September Mortgage update and long-distance landlording

Last month (August):
Balance: $46,373.71
Years left: 3.5
P =$1,018.90, I =$195.50, Escrow =788.73

This month (September):
Years left: 3.25
P =$1,030.84, I =$183.56, Escrow =788.73

One month’s prepayment savings: $7.90

Disclaimer: We have ZERO desire to get into the landlording business. None. But #1 is tired of talking about her personal finances (as they relate to mortgages) for the nonce so you’re getting a post about housing instead. For newer readers, these housing posts on Mortgage day used to be more common before DH decided to quit his TT job, be unemployed, and get a new job. There will probably be more in the future as things get boring and settled again monetarily in the #1 household. But we’ll see, maybe we’ll actually do some home improvements some day (maybe by the time this posts, Home Depot will have found the vinyl flooring they ordered for us and it will actually get installed update:nope).

A recent working paper by Alex Chinco and Christopher Mayer suggests that investing in the market you live in is more profitable than swooping in from out of town to pick up “bargains” in another market.

Misinformed Speculators and Mispricing in the Housing Market

Abstract:  This paper uses transactions-level deeds records to examine how out-of-town second house buyers contributed to mispricing in the housing market. We document that out-of-town second house buyers behaved like misinformed speculators and drove up both house price and implied-to-actual rent ratio (IAR) appreciation rates in cities like Phoenix, Las Vegas, and Miami in the mid 2000s. Our analysis has 3 parts. First, we give evidence that out-of-town second house buyers behaved like misinformed speculators. Compared to local second house buyers, out- of-town second house buyers had worse exit timing (i.e., were likely misinformed) and were also less able to consume the dividend from their purchase (i.e., were likely speculators). Second, we show that increases in out-of-town second house buyer demand predict increases in future house price appreciation rates and IAR appreciation rates. A 10%pt increase in the fraction of sales made to out-of-town second house buyers is associated with a 6%pt increase in house price appreciation rates and a 9%pt increase in IAR appreciation rates over the course of the next year in that city. Third, we address the issue of reverse causality using a novel econometric strategy. The key insight is that an increase in the fundamental value of owning a second house in Phoenix is a common shock to the investment opportunity set of all potential second house buyers. If changes to fundamentals were driving both price dynamics as well as out-of-town second house buyer demand, we would expect to see large jumps in house price and IAR appreciation rates preceded by increases in out-of-town second house buyer demand from across the country. The data do not display this symmetric response, and are thus inconsistent with reverse causality. We conclude by discussing both the economic magnitudes of out-of-town second house buyer flows and the broader applicability of our econometric approach.

In short:  Out of town investors don’t know the market, so they make mistakes in purchasing and selling.  Additionally, out-of-town investors drive up prices within a town.  Bottom line– even though there’s diversification risk in one market, there are benefits to sticking with what you know.

What do you think about landlording/flipping houses locally vs. long-distance?



14 Responses to “September Mortgage update and long-distance landlording”

  1. TheologyAndGeometry Says:

    We just finished renting a place with a long-distance landlord who I think wished very much he was not a long-distance landlord. And his attitude toward us as tenants (especially right before we moved out) really soured our relationship. I would not be or ever ever ever ever rent from a long-distance landlord again. Long story short (well, long now that I’m reading back over it), he’d bought a condo for his daughter (a friend of mine) when she was in grad school, and we started renting from him after she graduated and we were expecting our son. We tried to be very good tenants (this was my friend’s dad after all), but his problem was that he wanted to be a landlord without actually accepting the responsibilities of being one. We had a serious problem with dry rot on a large window and water would pour through the top when it rained heavily. He refused to take the issue seriously (even though his own carpenter son-in-law had come to look at it and agreed the window needed to be replaced ASAP) until we recorded a video of it and sent it around to the condo board and made some threats about going to student legal services. So then, in the two weeks before we were about to move, he started making appointments – without asking me when it was going to be convenient or offering to compensate me for having to take time off work – to get estimates for the window to be replaced. And asked, “Oh by the way, did I have any friends who were interested in renting or buying the condo?” Um… no. So finally I guess he decided to sell it, again from afar. I think he kept hoping it would just disappear, but no, that’s not how it works. He ignored our repeated calls and e-mail asking what we should do with our keys when we left. We were about ready to mail them to him when a realtor called me out of the blue to ask if I could drop them by her office. Um… no. We were already in a different state. And then the landlord got mad because he thought it *took too long* for the keys to get mailed back and they had to change the locks. They weren’t planning to change the locks before it went to a new owner??? And despite the realtor saying that we left the place in excellent condition, I’m sure we’ll never see our security deposit. I plan to complain, but now that we are long-distance, too, I’m sure he knows there’s nothing we can really do about it. Ugh. Never, never, never again.

