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

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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