Landlord Crusader: Why landlords should not share equity profits with renters

Landlord Crusader: Why landlords should not share equity profits with renters

0:10 AM, 7th July 2023, About 8 months ago 15

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Knowing that those who hate landlords will be spitting when they read this, I must explain why sharing the capital gains made from a rental property investment is nonsense.

This is the argument made in a recent article in The Big Issue, which claims that renters should get a share of the profits from a rented house sale.

The story obviously hit a nerve with Property118 readers – and the comments make for great reading, so I know I’m not alone in my thoughts.

We all need to understand that renting a property is a common choice for many people in the UK, especially in urban areas where house prices are high.

Some renters may feel that they are paying their landlord’s mortgage and that they deserve a share of the equity profits when the property is sold.

However, this argument is flawed and ignores the realities of the rental market and the risks that landlords face.

Why landlords should not share equity profits

Let me spell out why landlords should not share equity profits with renters.

  • Renting is not the same as buying. Renters pay a monthly fee for the use of a property, but they do not own it or have any rights to it beyond their tenancy agreement. They do not have to pay for maintenance, repairs, insurance, taxes or interest on a mortgage. They also have the flexibility to move out at any time, subject to their contract. Landlords, on the other hand, invest a large amount of money upfront to buy a property and must deal with all the costs and responsibilities of ownership. They also must comply with various legal and regulatory requirements, such as safety standards. Renters are not entitled to a share of the equity profits because they are not co-owners of the property.
  • Equity profits are not guaranteed. The value of a property can go up or down depending on various factors, such as supply and demand, location, condition, market trends and economic conditions. Landlords take a risk when they buy a property, hoping that it will appreciate in value over time and that they will be able to sell it for more than they paid. However, this is not always the case. Sometimes, landlords may have to sell at a loss or break even, especially if they bought at the peak of the market or if they need to sell quickly. Renters do not share this risk and should not expect to share the reward.
  • Sharing equity profits would discourage investment and reduce supply. If landlords had to share their equity profits with renters, they would have less incentive to invest in rental properties and maintain them to a high standard. This would reduce the supply of rental properties and increase the demand, leading to higher rents and lower quality homes. Renters would be worse off in the long run, as they would have fewer options and less affordability. Sharing equity profits would also create a disincentive for landlords to sell their properties, as they would lose part of their return on investment. As if we don’t get taxed enough!! This would reduce the turnover of properties and make it harder for first-time buyers and other buyers to enter the market.

‘You paid your money and made your choice’

Or, as a landlord friend of mine says: ‘You paid your money and made your choice’.

I appreciate that landlords don’t get positive media because most non-landlords think we are getting money for old rope without appreciating the costs and time involved in running a rental property.

It isn’t easy – just ask the countless numbers who have tried it and bailed out.

Just ask the landlords with flats that have cladding on and have seen the value of their investment plummet.

Just ask the landlords who spend thousands of pounds and months or even YEARS trying to evict a non-paying tenant.

Does the non-payer deserve a slice of the profit made on an investment? Or the renter who trashed their home and caused thousands of pounds of damage?

Most tenants are great, respectful people but landlords deal with all sorts.

The capital gains made by a landlord will just about cover the cost of the stress, sleepless nights, money spent on pointless licensing schemes and refurbishing time and time again.

It might cover the times that the landlord and his/her family went without because they aren’t rolling in cash.

Landlords should not share equity profits with renters

Let’s face it, landlords should not share equity profits with renters because renting is not the same as buying, equity profits are not guaranteed and sharing them would discourage investment and reduce supply.

Renters pay for a service, not an asset, and they should not expect to get something for nothing. (Can you hear the keyboard warriors warming up?).

Landlords provide a valuable service to society by offering housing options to people who cannot or do not want to buy their own homes.

They deserve to keep their equity profits as a reward for their investment and risk. If you want a share of any capital gains, put in the effort, save up and invest – and deal with people who don’t respect you and want to take what you have worked hard for.

Let the haters hate.

Until next time,

The Landlord Crusader


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Comments

Simon Lever - Chartered Accountant helping clients get the best returns from their properties

10:02 AM, 7th July 2023, About 8 months ago

An additional thought:
If I own a property for say 20 years and have had a succession of tenants, all good, who have lived there over the period of ownership.
When I sell after 20 years and make a profit how do I split the profits?
During the period of ownership the value of the property could have gone up and down. Does every tenant get a share of my profit depending on how long they have rented the property?
Utterly ridiculous idea to share the profits.