    • Leah Says:

      Check the tenant laws for the state — if he didn’t follow the right steps, such as informing you of damage in an appropriate window, you’re legally entitled to the security deposit. A legal-sounding letter will help with that.

  2. Leah Says:

    I had a long-distance landlord once. It was okay because he visited town often, but that’s because he was still renovating apartments in the building. He did work hard to be a good landlord, which I appreciated (tho, conversely, he was the most picky landlord I’ve ever had — he wanted me to wash the walls when moving out, and I’d only lived in the place three months). I think a long-distance slumlord would have been awful.

    I prefer the landlord in town.

  3. Katherine Says:

    My husband and I recently moved out of a condo with a long-distance landlord. It was always hard to get her on the phone when we had a problem. Also, the building was settling in a bad way so there were cracks in the hallway walls (and apparently in some of the units, though thankfully not ours) and there were multiple ongoing lawsuits between the builder, the management company, and the HOA that never seemed to be resolved. The HOA seemed well-intentioned but totally incompetent with regards to managing parking, etc. When we moved out I thought we were going to have to mail the keys, but eventually I did manage to get the landlord on the phone the morning of our move-out date. Then the landlord “didn’t get my e-mail” with the pictures she asked me to take when we moved out, so we didn’t get our deposit back for over a month after we moved out (I was about to call a lawyer).

    I won’t say that I’ll never rent from an out of town landlord again, but we were very glad to move into a large corporate rental complex. I would think very very hard about ever buying any property other than a free-standing single family home after seeing the way the structural problems in that condo complex were (not) managed.

  4. Susan Says:

    I am so, so fecking happy that I am no longer a long-distance LL. I’ll stop short of specifics.

    In the broader sense: even in the days of Zillow … it was hard to keep a very good eye on value from afar. I’m data-driven, but I was still underestimating my unit’s value by ~15% by the time I went to sell. And unless they’re experienced (which so many of us weren’t, in say, 2008 when we were forced into it), long-distance LLs almost certainly underestimate the many higher costs (time and money) over local LLing and of course, living there yourself. Increase in sunk costs surely leads to larger time lags in selling.

    • Rosa Says:

      that’s a general small-landlord problem, I think. Even the landlord we lived upstairs of, he had gotten into it with no clear idea of how much upkeep would cost, and made some horrible DIY decisions to save money (like hammering wooden shivs under the toilet to level it…which made it rain through the floor into his apartment, since it broke the wax seal.)

  5. Comradde PhysioProffe Says:

    I’d rather hammer nails through my dicke than be a landlord.

  6. plantingourpennies Says:

    Our rental duplex is about as far from us as we are comfortable with – 25 minutes or so by car. When the deals ran out there, there were still some in another area of the county that’s a good 45-60 minutes from where we live, but that was too far for us to feel comfortable. We like knowing that if something happens we can take care of it ASAP and we have a good feeling for what types of tenants live in this area as it’s the area that we used to live in before we got married and bought our own house.
    Mr PoP’s parents have their own rental in the same area, and they do most of the management over long distance and it’s just not the same. Their tenants end up being not as good, they haven’t felt like they could raise the rent the way we have and inevitably their tenants are late with the rent on a consistent basis. I think seeing our tenants on a consistent basis is a good reminder for them to be good tenants (keep the place nice and pay on time) and probably a good way to keep us being good landlords (keep the place nice and repair quickly if something breaks). Like we see too often on the internet, it’s way easier to be mean to someone who’s faceless and far away.

