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In Defense of Landlords: Is It Really Greed?
Is it really greed if all you want to do is maintain?
On Twitter yesterday, I saw a post from someone whose opinions I respect: Aaron Layman (@dfwaaronlayman).
I had to embed the tweet in an image. Thanks Twitter for making Substack less useful for your own purposes. Here’s the link.
Now, Aaron is 110% correct that the issue is financialization and central bank manipulation. And yet, the tweet bothered me because the implication was that the landlords and investors were just being driven by greed. That might not be what he meant to say; the greed might be of the central banks, not landlords. Nonetheless, I take this opportunity to rise in defense of landlords.
Because just prior to seeing this tweet, I saw this newsletter from The Informationist by James Lavish. It was one of the best, clearest explanation of inflation and its effects.
What Lavish really points out is how inflation hurts wage earners and rewards asset owners.
I get that people are really frustrated by this crazy housing market and want to blame somebody. But it isn’t GREED!!! if all you want to do is stay afloat, is it?
Let’s begin with the facts.
The vast majority of landlords in the United States are small individual investors:
That’s from Pew Research using 2018 data but the 2021 data isn’t dramatically different. Maybe the 2023 data will show something else; I doubt it.
Among 49.5 million rental housing units in the U.S., nearly 46% of them are small rental properties of 1-4 units. Over 70% of the small rental properties (1-4 units) are owned by individuals, and about 70% are managed by the same owners, defined as mom-and-pop landlords.
Here are more facts and stats from Flex (a biased source to be sure, but still):
10.6 Million Americans Earn Income from Rental Properties
Approximately 10.6 million American tax filers declared rental income when they filed their taxes. That means about 7.1% of 1040 filers could potentially be landlords.
Landlords Have an Average Income of $97,000 a Year
While landlords might bring in cash from several sources, their income levels tend to be solid. While the real median household income is just shy of $62,000, landlords bring in closer to $97,000 annually through all of their income sources.
Half of All Landlords Manage Their Own Properties
45% of landlords manage their own properties – just north of the 44% that don’t manage the properties they own, instead hiring someone or outsourcing property management to a third party. The remaining 11% consists of landlords that manage, but don’t own their properties.
Half of Single Property Landlords Purchased the Property as a Primary Residence
When it comes to single property landlords, 50% of them didn’t initially buy it as an investment property. Instead, the unit began as their primary residence, later transitioning into a rental property.
When I read those stats, I’m not seeing this greed driving wealthy tycoons to snap up every house on the market to drive some WEF vision of “You’ll own nothing and you’ll be happy.”
I’m seeing people trying to make smart decisions in a stupid fiat money world.
Inflation and Survival
James Lavish makes this point eloquently in his newsletter on inflation. If you’re a wage earner, then inflation kills your savings. But if you’re an asset owner, then inflation benefits you significantly. As he puts it in the summary of what you should do:
Because investment assets inflate, as we see in the example above, and are essential to keeping up with and, better yet, outpacing inflation (when choosing the right ones).
Lavish lists real estate in the mix of assets you should own, along with “a mix of attractive yield-earning fully FDIC-protected cash and short-term(!) Treasuries, hard monies like gold, silver, and Bitcoin, plus a sector-focused mix of stocks, according to macro cycles and sector-rotation exposures.”
Here’s the important thing for our purposes: mortgage.
It’s very very difficult to borrow money to buy Treasuries, gold, silver, Bitcoin or stocks. In fact, I think you’d have to be an actual certified rich guy to be able to use leverage (aka, borrow money) to acquire financial assets.
There is a reason why so many individuals become landlords or real estate investors. Because they could borrow money to buy the property. Or as Flex shows, in half the case, the landlord began by buying a primary residence and then figuring out a way to keep it as a rental while buying a move-up property. Property Managers call these people “accidental landlords.”
When the average income is merely $97,000 a year and half of these landlords are managing the properties themselves… that doesn’t scream GREED!!! to me. It whispers survival.
Survival in a Rigged Game
While most people aren’t thinking about the details of inflation, they know in their gut, in their subconscious, that there’s a rigged game going on and they’re not in on it.
And so, the goal of the Fed (regardless of what they SAY) is not to extinguish the inflation fire, but rather let it burn forever. Quietly.
Right under the noses of the US citizens, USD owners and users, at a rate that they accept, that they swallow.
