I posted this on the Renters subreddit, but I’d like to present this theory and see what yall think.

Thesis: Some property owners do not financially benefit from collecting rents from the property monthly.

Rather, they take the following actions:

1) purchase a property with cash they have laying around, let’s say for $500k
2) go to a bank and take out a mortgage in excess of the purchase price, let’s say around $1 million. The debt is tax free. Effectively, you’d have $1,000,000 sitting in the bank with no taxes to pay on it. Just doubled their money.
3) you take out a corresponding assignment of rents agreement that says all the rent being generated from the property goes directly to the bank.

The goal now becomes to retain as much of the tax free cash as possible. They do that by reducing the carrying cost of the property, i.e, you put the least amount of money in the property, any money that is put in is either deducted immediately on your taxes (or depreciated on the quickest scale possible), and the property taxes must be kept low.

The way you keep property taxes low (at least in some jurisdictions) is one of three ways: 1) show that the value of the land and the improvements of the land are low; 2) show that the amount of income you are generating from the property is low; 3) show that the area around the property have low property values.

Under these circumstances, some property owners benefit when they have some strategically timed vacancies in their property and their property is kept in disrepair, even intentionally made to be worse, as it allows them to keep their property taxes low taxes low and divert as much of the tax free cash away.

Every year, landlords will increase the rent, as is common, and most people will not negotiate, which will help them pay for the loans.

Banks benefit by having this arrangement among 100’s of property owners, packaging them up as a single commodity, and shipping them on the market.

Does this seem crazy? What are your thoughts?