The rich tend to always get ahead, no matter the economic environment. Even during a global pandemic, the rich have gotten richer. This article will discuss why the rich should pay higher rents.
No matter how hard I try, it’s impossible to convince everybody to adopt the Stealth Wealth mantra. Rich people should never share how much they truly make. Nor should they share how much they truly have. If they do, they will become targets of envious people looking to take them down.
Nobody is looking to kidnap or murder an average person; only a rich and famous person. Try and blend in to live a more comfortable life.
The Rich Getting Richer
When 26 year old Haseeb Qureshi published a post on how he managed to negotiate a $250,000 annual compensation package at Airbnb, I was intrigued. It’s a great post about how he pitted multiple tech companies against each other to bid on his services. Once he got Google interested at $220,000, the doors to other companies flung wide open.
But, usually a job search is private. What will Google hiring managers think now that they realize they were played like a fiddle? What about the hundreds of employees at AirBnB who are older or who have been there longer who don’t have a $250,000 a year compensation package? How will they feel? Will his next employer be a little more savvy? Who knows.
After Haseeb got the AirBnB offer, he wrote, “This company must be out of its goddamn mind. No wonder tech is so overvalued. I lost my shit.” Now, Haseeb needs to really over deliver on high expectations or potentially face an early exit. I was pretty miffed by the whole salary revelation. But instead of staying intrigued, I simply asked him in his post why he made his compensation package public. Here was his response!
Why Tell The World How Much I Make
You raise totally valid points, and those were certainly things I thought about when writing this blog post.
Based on the feedback I’ve received, I think this post has been clearly valuable to people—transparently describing the job search and the negotiation process have given many people more insight into the SV engineer hiring market. It’s evidently been motivating to people who want to break into tech. All of that is great.
I also hope that my story also gets awareness for earning-to-give and gets people interested in effective altruism.
And yet you raise a good point: Americans keep their compensations secret for a reason.
(Though there’s nothing intrinsically secret about any of the compensation numbers I mentioned; you’d be able to unearth similar numbers yourself just perusing GlassDoor.)
But it’s inevitable some people will react negatively. As you say, it’s human nature. Some people might think I don’t deserve what I’m making. Colleagues at Airbnb might be miffed that I’m making more than them, or a future manager might believe that I’m being overpaid.
That’s all fine. It’s all true, so it’s fine. By accepting this job I also accept the burden of proof it comes with. And it’s up to me to prove that I’m good enough to do the job I was hired for. And if that means I have to work my ass off to deliver that value, or it turns out that I can’t, then fair game.
Living in one of the richest countries in the world—and on top of that, living in a country where the majority of young people are burdened with debt and struggle to find consistent employment—why shouldn’t I be questioned about why I’m making what I’m making? Why shouldn’t I be honest about it, and be challenged to prove my worth?
I understand the impulse to evade scrutiny. I’ve certainly felt some of that impulse after this blog post went viral. But ultimately, I think it’s a good thing for the society that stories like this are not secret. That people know how much I’m making, or what people like me make. That they ask questions about it. That it not be silently assumed this is just the way things work.
By keeping it secret, I become complicit in this economic structure.
That’s what I believe anyway. And by earning-to-give, at least in my mind, I’m doing my own small part to erode that economic structure.
Great For Salary Transparency
This is a terrific answer and I appreciate Haseeb’s response. His earning-to-give plan is fantastic and should pick up some awareness as his post goes around the web. The earning-to-give plan is similar to my income tethering concept where I recommend tethering one income stream to a purpose to make working on such an income stream more meaningful e.g. tether online income to paying off a mortgage, tethering my Best Of Financial Samurai ebook income to charity etc.
I’m thankful that Haseeb doesn’t want to be “complicit in this economic structure.” He is willing to pay more for things because he earns more than most. After Haseeb responded, I wished him the best. I told him to stay at Airbnb for as long as possible to collect as many RSUs as possible. It’s not like he’s getting options in some tiny company with little chance of going public. Even at a $24B valuation, Airbnb is the one large private company where I see the most upside. And now AirBnb is worth 4-5X more today.
Take Advantage Of Opportunity
As a landlord in San Francisco, I’ve been able to benefit from a rising increase in housing demand. I realized long ago that I was too stupid and unqualified to get a job at one of these hot tech companies. Owning real estate was the only way I could take advantage. Sell the picks and shovels right? As a result, I built my family a small real estate business as an insurance mechanism for them.
But lest you think I’m one of those nasty landlords who kicks tenants out to renovate and flip or find new market rate tenants, I’m not. I’ve never once disrupted an existing tenant. I’ve simply been buying under-occupied places to live (e.g. empty fixer unoccupied for two years) and then adding to the housing supply by renting out my place to more people than how many people were previously living in the home.
I’ve always held the belief that people make much more money than we really know, partly due to the growing Stealth Wealth movement.
