Ep23 -- Caste Aspersions

 It was the eve of Y2K,  which for those of you who I suppose might not even have been born yet,  this was in late 1999 when nobody was quite certain, whether or not the world would come to an end at midnight on December 31st,  since we couldn't be sure that the world's computer systems would be able to recognize years that didn't start with 19.  Right around then, my wife of just a couple of months, and I decided to buy our first house, a duplex in Somerville, Massachusetts, kind of near Tufts University by Davis Square.  And we were able to afford it because we would live in one unit and rent out the other. 

We'd just had the second rental property in two years, sold out from under us, and we were fed up with the uncertainty of the tenant life.  

And as we were going through the buying process, it was like every day there was some new fee that we had to pay. There's the deed recording fee, the municipal lien certificate recording fee, a separate fee to actually obtain the municipal lien certificate, the homestead declaration fee, something called the rundown fee,  appraisal fees, flood certificates. And of course, Massachusetts real estate includes one of the great boondoggles of all time, requiring both buyer and seller to hire a lawyer for the purchase and sale process.  So our property inspection was actually scheduled for December 31st, 1999.  And we woke up that morning and we're just like, we can't go through with this. 

We have no idea how much this is going to cost. No idea if we can actually afford it.  But we showed up, it was kind of a snowy morning.  And our realtor was great. She totally talked us down. She basically said, look, you've already paid for this inspection.  Let's go through with it. And while we wait for the results, I'll sit down with you and explain all of the fees and all of the costs.  And she did that. And it made enough sense that we agreed to go through with it. 

And it ended up being a really good investment over the years.  Now, many years later I've realized that there was something else she could have told us to help calm our nerves as first-time buyers.  She could have said,  a huge chunk of the tax code was basically written by and for real estate owners. And if you've got investment property well, then you'd have to work really, really hard to not be like a pig in shit for the foreseeable future.  

And at the moment when we bought that house and I didn't realize it at the time we had jumped up, not just one, but two American caste levels. Not just from renter to homeowner, but up into the landlord caste all in one move.  So this week, I want to talk about my journey through the American caste system, how easy it is to accept the norms and expectations of a new higher caste, and how important it is to recognize the caste system and the injustices inherent in it, and to do whatever you can to mitigate those injustices. Stay tuned.  

I'm Craig Boreth and this is The Great Ungaslighting. a podcast about how we all get conned into accepting a human culture that's out of sync with our human nature, and how we can begin to fight back and put the kind back into humankind.  

But first a word about a sponsor.  

This week's episode of The Great Ungaslighting is not sponsored by RealPage, which is essentially price-fixing software that allows landlords across America to peg their price increases to other landlords and RealPage clients in their area. Thus, essentially eliminating any need for landlords to compete on price to attract tenants.  The RealPage algorithm even figures out when it's best for landlords to leave units vacant, allowing the decrease in supply to jack up, prices enough in their occupied units to more than compensate for the lost rent from the vacant unit.  RealPage, which is currently under FBI investigation was founded in 1998 by real estate heir Harlan Crow. 

Yes, that Harlan Crow, proud owner of at least one Supreme Court justice.  RealPage was basically created to solve the problem of landlords as one company executive put it having "too much empathy" and not raising rents as high as they possibly could. So following Peter Thiel's admonition that "competition is for losers", RealPage set out to remove competition among landlords and use their algorithms to screw over tenants en masse.  

And in a perfect little bit of meta monopoly, RealPage's owner YieldStar recently bought up their biggest competitor, Lease Rent Options. Ahh, to work in private equity in times when the Sherman Antitrust Act doesn't really apply.  So next time some talking head on the business shows tells you that our housing crunch is due to the fact that we lack the necessary housing inventory because of the construction contraction that happened after the 2008 financial collapse, you can remind yourself that true, that is correct, but it's also due to morbidly rich venture capitalists, finding new and novel ways to soak tenants for every conceivable penny.  

And we're back.  

There was an amazing quote from a recent post by Cory Doctorow on his insightful and informative daily newsletter about our economic and technological sociology at Pluralistic.net.  He wrote:  

"There's a truly comforting sociopathy snuggled inside capitalism's ideology.  If markets are systems for identifying and rewarding virtue, ability, and value, then anyone who's failing in the system is actually unworthy, not unlucky;  and that means the winners are not just lucky and certainly not merely selfish, but actually the best and they owe nothing to their social inferiors, apart from what their own charitable impulses dictate."  

