Landlords have to allocate capital to fixing and improving the house, as well as taking care of insurance and taxes. Also, assuming that they're not living in the house and the value of the home goes up, they're taxes will rise whenever an appraiser reassesses their home value.

> Landlords have to allocate capital to fixing and improving the house, as well as taking care of insurance and taxes.

These costs aren’t that high though, compared to rent. 3 months of rent covers a year of property taxes where I live. Major repairs are about a couple months rent. There is still another half year of rent that’s pure profit. Then they raise your rent every year, demonize rent increase caps, and then vote for reduced housing builds. I find it very difficult to accept them. If I had the money and the capital I absolutely would own a dozen homes and rent it all out, you would make insane money. Not to mention the mortgage costs being so low during ZIRP days. At the rate of AI coming for SWE jobs, landlords seem untouchable.

> 3 months of rent covers a year of property taxes where I live. Major repairs are about a couple months rent. There is still another half year of rent that’s pure profit.

You missed insurance and mortgage.

Fair. Mortgage during the ZIRP days and prior was really low though. A 3K mortgage then is like a 6-7K mortgage now. And home insurance is also relatively low, I pay like 1.5K for the whole year. Point is, it’s a great way to make money and that is why people become landlords.

> Point is, it’s a great way to make money and that is why people become landlords.

If it is, why not do it and become rich too?

It's not really a particularly good way to make money. I've run the numbers on hundreds of properties over the last two decades and I've yet to find a scenario where I could buy something and rent it out with enough profit to be worth the hassle. You'll be much better off investing in some index fund instead.

> If it is, why not do it and become rich too?

If I had the capital I absolutely would have. It’s a bit worse now but any property you bought pre-covid (at least in big cities) can be rented out for more than what mortgage costs. I remember looking at houses in the Bay Area and the monthly mortgage would be 3K while you can rent it out for 4-5K. Anyone who owned property in the 90s and early aughts are absolutely rolling in it. You can invest the profits in an index fund on top of it.

There's quite a bit of optimism in those numbers.

I bought a house in the Bay Area in the 90s and the mortgage was well over $3K (remember interest was over 7%) and an equal house back then was renting for $1300 (my rent at the time for a 3br house in south San Jose).

Try to run the numbers for any property you like. Remember to include taxes and insurance and maintenance. Just to break even is not easy and then you'll have to work for free on the maintenance. Or pay a rental management company, which is another 8-10% taken from the rent.

Your house now can be rented for 4-5K a month if not more, you have no mortgage. Your property taxes are capped at purchase price due to Prop 13. All said and done can’t you net like 35-40K or so per year on a single home?

I agree that buying a home and immediately putting it up for rent would put you underwater these days but during ZIRP times rent and mortgage weren’t too far from each other.

> Your property taxes are capped at purchase price due to Prop 13.

BTW this is a common myth but not true. Property taxes are set by purchase price in year zero when you buy it. Every year after that, they go up 2% compounding.

That's not the full story because the city/county can also add any extra fees they like, and raise them, prop13 does not apply. My taxes go up by well over 2% every year.

> All said and done can’t you net like 35-40K or so per year on a single home?

If you can find yourself a free house somehow, that feels about right. But how do you get yourself a free house? If you have to buy it, now you have a mortgage, and the math no longer works.

The only people I know who profitably rent out homes are those who inherited a home with no debt. In that case, yes it works.

> during ZIRP times rent and mortgage weren’t too far from each other

Low interest helps, for sure, but the numbers still didn't work out.

Here's a graph of interest rates: https://fred.stlouisfed.org/graph/?g=1KZYI

The rates only briefly dipped below 3% during the pandemic. Let's say you got the timing right and got a 3% mortgage for 1.2M. The payment is still a bit over $5K/mo. That's just the mortgage, add insurance + taxes + maintenance. On a home you can rent out for maybe 4K-4.5K/mo. Losing money every month.

I've been running these numbers every few months for the last two decades hoping to follow the common advice to buy rental property and become rich. But it has always been cash flow negative no matter what the rents and interest rates have been.

Only advice I have is go inherit a free house, that can be profitable.

Pretty insightful details actually, I’ll rethink some of my positions. But I can’t imagine these bigger landlords taking that much of a hit, especially with multiple properties. Like let’s say I bought a home before meeting my significant other who also has a home - then I only need one place and I can rent out the other. Once both are paid off you have significant leverage. I don’t think you necessarily need a “free” house

You're assuming a mortgage.

All improvements are excluded from a land value tax, which actually means improvements are even more incentivized.

Yes that is correct if you occupy land while your community makes it more and more valuable, you should not get wealthier and wealthier for no reason. All of that should be taxed away.

So when you build a sewage farm on your back 40 you should get wealthier (while your neighbors thank you because their land tax went down), but if someone snaps a photo of your area that goes viral on {THE PLATFORM DU JOUR} thus making your county more popular and driving up a bidding war for postage stamp sized lots of land (leading to the land being valued at a higher rate than it was a year before) you suddenly have a massive tax bill because "we noticed you are living in a popular county" and the benefits of living in a popular place should be taxed away? Or do we need some kind of a standard for "more valuable" that deals only with tangible things? And if so, which tangibles?

No, we don’t need standards for “tangibles.” The price factors in all relevant variables.

> All improvements are excluded from a land value tax, which actually means improvements are even more incentivized.