But Haseeb’s detailed post about his $250,000 compensation package (130K salary, 25K signing, 95K a year in RSUs) is simply additional confirmation about my belief. Making almost $21,000 in gross income a month as a 26 year old is fantastic. Granted his 95K in RSUs isn’t liquid; I think it’ll be worth much more years from now. Therefore, he is an advocate of the rich should pay higher rents.
Why The Rich Should Pay Higher Rents
As a financial freedom seeker who is looking to maximize alternative income streams, we can learn the following from Haseeb’s post:
1) Many people in tech get paid well and can afford high rent.
Given the job market is highly competitive in Silicon Valley, other people his age from companies such as Google, Facebook, Pinterest, Apple and Uber make similar amounts a year (+/- $50,000). Someone who is making $11,000 – $21,000 gross a month is making roughly $7,700 – $14,700 net a month. Therefore, the demand for one person paying at least $3,800 or more in rent is high (25% – 50% of salary). In such a scenario the rich should pay higher rents for sure.
2) Tech companies encourage income transparency.
Airbnb didn’t instruct Haseeb to keep his compensation package quiet. As a result, one can conclude Airbnb has no problem with the world knowing how much their engineers make. Severance packages, on the other hand, are absolutely to be kept private by both parties. If tech companies are so open about how much they pay their employees, they should be more open to paying more taxes and helping the community of people who are being negatively affected by their high income earning employees.
3) Apply to tech companies and command a high salary.
By highlighting Airbnb pays $250,000 in total comp for young engineers, they are inviting more people Haseeb’s age to apply for similar positions for similar total compensation. It’s only rational to conclude that if you are in your 30s, 40s, and 50s+, you will probably make in the $300,000s, $400,000s, and $500,000+.
All existing employees at richly valued tech companies should immediately ask their managers for a raise if they have similar or more experience than Haseeb, and are making less than $250,000 a year. Landlords know their incomes clearly, which is why the rich should pay higher rent.
4) IPOs will ignite a property buying frenzy.
Less than 1% of the housing market is on sale at any given moment. An IPO by Airbnb, Uber, and Pinterest will create thousands of liquid millionaires who will likely try to buy a house with their proceeds. If Haseeb gets $95,000 in RSUs a year every year, and each tranche has a 4-year vesting period, by 2019 he should have at least $285,000 in liquid RSUs and $380,000 in liquid RSUs by 2020 if Airbnb goes public by then at the valuation it’s at today.
Airbnb is now public and worth over $100 billion! Therefore, all prospective buyers should buy property before Airbnb, Uber, and Pinterest go public, and all current real estate owners should just continue to hold on even though the market is fading. Besides, paying a 5% commission to sell is egregious in the Internet age.
5) Landlords should raise the rent on private tech company employees.
Given tech employees are making a very strong annual income, have no problem telling the world they make a lot, and will likely see a huge windfall in 2021+ from IPOs, landlords should absolutely raise the rent to the maximum allowed after the first year (by 10% with a 30-day notification, and by up to 60% with a 60-day notification).
By not raising the rent, landlords are leaving money on the table and exacerbating the housing crisis by creating more demand than necessary. Higher rents REDUCE demand for housing, reduces congestion, reduces pollution, reduces displacement of long term residents who do not earn as much, and increases the quality of life for everyone. Another great argument for why the rich should pay higher rent.
Take Advantage Of The Rich
Even though we have tax discrimination where higher income earners pay a higher marginal tax rate, rent price discrimination based on income or wealth is not allowed (e.g. artists shall pay $1,500, techies shall pay $3,000). Instead, you can only list one price and see if there is demand and adjust from there.
If you want to give a rent discount to a lower income earning teacher or service worker, definitely do so. I rented out a small unit to a middle school teacher for 30% – 50% below market rent for years because she only made about $36,000 and was doing important work to help kids.
It’s during the lease renewal period when you should be more aggressive in raising rents on highly compensated employees. Landlords have been very timid in raising rents on their non-rent controlled properties in the past. Because I felt bad, I only raised the rent by 2-3% a year after a couple years of no rent increase. But after reading Haseeb’s post, I don’t feel bad going up to the max 10% increase anymore.
Everything Is Rational
Again, if Haseeb wasn’t OK with paying higher rent, he wouldn’t have told the world he makes $250,000 at his age. He could have just as effectively shared his job negotiation strategies without exact numbers. But since he is a renter, and not an owner, he is a price taker and subject to variable living costs. If Airbnb didn’t want their employees to be subject to higher rents, they would have non-disclosures in their employment contracts like they do in their severance agreements.
Everything is rational. You must recognize what is irrational and maximize the situation through action. Now if Haseeb was 45 years old and had two kids and a spouse to support, that’s a different story. Everything is also relative as well!
I hope after reading this post you agree the rich should pay higher rent. As a rental property investor, you should be excited about the huge return to big city living post herd immunity. Enjoy making more money!
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This is exactly what I did to lock in a 2.375% 5/1 ARM for my latest refinance. Mortgage rates are close to all-time lows, but are finally ticking back up as the rebound happens. Refinance now before they go up further!