    • zenmoo Says:

      I’m currently a long distance landlord – we lived in the house and rather than sell when we moved (from New Zealand back to Australia). We also had our house in Australia rented while we lived in NZ. I think the main thing you need to be a good LL is a good local property manager. Our property manager in Australia was excellent. She was very responsive – any maintenance issues identified by the tenants were actioned immediately. we also got lucky with some fantastic tenants though. It remains to be seen how our property manager in NZ works out. They seem ok so far.

  7. Liz Says:

    I can’t even get my in town landlord to do any feckin work or upkeep on my home, and he lives literally a half-mile from his rental duplex. Dishwasher is a POS, the refrigerator freezes my lettuce (even in the crisper, people), the windows are single pane with screens only in some, the sills are cracked and peeling because there’s no outer storm panes, he still hasn’t got the bathroom baseboard heater working (even though my handyman SO identified the issue, after the landlord’s electrician did zilch and got paid)…. This on top of moving in to a dirty home filled with the previous tenant’s things, and having the carpets steam-cleaned terribly, and being promised doors for the closets that I still don’t have 2 years later. And having to do my own yard maintenance – down to cutting the grass, which meant I had to buy a lawnmower, because that wasn’t even provided.

    I had an even worse experience with someone who used a property management company, which never fixed anything “because he has to approve repairs.” No hot water in the kitchen? Not enough of a problem, because you have it in the bathroom at least. Water streaming through the second-floor window when it rains? We’ll deal with it after you move out. And the property manager was a terrible piece of work herself, and when I complained to her agency they never even responded. I had to pay $200 to have the carpets steam-cleaned at that unit when I left, and they still confiscated almost the entire deposit even though it was spotless – because they were dicks and irritated that I made them come back to close out, because I requested to be present for that final walk-through and she did it without me anyway.

    I think about being a landlord someday to offer low-cost housing options (like efficiencies that aren’t moldy or falling apart), but I wonder what the hell happens when you don’t live in a place. Seems like suspicion, disinterest, or something like that develops.

  8. First Gen American Says:

    My mom lived in the unit she rented but we were also trying to do it long distance as well. That lasted about 2 years before we had just had it. When a unit isn’t owner occupied, or the landlord isn’t nearby to keep an eye on things, many people don’t care what the place looks like and tend to be slobbier than when someone is watching. Trash bags were piled on porches, garbage was never picked up in the yard, it was gross and I was comstanly nagging the tenants to pick up after themselves. When my mom lived there, it was much cleaner, partly because she picked up litter and partly because she was watching.

    From the landlord’s perspective, some of us hate that tenants don’t say anything until the damage is so bad that it’s a fortune to fix. When the second floor unit’s toilet backed up because there was a toy flushed down the toilet, we didn’t get a call from that tenant. We got called by the lady on the first floor who’s ceiling started leaking. These were brand new bathrooms….fully gutted and not even 3 months old so it wasn’t the toilet. That’s the sort of thing that happens all the time. Like when you get a huge water bill and then you have to hunt down the fixture that is the culprit because no one bothers to tell you something is not working right.

    Most of the repairs we made were things we noticed, not things the tenants complained about.

  9. chacha1 Says:

    After 10+ reasonably contented years in a resident-manager situation for a multi-property landlord, I would be highly unlikely to rent from any non-local owner unless they had a resident manager and local management company. Long-distance landlords are people who haven’t thought things through OR who don’t care about their tenants (anecdotally and personal experience).

    And as to being a landlord myself, CPP said it well.

    • nicoleandmaggie Says:

      I think my dad finally got out of land-lording when a husband tenant shot (and murdered) the wife tenant in the home office. My dad ended up giving the house away to a non-profit because he couldn’t sell it.

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