And the thing about that sociopathy is that once you buy into it,  it becomes an essential element of that water that we fish swim around in all day.  It feels like anything but a sociopathy. It feels not only normal, but perfectly inherently natural. So normal that we never even think about it.  But once you have an opportunity to see the system for what it really is, akin to taking the red pill, you realize it's all just a very intentional construction, meant to favor some over others. It once again reminds me of that David Graber quote: "The ultimate hidden truth of the world is that it is something that we make, and could just as easily make differently." 

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So, let me get back to the real estate example.  Not long after we jumped two full caste levels from tenants to landlords,  then we began to get educated in the way things are supposed to be for members of that caste. So, for example, we learned when filing our first year's taxes, that a rental apartment is a capital asset, like other big equipment purchases that businesses make such as computers and vehicles.  And like those other assets, as far as the IRS is concerned, they depreciate in value every year. And you get to write off that depreciation against your income.  But if you think about it for a second, it's kind of weird when it comes to housing. Almost every year and almost always well above the rate of inflation, property values go up.  But as far as the IRS is concerned, the value of your property goes down.  So right out of the gate, you get a big tax break on your rental income.  Now people who have never challenged that comfy sociopathy will say, yeah, you do get a tax break due to that depreciation. 

But then when you sell the property, you have to pay tax on the capital gain, which is the difference between the sale price and the cost that you've depreciated the property down to over the years. And once again, that is true. Even though the absolute amount of the capital gains tax is likely to be less than the total tax deductions you've claimed over the years. 

Plus you probably invested those savings and earned additional capital gains off of them over the years.  But then you get introduced to section 1031 of the IRS tax code. And that's when the red pill starts to really kick in.  I think a lot of the way people understand the truth about our economic system comes down to whether or not, you know, what a 1031 exchange is.  A 1031 exchange essentially allows you to defer payment of those capital gains taxes from the sale of an investment property by exchanging that property within a set amount of time for another one of equal or greater value.  So you buy an investment property, depreciate it over the years, then exchange that place for a new place and begin the depreciation process all over again.  But the defensive capitalists will once again say, you still are only deferring those gains. Eventually, you will need to pay them.  Well, not exactly.  

So after you've owned and rented out the second property for awhile, you can move into it and make it your primary residence. Then, if you were to sell it, you get to exempt. $250,000 of the gains if you're single or 500,000 if you're married. Not a bad deal.  But, if you hang onto that property, say until you die and leave it to your children, then guess what? When they take ownership over the property, all of those capital gains accrued over decades and possibly through multiple 1031 exchanges, they all just disappear.  It's a pretty sweet deal, no?  Well, once you spend enough time in the landlord caste it no longer feels like you're getting a sweet deal. It feels like just the way things are supposed to be. And on top of that, it feels like something you've earned. Something you deserve something you're owed. 

But if you can open your eyes and see it for the upper-class welfare that it really is, you begin to realize that landlords that complain about their tax burden are either pathologically greedy or willfully ignorant of just how profoundly the system is set up in their favor.  

So, this is just one specific example of how people come to view the world through caste-tinted glasses.  And constantly reminding myself of that fact and remembering what it was like as a renter helps me do whatever I can to mitigate that unfairness at least a little bit.  So, for example, I have never once over the years raised the rent for tenants who renew their leases.  Good tenants make my life as a landlord really easy. And there's value in that.  

My expenses may go up a little bit each year, but so does the value of my property. And my interest payments go down a little each year and I'm paying off more of the principal of my mortgage.  And I've had people suggest to me that I'm a fool for not raising rent. I've been told, you know the tenants will pay the higher rent because their only other choice is to move, and that sucks. 

Yeah, it does. And I remember being a tenant in that exact same predicament, and I don't want to take advantage of it.  

It's also a reminder that all castes are artificial compartmentalizations of people, created to benefit those with more power against those with less.  But the reality is we are all stuck in the same world together, all part of the same ecosystem, as Gregory Bateson would put it.  And sure we can define our world as the first world and the world of those less fortunate as the second or third.  But that ultimately harms all of us and our one world. And the sooner we realize that the sooner we might be able to do what is necessary to save that world.  

Well, that's it for this week. If you liked this episode, please share it with anyone you know who might also enjoy it.  And until next time, be kind to yourself, cut each other, some slack and use your f#$%ing turn signal.