Tuesday, May 24, 2011

Leveraging The Chinese Landlord Principle

I've previously written about why Asians love real estate. At the time, I mentioned the Chinese Landlord principle, which has much broader implications for how to approach life. The basic Chinese Landlord principle is this:
The best tenant is one who sends a check every month and never calls.
I learned the Chinese Landlord principle at a young age; my Chinese family owned (and still owns) several apartment complexes, and the trials and tribulations of being a landlord were a frequent topic of conversation.

Nothing was more frustrating than badgering tenants who were late with their rent check, or dealing with weekend calls to take care of clogged toilets and other such annoyances.

If you got a good tenant, you would do everything in your power to keep them, including letting them pay a below-market rent.

I've put the Chinese Landlord principle to work in my own life--we rent our house in Palo Alto from Chinese landlords. I've set up automatic monthly bill payments to send our rent payments without fail and slightly early, and we do everything possible to avoid calling, including changing our own light bulbs and other such tasks.

We've been renting the house since 2002, and it took our landlords seven years to raise the rent--even now, we probably pay $500 per month less than market, all because we know how to be a perfect tenant.

The broader principle is that people will pay a premium for convenience and stability. Take away risk, and you will be rewarded. Offer a better "user interface" to your boss, and you'll get plum assignments and raises.

Who are the Chinese landlords in your life, and how can you apply the Chinese Landlord Principle to get a better deal from them?


Anonymous said...

WTF. Does *anyone* ask their landlord to change a lightbulb? What madness is this?

Anonymous said...

Wtf is right, who linked me into this...

John Weldon said...

Thanks for the good reminder. Being the squeaky wheel is good when you want change, but when you want to preserve the status quo being the predictable, risk free option is best.

Saman said...

This is a pure laziness principle, which strongly supports lack of responsibility and blindly following whatever your superior wants you to do.

A good tenant should and must pay her/his rent on time with no question, but unless the tenant is a psycho who calls every now and then just for the heck of it, why on earth should someone tolerate a clogged toilet, the smell of it and all the inconveniences or pay for it, while he is already paying for the place and all the services that come with it. Why should someone compromise just to keep the interface good; while he/she can pay a bit more and live more comfortable?

A good landlord is actually the one who calls the tenant to make sure there is no problem, or if there is any problem he should take care of it immediately. Otherwise, he is losing his reputation and unless there is a high demand for that location it will be hard for him to find tenants. Both of the landlord and the tenant are responsible. If you are renting an apartment you are not only renting the physical space, you are actually renting the infrastructure as well.

There is something fundamentally wrong with this idea. It is like selling a faulty product with a cheaper price to a customer and on the case of return; shouting "GO TO HELL" in his face. There will be two types of customers; ones who will not buy anything from you, and the ones who will pay less and will not call again (or what I call compromises).

This is pointing the responsibility arrow away from superiors, and point it to inferiors. If you think about it, those people who step back, just to show a good interface to a dominating government, are the ones who shape a dictatorship. That also explains the whole Chinese manufacturing ideology, producing cheap and low quality products and hope 'Chinese landlord principle' works.

Showing a good interface is a great way of making your way up on the progress ladder, but by blindly following what others are telling you, how do you expect your character stay in tact!? What about integrity and human values !?

a random John said...

Hey Chris, how are you?

I saw this post on HN and thought I'd respond.

I think you have a great point, I'd just add that you need to make sure that your landlord in whatever situation is in fact a Chinese landlord. In other words, someone that is going to appreciate what you're doing for them.

I've been in situations where people appreciate reliability and others where they don't. I'm going to be reliable either way but it is worth knowing who you're dealing with.

Drop me a line when you get a chance. John Harrison at gmail.

Anonymous said...

Yes, it's the lazy rent-seeking principle, allied with the asian hierarchical don't rock the boat, your boss is always right principle.
The same attitude that meant pretty much zero progress for that 5000-year-old society, despite inventing paper, gunpowder, perhaps discovering America, and so on, until they switched to the western "do something for someone, get rewarded" principle.

Paul said...

For 30 years a family paid my grandmother rent ... on a house she paid $4,500 for back in the very early 50's ... at the end of the 30 years (just a short few years ago) the tenet thought she owned the place ... after all, she had raised a family, saw her grandkids born, lost a husband, etc... all from that house she lived in. And just like that (snap!) my grandmother sold it out from under her for $89,500 ... the price she wasn't willing to pay after paying rent for so many years. Pain turned to bitterness as she had made my family a small fortune ... she felt like that was her $85,000 profit ... to be used as she pleased in her old age ... the FOOL.

