to put an additional $10,000 in your account - that's a margin call.

If you don't have the $10,000 then your brokerage will sell enough of your position to bring your account back within requirements; possibly at the bottom of the market.

Real estate: 5:1 leverage, no margin call Margin account: 2:1 leverage, plus margin calls

You can get around this by purchasing leveraged funds/etc. Although that should never be considered functionally the same. That said, you could consider real-estate interest+taxes+upkeep similar to the inherent loss/overhead in leveraged funds.

The lender can't foreclose if the house loses value. You have to stop making payments before they are allowed to take the collateral.

In contrast, if you buy stocks on margin, they will forcibly sell your position if the value of the collateral gets anywhere near the loan value.

Ah okay very interesting, so I guess it would be fairer to say the REIT would be used in the case you were a less a real estate savvy investor perse and more someone who was looking to diversify I guess what I would call a layman's portfolio such as me.

Thanks for the info!

Is there a reason why REITs can't themselves be leveraged? ie. taking out a mortgage to buy a house, just like an individual buyer.

Many are, but they're not typically 5:1 (or 33:1) no-recourse leveraged.

Largely offtopic but:

You are not incorrect per sé. REITs exists in an awful large number of varieties in every possible flavor and indeed broadly reflect what you describe, i.e. an exposure to a Real Estate. You get paid a dividend (which would be similar to the cashflow you receive from a rental property you own). There are a number of upsides of investing in REITs over buying a property and renting it out: - less work (no need to manage tenants) - less risk (it's a diverse set of properties across multiple locations vs a single property in one location). - highly liquid (you can buy any amount and sell virtually whenever you want you need to liquidity)

there is some downside: - it is not tangible as a property (sometimes that means that if you don't understand exactly what you bought under what conditions it can mean you have some unknown exposure/risk you were not aware of). - it has less upside generally (in terms of risk/reward, it is a much safer investment but with that there is also upside as if you were to own a single property in the right neighborhood). - less leverage (generally you get more leverage on your mortgage than on your investment account)

Particularly the last points is what catches people often. I.e. if you are renting a property and everyone else is owning, and the properties go up, you will feel 'stupid'. People love bragging how they got rich by buying and 'flipping' and ofcourse this happens and has happened in the past. But for all those great stories you don't hear the people that bought and were stuck with the house, had to sell at 'firesale price' because they lost a job/got divorced/etc etc. In the end, buying and owning property with leverage is a choice that fits a certain lifestyle and SHOULD not be for everyone. There are a lot of other investment opportunities in the set for any individual that would be better suited but are often considered 'complex'. Owning a house is simple and has been pushed for decades to 'build' wealth.

The reality is that for most people their housing cost is by far the largest fraction of their cost of living. Owning alleviates this costs to a certain extend if only psychologically, but it does not come risk free (the number of times I heard people say 'house prices only go up'). The leverage factor aside (which is a real thing), looking from a person investing their savings, an appropriate allocation would be something dependent on their age but in any case not much over 10% in Real Estate. About as much on commodities (GOLD/precious metals/etc), Fixed Income depending on age but somewhere between 20% percent earlier in career with little commitments and up to 70% in retirement, with the rest in stocks ideally globally diversified. That all being loosely based on the highest risk-adjusted return models (or how any active manager would run your fund from a top level).

Obviously, this is boring and it is way more smarter to buy this sexy property and flip it a couple times and those tenants are not an issue cause 'you love dealing with them anyways and have nothing better to do'. Basically risk-free money and you didn't even work for it. /s

If being a landlord was so awful they’d sell the property and call it a day. They want to make it sound worse than it is.