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Comment by marcinzm | Hacker News Reader

Does anyone have a list of specific reasons for why it would be more financially beneficial for a landlord to leave a place empty rather than to rent it? Keeping in mind that while it's empty they earn nothing but still have some amount of cost for the property. A year+ of lost income is going to take a long time to recoup.

The only ones I've found is in NYC where due to rent control it's expensive to convert a controlled rental unit into a co-op/condo so landlords have an incentive to empty out buildings and keep them empty until the conversion.

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Well, cap rate analysis is one, and commercial real estate is driven by this.

Say you go for anything but want it leased fast. Maybe you get $2000/mo. Say you wait for a higher paying entity but it takes a year but you get $3000/mo.

Depends on what you optimize for.

The naive person would calc how long it would take to the total cash break even. And in particular look at the loss of $24k that first year!

But if they want to sell at 1.5yr from start date?

The 2k/mo option at a 4% cap is 600k. The 3k option delivers 900k, but subtract the 24k and you still get $276k more.

A low interest environment make this effect stronger, btw.

Landlords are now dealing with tenants who haven't paid rent in a year with no end in sight as to when they can evict them. It's certainly understandable if this has caused landlords to prefer to wait until there is recourse for non-paying tenants.

There are various good-faith reasons that properties can be empty for periods of time. Frequently, landlords may perform maintenance or renovations in between tenants, which can keep the property vacant for months at a time.

Also, finding tenants, performing background checks, and filling properties can take considerable time. Doubly true for smaller landlords doing this on the side while they juggle jobs and families.

In a few cities, some real estate is held as purely speculative investments or as a place to park cash. If you're an investor buying a $3mm property in Vancouver, BC with a goal of flipping it in 6 months, sticking a tenant in there will only get in the way of your plans for minimal gain. This situation is more rare than it's made to sound by some articles, though.

Generally speaking, you're right: Tenants strive to keep their investment properties occupied as much as possible. Unoccupied properties are costly.

Some foreign owners want their money out of 'wherever' and are willing to pay a premium as a store of value. They're not interested in the hassle of 'renting'. Or, the price is not a big deal, they want a home in LA/NYC much the same as the rest of us might want a cottage/second home on the lake.

Very simple - the landlord may have a commercial mortgage that requires re-negotiation if leased under a certain price. Beyond that, avoiding rent control that might durably keep the price low and limit its rise.

The value of commercial property is a function of the cap rate. Cutting the rent thus cuts the principal value, which can often leave the property underwater.

This is also why landlords lately are offering 1-2-3 months free on signing for these empty places, rather than dropping the base rent by 10-25% to get more tenants.

Rent control in SF is a big one. I’ve chatted with real estate agents who said “that place has a tenant - if empty it would fetch an extra $300k”.

When rent might total $30-40k per year, it would take 10 years of the place being empty to break even.

That hardly makes sense with the way SF’s rent control works — units that are currently empty “reset” to market rate when rented again. I’m in a rent controlled apartment paying close to $4k/month. Long-time tenants can see substantial benefit, but it doesn’t make any sense as a reason for places to currently be vacant unless a landlord is gambling that rents are going to substantially appreciate beyond $4k/month.

Unless you mean tenant protections in that owners are hoping to sell the buildings to flip to condos, in which case sure, they’re more valuable without tenants but that’s hardly unique to SF. Many places make it difficult to evict tenants to take rental units off the market.

I wasn’t aware that a fresh lease with a new tenant in a rent-controlled apartment in SF had any sort of “market rate” price restrictions. I know that some units have price increase restrictions between tenants when the outgoing tenant was evicted for certain reasons [0], but can you point me to this “market rate” restriction?

[0] https://sftu.org/are-you-paying-too-much-rent/

Having a tenant, even paying market rent, will severely depress the value of the building. Yes, SF has "owner move in eviction", but that is a lengthy and costly process and buyers would rather not deal with it, so the value of a place can decrease significantly.

So if you're a landlord with say a 2 unit building, the ideal scenario would be you rent it out, then once you're getting ready to sell, you leave the units empty once tenants leave. Even if you leave them empty for years, you'll get a better return on your investment than if they were occupied by a tenant paying market rate.

A clean eviction history for the building is an advantage for a number of reasons, including subdividing into condos. The cash flow concerns are only part of the reason empty units get a premium.

Good point as well.

depends on the scale of the operation. if you're a small time landlord, one bad set of tenants can easily wipe out several years worth of gains for all your properties. these types of landlords will often hold out for a while, passing over people who are willing to pay the market rent, until they find a tenant they trust not to trash the place.

But that would fall under the relatively short term category of market vacancies from the article. Most people who talk about the issue with vacancies seem to be referring to 6+ month vacancies where a landlord is not even looking for tenants.

Sometimes owners do things that don't make financial sense because life is like that sometimes. Some kind of inheritance dispute or another dispute between partners might hold things up.

Older and richer landlords might not do the right thing because they have other problems like poor health.

In parts of Los Angeles the price increase can be beneficial enough, especially with the difficulty of evictions. However, judging by the number of $1 million plus homes in my neighborhood that have sat vacant for more than two years, something else may be going on that I’m not privy to. Maybe it’s an easy way to launder money (which FINCEN has been concerned about for years), or it’s like money under the mattress for people who need to park a few million dollars somewhere for a while.

For remote landlords, local management fees can be higher than rent revenue. It can be less risky to just wait for capital gains.

Keeping properties empty is almost never more profitable than keeping them occupied. If rents are falling such that they're not sufficient to cover the mortgage payments, that's usually a sign than property prices are about to go down, not up.

The exception might be if someone is trying to sell the property in the coming months. Doesn't make sense to find tenants who are cool with being kicked out in a few months.

Commercial real estate does this, because the leases are so long and turnover is expensive with buildout allowances and such, and they sometimes have weird financing schemes that penalize the owner if they lease too low. Residential has none of that, so there's minimal reason to hold properties off the market (and it generally doesn't happen.)

In many places you can write off vacancies as a loss, that helps make the numbers work.

So once again the government causes the problem?

Until last week in NZ interest was a business expense...

Where is this possible? I've done some research but never found such a place.

Another big reason is that a lot of homes are bought as second homes. Just as a reference point a lot of homes in Vegas and Reno have been bought by Bay Area professionals as second homes to visit over the weekend or in the winter.

Reno I get, especially Tahoe, but isn’t Las Vegas more of a Los Angeles rather than Bay Area market?

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