Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
For even the most unsophisticated landlord it is simple logic. They got their new tax appraisal and saw the new valuation. If you own a $100,000 property and have been getting a $1000/month rent; what can you get for a $450,000 property?
Then consider the extra taxes and insurance premiums based on the new valuation. That makes you look around and see what new rental units are going for and how much everyone else is jumping rents. You are not going to be the only idiot losing money, so you bump yours up as much as you think you can get away with and soon your high price is in the middle range. The cycle continues next year.
There comes a point where your money is better invested elsewhere if the rental is no longer making you much, if any return. I pretty much have one that matches the scenario you described. When I bought it it netted me about a 10% return on my equity. Here it is 10 years later, taxes/insurance and all other costs have increased significantly and my equity is now 450k. Although the rent has been raised from the starting rent of $1350 to $1785 I’m now earning only 3% on my equity.
Rent will increase to $2000 next year although market rent is $2200-$2400. If I don’t increase the rent, I might as well put my equity to work elsewhere where there is less hassle and responsibility.
Yeah, I see that. A landlord needs to resist the temptation to keep the rent low and below the market rate for the sake of the tenants.
That is called a charity, not a business. I don’t recommend it anyway.
This was mentioned briefly on a lengthy Graham Stephan with Dave Ramsey. One of the problems with keeping the rent low in order to reduce turnaround is that the tenants start to feel entitled, as though they own the property instead of you.
No,the tenants feel they can get this rate forever and plan how to spend more somewhere else.
When I was in NYC,the building which is rent stablised,went Co-OP,many old timers were paying $550 for a junior 4 apt with 3 shift doorman and a balcony,they refuse to buy their unit as maintenance fee alone will cost $465.
They were offered an insider price of $45K .
Most refused.
This was mentioned briefly on a lengthy Graham Stephan with Dave Ramsey. One of the problems with keeping the rent low in order to reduce turnaround is that the tenants start to feel entitled, as though they own the property instead of you.
Once a year before the lease term expires, a landlord needs to contact local realtors to be informed about the rent in their market. Or they need to talk with their PM.
It makes no sense to be clueless about such things.
Supply and demand has a lot to do with it. Too many people competing for not enough housing.
The Covid rent moratoriums did a lot to decrease the supply of housing. I know landlords all over the country that put their property on the market and sold it as soon as they could finally get their non-paying tenants out. Many of them that didn't sell converted their housing to vacation rentals. The supply of rentals was already tight and that did a big reduction in the available supply of rental housing.
They didn't enjoy the experience of supporting people they barely know and aren't friends or relatives to, while they still had to pay all the costs of maintaining the rentals out of their own pocket. They don't want to have to do it again, so they converted their rental housing into something that no longer takes residential tenants.
Also on the supply and demand side, admitting 250,000 new low income residents into this country every month really has to have some effect on the demand for housing. Those people are living somewhere and they are taking up a lot of rental spaces.
We've seen this movie before - in a period after war and pandemic.
I studied a useless subject, history, but there are lessons there. Not much talked about of the "Roaring Twenties" was significant inflation that occured in the aftermath of WWI, which included a housing price boom. Florida was a center of housing speculation in the U.S.
Inflation typically follows war because of printing money to pay for it combined with constraining and limiting the economy. Then diverting resources from the broader market to an unproductive activity where the resources just get destroyed. We didn't have a war but we basically did a wartime type economy in response to covid, complete with lockdowns, kind of like blackouts.
We reacted to covid with the closest thing to a controlled war economy since... well the world wars. And then immediately after it we have first major European war in 70 years.
And here we are. Not coincidentally, we had housing affordability crises after both WWI and WWII. If hostory is any guide we WILL have a recession. Similar to post WWI we are mightily trying to avoid it but that's probably not possible. We had 3 in the 10-11 years following WWI, with one being the Great Depression, and 3 in the 10 years following WWII and the Korean War.
Interestingly the recession of 1953 was induced by the Fed to control inflation.
While inflation takes its toll, it is important to understand that inflation is a change in the GENERAL price level - an increase in the price of all goods and services. The escalation in rental rates and housing prices is in part due to inflation, but much much more so due to the other factors listed which cause an increase in the RELATIVE price of rental rates and housing prices compared to other goods and services.
As an historian, you may enjoy reading the seminal A Monetary History of the United States, 1867-1960 by Milton Friedman & Anna Schwartz. https://www.amazon.com/Monetary-Hist...548/ref=sr_1_1 , which was not a small part of Friedman's being awarded the Nobel Prize.
All this Plus these things push the rental market up too:
-Increased real estate speculation from foreigners as well as corporate entities ...
Quote:
Originally Posted by OhioJB
Some of the increase is for the reasons others have mentioned but most of the increase can be attributed to investment companies increasing the number of properties they are buying which puts buying pressure on prices.
I'm on the fence with that. Are foreign speculators and domestic investment companies willing to accept a lower ROI? By bidding up the purchase price of rental housing, they necessarily accept a lower future ROI.
OR, perhaps, the new higher prices as a result of foreign and domestic corporate purchases really are the market clearing rate.
Last edited by moguldreamer; 09-05-2022 at 10:27 AM..
It's called greed. The property management companies are pulling in record profits and raising rents at will with no repercussions given no regulations or oversight is in place in most cities/states.
Hmmm. Doesn't look like it.
Let's take, as an example, Invitation Homes:
Quote:
Invitation Homes Inc. is a real estate investment trust (REIT) that conducts its operations through Invitation Homes Operating Partnership LP (INVH LP). The Company operates by acquiring, renovating, leasing, and operating single-family homes as rental properties segment. The Company owns and operates single-family homes for lease, offering residents homes across America. The Company has built a vertically integrated operating platform that allows to acquire, renovate, lease, maintain and manage its homes. The Company's business activity includes property operations, marketing and leasing, digital marketing initiatives and branding, resident relations and property maintenance, and investment and asset management. It has approximately 80,000 homes for lease in over 16 markets across the United States. The Company, through THR Property Management L.P, provides all management and other administrative services with respect to the properties it owns.
So no, they are not pulling in record profits.
Don't forget that the major shareholders of INVH and other such real estate investment companies are - surprise - public sector pension plans for unionized retirees, public sector pension plans for non-union employees, private sector pension plans, individual investors' 401K pension plans & IRAs and people investing to pay for college for their children and for their own golden years.
Those people rely upon INVH to make a profit to keep pension checks flowing.
In my area, there is a flood of people moving in and that makes for a housing shortage. There isn't enough housing for all the new people.
Actually, it does NOT make for a housing shortage. It makes for a people surplus. The "problem", to the extent it is a problem, can be solved simply by having the surplus move somewhere else.
Last edited by moguldreamer; 09-05-2022 at 10:28 AM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
