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Comment by notatoad | Hacker News Reader

you're correct, when considering a single property.

the problem happens when an absentee landlord owns a dozen buildings on main street. if a third of their properties are empty and they lower the rent to the point where people will occupy them, it drives down the rent for the other two thirds of their portfolio. if they keep some properties empty to hold the rents artifically high, and they don't have to pay property taxes and management fees on the vacant ones, they can just hold the properties for free while the land value appreciates.

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> don't have to pay property taxes [...] on the vacant ones

Property tax abatement depends on local laws, correct?

On the other hand, I assume you can claim the usual boatload of expenses (e.g. mortgage interest, upkeep, etc.) against vacant properties, thus generating a paper loss to offset income generated by other properties or activities.

The real lynchpin appears to be: vacant properties are allowed to contribute tax losses to their owner(s).

Whereas in reality, what we probably want is something more akin to "If you have not fully utilized (i.e. leased for a percentage of the timespan) a property in the last X months, you can no longer claim any tax expenses for value-based (i.e. mortgage, financing, property taxes) components of the property. You can still claim expenses related to the improvement of the property (e.g. maintenance, etc.)".

This still doesn't make any sense! Lower rent is worth more than no rent and the property appreciates either way. Keeping a unit off the market to keep the rents up is kind of a silly plan if you never end up actually renting any of the units.

Any tenant comes with risk. Risk has a financial cost.

Ergo, lower rent is not always worth more than no rent, even all else excluded.

Example: you rent your property to a tenant for $100 / month, who does $5,000 worth of damage to the property, and declares bankruptcy when you sue them for recovery, in addition to the time you spent installing them + evicting them + dealing with recovery.

Sure, there is some number at which this becomes true. But we’re talking about landlords who have supposedly kept properties off the market for years at a time in order to rake in the tax benefits.

Keeping properties off the market for years at a time in order to mitigate the risk of actually having tenants is not a very good plan.

My understand is that commercial real estate loans require additional collateral for lower rents than what was agreed to when the mortgage was created. Building value is basically (monthly rent * constant).Accepting lower than when the mortgage was written will trigger provisions that value the property differently and require the building owner to add principal to get back to 25%.

If lowering the rent by 10k a year lowers the value of the building by 100k, the building owner may have to add 25k that they don't have to keep the building from falling into default. If you have a completely empty building and you accept a lower rent in one of ten units, you could need to put down 250k it of you have many building under one loan they may want millions because of how it changes the loan valuations.

I have no idea if this is true, but unlike every other response to me in this thread, this is at least a coherent explanation that isn't immediately and obviously ridiculous. If this is true, it at least makes arithmetic sense.

People don’t keep units empty for tax breaks. That’s absurd.

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