The moral? WTF are you renting you big dummy. You know landlords change. You know all you're doing is making others rich. You know your perfect tenet crap means nothing in the real world. It's not even something to be proud of!

You are an investor. Are you renting your investment in other companies as well ???

This has to be the most disappointing post I've ever read on here in 6 years... or since I've known you. So a suggestion ...

Buy "Rich Man, Poor Man" ... and read it. I've dreamed of being in your position... having you're ability to invest ... to create wealth for myself ... I've envied you in some ways. But right now I'm a little more than disgusted (and I think our friendship can with-stand this calling out)...

mamacita said...

So much vitriol here, and it's misplaced. I found this post through Ramit, and I can tell you it's absolutely on the money. We've been renting for years, fixing as many problems as we can on our own. Of course, we've had to call for big things (new toilet, new HVAC system), but our landlady raised the (already-low) rent only twice in nine years.

Earlier this week the landlady called and said she wanted to sell the house. She offered to sell it to us for $10-15K less than the market price. She actually had another cash offer for the same price she quoted us -- she just liked us and appreciated our taking care of her property.

You bet your ass we're buying the house (jinx jinx jinx). And in a couple of years, we will turn it into a rental property. I plan to ask around my neighbors and friends for a referral on a tenant, offering a good price for someone I can trust with my investment. (jinx jinx jinx some more)

Chris isn't saying this should be your MO in life, just that some situations will respond well to this principle.

Chris said...

It's interesting to me that people take this post as a criticism of homeownership or a call for submissiveness.

Saman: To paraphrase Gordon Gekko of Wall Street, "Laziness, for lack of a better word, is good." Laziness makes people seek the shortest distance and the least effort means of accomplishing a goal.

The wise entrepreneur takes advantage of people's laziness by providing them with a convenient package. Take fast food, which serves those who are too lazy to cook.

John, good point about making sure your actually dealing with a Chinese landlord. Not everyone values a convenient interface.

Anonymous, I'm not an expert on history, so I can't really comment on the reasons why China turned inwards in the 13th Century. What I can tell you is that the Chinese are among the most mercenary people on the face of the Earth, and overseas Chinese dominate the economies of countries like Indonesia and Malaysia, even where they are a small minority.

Being a slumlord doesn't make you lazy; it's simply a different strategy.

Paul, it's really pretty simple. The housing market has been overvalued for years. In Palo Alto, the cost of renting my home is approximately 1/2 the cost of a mortgage for its sale price, even at 4.5%. And that doesn't take into account property taxes, maintenance, etc.

Housing is a crappy investment that occasionally makes people rich because the Federal government allows ordinary citizens to lever up 5:1.

John J. Walters said...

A comment on your "Housing is a crappy investment..."

Take my parents' house, for example. They bought it almost 30 years ago for $107,000. Today, post-bubble, it could likely be sold for about $250,000.

Did they make $143,000 on it? Doubtful. Likely, the cost of repairs over that time took a big chunk out of that sum. (Even if you do stuff yourself, that has a cost of your time). Then there's the fact that the buying power of that money has diminished over time.

The best I can figure it, once everything shakes out they way it did, people who had held onto their houses for the long-term broke even when they sold.

Not a very profitable investment. On the other hand, it did allow them to live in it, raise kids in it, and then earn their money back -- all while maintaining a stable monthly payment.

This is something that renting does not provide. We exchange the flexibility of renting for the savings of home ownership.

Still, savings should not be confused with investments.

Good post overall, Chris. I'm having trouble understanding the responses to this one. Seems to me like a pretty clear "advice in certain scenarios" post to me. People are taking this as a personal message that they're wrong and must defend themselves. Weird.

Foobarista said...

Renting in Palo Alto makes complete sense, as the "multiple" in PA is at least 20 (the rent multiple is the market price divided by the annual rent). It really doesn't make sense to own unless the multiple is no more than 7 or so.

Dave Nielsen said...

I've been a landlord for 22 years & I completely agree with the simple point of this post: If you want a good deal (low rental price is one example) make it easy for the seller to justify giving you the good deal: 1) make the transaction easy (pay on time); 2) don't complain about stupid stuff; and 3) be friendly so they feel guilty raising th price (rent)