Because if the citizens begin to balk, then it draws attention to the rate of inflation. It alerts others, particularly investors and foreign buyers of US Treasuries.
After all, if inflation is hot, then investors’ bonds become worth less when they receive their principle back.
And there’s the rub.
The US Treasury needs inflation to run as hot as it can, without setting off the fire alarms.
And so, The Fed is like a team of arsonists who are also the appointed government-non-government fire battalion. They are standing at the ready with their hoses, watching this fire burn. If it sparks up a bit too much, they sprinkle some water. If it flares, they pour water. And if it rages, they flood the fire, snuff it out. Let it soak a bit (recession).
Because they know they have a bottomless well of gasoline to just spark it back up again.
They fire up the money printer (expand M2), re-start QE (buy bonds and stocks and whatever), and lower rates back to ZIPR (Zero Interest Rate Policy) levels.
All to re-ignite inflation.
Burn, baby, burn.
The issue here is that government operates in a perpetual deficit. We spend far more than we make as a country.
Thus far this year, we are spending $1.6T more than we are making—and that’s just in in the first ten months.
So, to keep it all going, the big debt charade, we have to borrow more and more and more.
The official CPI stats say inflation is dropping. Even if we could trust the government’s numbers (which is hard to do, as Lavish points out) everyone has eyes and a wallet. Lavish again:
And CPI supposedly tracks the prices we are all paying for goods and services here in the US. It is the measure (along with a few others) that The Fed points to when discussing its fight against inflation.
However, sometimes it seems a bit off. The estimates just don’t seem to add up.
I mean, if inflation is only 3.2%, then why is my grocery bill a good 10 to 20% higher than last year?
I do not think you have to be some kind of an investment analyst or some fancy finance wizard to see that your grocery bill is double what it was, gas is $5 a gallon, pickup trucks are north of $100,000, and dining out is way way more expensive. In every part of life, Americans are seeing everything get more and more expensive.
Sure, most will try to blame greedy corporations or the restaurant owner or the grocery store… but the reality is that the dollars in their wallet are not worth what they were a year ago.
So if you’re doing well ($97,000 annual income is above the median), but you’re instinctively seeing that your money is worth less and less… what are you supposed to do?
Buy stocks and bonds? Sure — your post-tax savings could and do go into those. Maybe your 401(k) balance is growing, but none of that is throwing off any cash. And you could use some cash to pay the ever-higher bills.
Or you could stretch a bit, get a mortgage, and buy a property — or move up to your next home, and keep your starter home as a rental. Now you’ve got cash flow and you have some asset appreciation… which should properly be thought of as “inflation protection.”
Or to put it in Lavish terms, protection against stealth theft by the government.
Is it really GREED!!! to not want your standard of living to erode year after year? Is it really GREED!!! to want to preserve what you’ve worked so hard to accumulate?
I don’t think so. I can’t see things that way.
Making a Distinction
That doesn’t mean every single individual landlord is some angel. I’m sure there are some greedy scumbuckets in the landlord ranks, just as there are greedy scumbuckets in any large group of humans.
But I don’t get the feeling or the sense that the vast majority of landlords in this country are greedy as much as they are just trying to make it. I don’t get the feeling that most individual landlords are out to screw the tenant as much as possible, to keep the property in slum-like conditions, or to maximize revenues.
I’ve rented from individuals over the years (moving from one city to another almost always involves renting for a bit to learn the area), and I have to say that most of them have been good. They were quick to respond to problems, charged a fair rent at market or slightly below, and were decent human beings. We weren’t friends, of course, but they weren’t greed-driven assholes either.
As the entire country (the world?) starts to grapple with the insane money-printing driven housing market, I do think it’s important to distinguish between those who are being driven by some sociopathic “Screw you, pay me” GREED!!! and those who are doing what they’re doing not to get victimized by the fiat ponzi scheme we all are living in.
It is far too easy to blame greedy landlords and greedy rich investors; it’s going to happen largely because the debt-addicted establishment will try hard to blame GREEDY investors to deflect blame from themselves. But it is absolutely clear that the real cause of our problems are unsustainable debt-fueled government spending financed by computer money from central banks whose goal is to keep “just the right amount” of stealth theft going.
To paraphrase the words of the #1 song in America, it ain’t the doctor or the retiree with a couple of investment properties who is the problem; it’s the rich men north of Richmond with their finger on the money printer.