“Rent: a fixed amount of money that you pay regularly for the use of a room, house, car, television, etc. that someone else owns”. Cambridge Dictionary

john isaacs

10:12 AM, 7th July 2023, About 8 months ago

exactly !
if any tenant of mine expects a share of the equity , they are very welcome to raise a deposit , the stamp duty , legal fees , valuation fees , mortgage fees and we can buy a property together and they also must put in the same work and money as me to fix it up and get it compliant and pay the mortgage / council tax whilst it's vacant and take on the commitment of it and responsibility and solve the problems of it.
I bet if I asked all my tenants if they would like to do this with me , I expect none of them would take up the offer .

howdidigethere

10:42 AM, 7th July 2023, About 8 months ago

Although I feel your pain, I wonder if you are being sent in a spin by those who know who how to pull our strings.
This is not an attack on Landlords, it is much bigger than this. They want you to believe it is about landlords, it is not. It is about property rights.
There is a concerted movement in the direction of removing all kinds of rights, both civil and human over the last many years, but it has accelerated over the last 4.
We are moving ever so towards a socialist/fascist society. This is not fantasy, it is fact.
Look at the calls for rent controls, look at the calls for removing private property rights, in New York even.
Wake up and smell the coffee people. If you do not know or stand on your rights you have none. This is not a matter of minutia detail of who deserves what, it is fundamental to the structure of our society and it is being eroded.
At the peak of the issue is the debasement of our currency. THIS is the main factor that underpins all our socio-economic problems. I imagine only 1% of you actually know what money is and how is it created at the reserve level. And it will only be that same percentage of us who understand that our money is debt.
This is a system of usury, and those who are the lenders are calling in their loans. The fiat currency system is on it's last legs, and those who control it are running for the life boats while they leave us to argue over the scraps.
This argument of who should get equity in a property is a distraction. It is an argument over scraps.

Reluctant Landlord

11:02 AM, 7th July 2023, About 8 months ago

why is this even a question in the first place? No debate/discussion required. The tenant rents. It doesn't matter who owns the property - it is being rented from them. The process of renting does not entitle the user to a share of anything. They are essentially hiring something for a period of time until that contractual period ends.

Housing is just being used as a political football. Easy to kick and been seen to score a goal in the oppositions net.

moneymanager

11:10 AM, 7th July 2023, About 8 months ago

Reply to the comment left by howdidigethere at 07/07/2023 - 10:42
Effectively it's the broad imposition of capitocommunism; you are right, mist don't see beyond the headlines.

Rerktyne

11:15 AM, 7th July 2023, About 8 months ago

Reply to the comment left by john isaacs at 07/07/2023 - 10:12
Fred and Tom each by a house next door to each other. Neither had a mortgage: inherited money.
Fred rents his out for 10 years during which time he has received £60,000 in rent. He also had repairs and a few hassles but things were generally ok. Tom leaves his empty and just keeps on paying for the odd minor repair.
After 10 years they decide to sell; £250,000 had become £500,000.
Fred must give his tenant 25% of the profit: c.£60,000. Tom keeps his profit.
Question: of the two landlords who is the moron?
Question: why did Fred bother to run the risks of renting?
Question: what sub-species of imbecile thinks profit share is clever?
Question: why stop with residential? Why don’t the commercial tenants of all the banks, insurance companies, property companies, Oxbridge colleges, et al ask for a share too?
Question: why not just go straight to a slump and let everyone go hungry?
Question: why am I even bothering to write this?

Bryan

11:23 AM, 7th July 2023, About 8 months ago

It is absurd. What needs to be stated again and again is that buying, managing and renting out a property is a business. An owner (hate that landlord label) invests and expects a return. Most peoples pensions have some of the money invested in property, because it's a business. It would be like asking Tesco for a share of their profits because you shop there twice a week. It's absurd.

Martin Hicks

11:56 AM, 7th July 2023, About 8 months ago

No doubt it would fall to the landlord to keep accurate records of tenancies together with arrangements for contacting all of them in future. Also, to have a property valued at the commencement and end of each tenancy so that a suitable apportionment of gain can be calculated? Hopefully it would only be relevant for long term tenancies, perhaps of a minimum of 5 years?
Whatever, it would add more expense and admin requirement to the lot of us private landlords. So much for the Brexit promise of cutting red tape.

Paul Chetwyn

12:32 PM, 7th July 2023, About 8 months ago

I am a landlord!
I can’t wait until this sharing the capital gains profit comes in with retrospective rules, so I can go back to my two previous tenants from two properties I sold, one with a £35k loss and one with a 30k loss and say you owe me half of that loss!!!!!!!

Being a landlord is great (NOT)

Martin Hicks

12:42 PM, 7th July 2023, About 8 months ago

Reply to the comment left by Paul Chetwyn at 07/07/2023 - 12:32
Don't worry yourself, only a share of any gains will be duly forwarded to former tenants. Losses will be ring-fenced for your own personal delectation, and be deductible against any future gains you may have - no doubt after you have also shared such gains with tenants!

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