I'm not sure what this applies to with regards to my original comment. Improvements, insurance, and taxes are capital expenditures which need to be managed. This was to counter that landlording "is simply owning an asset."

> Yes that is correct if you occupy land while your community makes it more and more valuable, you should not get wealthier and wealthier for no reason. All of that should be taxed away.

Why assume that the landlord isn't getting the brunt of the cost for making the community more valuable? I don't think there's a strong case for saying a property manager is a job while denying landlording being one. Assuming landlording is completely passive is as far-fetched as thinking that property management is completely passive (both may require irregularly tasks to be performed or require no involvement in the ideal case).

While we don't want to tax a landowber's capital investment and improvements, most of the land value is due to the agglomeration effect of the surrounding land. So land value is mostly not an individual owner's own work, but the sum total of the community's efforts and entrepenural spirits.

>but the sum total of the community's efforts and entrepenural spirits.

More like "was too rural or too poor in the 70s/80s/90s to indulge in the then trendy policy like zoning the crap out of themselves and passing a bunch of ordinances more akin to country club rules thereby making incremental growth and development actually possible in the 2010s and 2020s"

Because most development today seems to correlate with whether or not that particular policy bullet got dodged than culture or spirit or anything like that.

If you tax land the only thing you will end up with is higher rents. You are punishing the wrong people.

Want to punish the right people? Cut taxes so that people can save cash faster, afford houses earlier and stop renting from their landlords.

Build more actually-affordable housing, too. Not these blocks of luxury apartments with swimming pools that nobody uses. (See HDB, Singapore -- that’s what the US needs more of)

Land is taxed but improvements are not. That tax is not passed down because landlords are already charging the highest price they can.

The tax simply redirect the unearned income to the public coffer which are either spent on public investment that further increase land value or redistributed as citizen's dividend.

Meanwhile landlords are free to construct as many buildings as they can without being penalized by higher taxes.

Empty lot, parking lots, and self storage facilities would be penalized because they wouldn't generate enough income to cover taxes on land, leading to more efficient utilization of land, as improvements are no longer penalized.

> Empty lot, parking lots, and self storage facilities would be penalized because they wouldn't generate enough income to cover taxes on land, leading to more efficient utilization of land

Right, so the city would be nothing but luxury (to maximize income to pay those taxes) high rise apartments packed tight every block.

No parks, no playgrounds, no soccer fields, no sports courts, no bike trails, no dog parks... none of the things that make living in an area pleasant. Also, no low income housing. Because none of those maximize "efficiency" (measured only in dollars) of every square inch of land.

Life is not pleasant if maximizing value extraction is the one and only #1 criteria. This is what land value tax misses.

Incorrect. Parks and other amenities raise land value. They would be an investment by the city to raise land value in a given area. People do not want to live in soulless concrete jungle. They want to live in a society full of amenities such as theater, parks, train station, basketball courts, etc.

Also, "luxury" housing cause what economists called "filtering", in which new construction are occupied by the upper strata of income, which means they pay for the cost. As housing age, this naturally becomes more affordable to the lower strata. This of course, depend on sufficient housing stock. Otherwise the inverse will happen.

Also, you only need to cover the cost of paying the land value tax to keep it, not to generate the maximum amount of revenue for that plot of land.

We are not talking about value extraction here, but making sure that landowners work for their keep, while the unearned income/economic rent that would otherwise goes to them is returned to society, because the value of the land is largely determined by the agglomeration effect, the sum total of the community's effort and entrepreneurial spirit. Otherwise, your private effort as individuals would flow to landowners reaping the benefit of increased land value, hence appreciation in real estate price.

I am responding to the comment I quoted, namely: "parking lots, and self storage facilities would be penalized because they wouldn't generate enough income to cover taxes on land".

So if a LVT has the explicit goal of eliminating things like parking lots and self storage units because those don't generate enough income to pay for the taxes, then what hope do things like playgrounds and parks have to continue existing.. they generate far less income than a self storage facility.

And they just answered: they generate huge amounts of income for the entity that actually pays for playgrounds and parks (the city).

That feels like wishfull thinking. What I see around me in practice is government doing all they can to sell off public lots (like parks) to developers to tear down the park and build another luxury condo. More tax revenue, more money in the government pocket, some bribes under the table, another loss of quality of life in the neighborhood.

Right, because selling it is a better revenue opportunity. Under the tax scheme described, the reverse is true.

> Under the tax scheme described, the reverse is true.

Explain how.. In a dense urban area, with LVT, that lot that held a park will bring even larger tax revenue when the city sells it off to a developer. Having the tax be based on maximum potential usage will only increase the temptation to sell it off and remove yet another park from the people.

It would decrease land value since the park is no longer there. Tax revenue would decrease as quality of life decreases.

I think this assumes politicians who care about subjectives like quality of life, and who are able to think in long-term sustainable city finances instead of just maximizing what they can grab in current fiscal year. We don't have any such politicians in power in the US.

Parks and playgrounds increase the land value of the surrounding community. That results in higher LVT.

That creates a virtuous cycle for the local government who is administering those taxpayer paid amenities, same as other form of infrastructure and amenities.

The landlord of most of the United States is the American people since American public pension plans are some of the largest holders in these funds that purchase single family homes.

People act as if this is due to 'private greed'. It's not. American public pension plans are underfunded and need more returns. Thus they turn to the private markets, who offer them that which they are seeking to purchase. The market is heavily distorted by these public players whose policy and aims are not constrained by the market but by public policy.