Raising Rents

[raeoflyte]

A coworker who knows I have rentals asked me if private landlords are raising rents as much as corporate building managers.  She's been notified that her rent is going up $60 a month when the lease renews which I understand is upsetting and definitely impacts a budget.  But she wants to know *why* rents are going up so much and wants to call the news stations to find out if anyone has investigated why its happening.  

I answered that rents in the entire area are going up, and that I had read that 1 million people are supposed to be moving to our area over the next year.  I mean much beyond because the market can sustain the increased rents, I really didn't know what to tell her.  I guess she feels like there is a monopoly or a scam artificially raising rents, which probably sounds preferable to rents just going up so much that she could get priced out of the area.  

As a landlord I am amazed at how much rents have gone up and I can't imagine how people afford the rent they are paying, but I keep getting checks each month, so I'm not offering to lower the rent either.  

I'm not sure I really have a question.  I feel for my coworker.  She doesn't live extravagantly and she's already in a small 1 bedroom.  She can move farther away, but transportation costs can eat up rent savings pretty quick.  She's close to retirement (I have no idea what her situation will be for that and am not going to ask), and not looking for promotions really.  It's just a tough situation.  

[justme]

From my experience private landlords don't raise rents as often/much as companies do and they don't even try to negotiate. In the span of two lease renewals my friends apartment went from $100 less than mine to a bit over mine while mine stayed the same. A previous landlord kept it the same for 3 years as well - in fact when we were signing the second (or was it third) he asked us about comparable rents and that if he was charging too much he'd lower rent since he wanted to keep us as tenants. He also was giving us every Dec rent free if we paid on time the rest of the year. God, I loved that landlord - I have friends that are still living there, haven't asked if rent went up.

[raeoflyte]

I did tell her something similar, but her price range would be pretty tough to find for a private landlord I would think, although I don't know what's available on this side of town.  My parents goal was always to keep the rents at 90% of market value to keep long term tenants.  But what would end up happening is they would get busy with life and their jobs, as long as they had a not problem tenant in, they wouldn't raise the rent and eventually they'd realize there were a few hundred below market value and have to start raising rents pretty aggressively.  Never a fun time, but the tenants couldn't deny they had gotten a good deal for quite a while.  

[Tiny]

You may want to remind her about things she's paying for via her rent: Property taxes for instance which may have gone up. If she's paying for any utilities (heat? trash? cable?) perhaps that's contributing to the increase as well - since those cost may have gone up for the landlord.

I'm getting what I feel is an astonishing amount in rent for my Florida condo - but that has a property manager tending it.

I do feel her pain.

Judging from the comments about the "all the money" I must be getting each month "that I could be spending on some pricey "want" items" --- cause who wouldn't want an extra 1K or more a month in income!! when someone finds out I have two rental properties - I suspect renters (and people who don't own properties) don't really realize that the rent paid isn't lining someone's pockets with disposable income.

[The Walk of the Penguin Mich]

After someone who has paid rent for over 30 years, I have never had a $60 increase.  What percentage of her rent is this?  Can she negotiate?


If she's paying for any utilities (heat? trash? cable?) perhaps that's contributing to the increase as well - since those cost may have gone up for the landlord.

Once upon a time, landlords covered trash removal and water, never electric/heat or cable.  However, I've paid these, along with cable, electric bill (which includes heat), water and trash for the last 10+ years in big complexes.

The water bill pissed me off the most, because I was paying more for water (1 person living there and gone most of the day) than my boss was paying for his 4BR/3BA house with 5 people living there.  I also know that the complex got discounted corporate rates, as they were listed in the newspaper, so there was no doubt in my mind that the complex had padded their rent with the water bill.  

When I got sick, and didn't live there for 18 months, I STILL had to pay the water and trash bill - despite the fact that no one was living there.  My electric bill and cable were minimal, but I couldn't get them to drop my water and trash.

[souldoubt]

I think it depends on the area because where I'm at rents were jumping quite a bit for a while and $60 really isn't much but that's due to living in a HCOL area.  A friend of mine lived in one of the 'luxury' apartments a few years ago.  When his lease was up if he went month to month it jumped ~30% and if he opted to renew for a year they were still raising it ~15%.  I lived for a while in an area where a lot of elderly people had lived for 30+ years and the rents were going up every 12 months.  It was a prime real estate area and they could get away with it because of rising rents but that wasn't going over well with elderly people on fixed incomes.  In my experience individuals raised the rents less when they did raise it and they were less likely to raise the rent at all than a corporation or management company.  The management company we rented through didn't raise the rent in the 4+ years we were there but we moved in about 8 months before the housing bubble completely popped in one of the hardest hit RE markets in the country.  

[Mardi Gras Audrey]

Sept 16, 2014 11:53:27 GMT -5 raeoflyte said:

I did tell her something similar, but her price range would be pretty tough to find for a private landlord I would think, although I don't know what's available on this side of town.  My parents goal was always to keep the rents at 90% of market value to keep long term tenants.  But what would end up happening is they would get busy with life and their jobs, as long as they had a not problem tenant in, they wouldn't raise the rent and eventually they'd realize there were a few hundred below market value and have to start raising rents pretty aggressively.  Never a fun time, but the tenants couldn't deny they had gotten a good deal for quite a while.  

The bad thing is that people never appreciate the deal they got.  They usually get pissed that the "deal" is over and think it should go on forever.  Once you gave it to them, they think it is theirs forever and they are entitled to it, as opposed to getting it because you made a mistake/were busy/were being nice/etc.

[The Walk of the Penguin Mich]

Sept 16, 2014 12:44:47 GMT -5 Mardi Gras Audrey said:

Sept 16, 2014 11:53:27 GMT -5 raeoflyte said:

I did tell her something similar, but her price range would be pretty tough to find for a private landlord I would think, although I don't know what's available on this side of town.  My parents goal was always to keep the rents at 90% of market value to keep long term tenants.  But what would end up happening is they would get busy with life and their jobs, as long as they had a not problem tenant in, they wouldn't raise the rent and eventually they'd realize there were a few hundred below market value and have to start raising rents pretty aggressively.  Never a fun time, but the tenants couldn't deny they had gotten a good deal for quite a while.  

The bad thing is that people never appreciate the deal they got.  They usually get pissed that the "deal" is over and think it should go on forever.  Once you gave it to them, they think it is theirs forever and they are entitled to it, as opposed to getting it because you made a mistake/were busy/were being nice/etc.

That's what you think.  I paid about 10% less than market rent for the 13 years I lived in my last complex and appreciated it.  However, I am sure that my slightly less than market rent compensated for the fact that I paid on time every month for every year I lived there.  The other side of the coin was the unit across the hall from me that was turned over every 6-12 months, including 2 evictions.  I know that one tenant trashed the place so bad that they even had to pull out the kitchen cabinets.

I know that each year, that unit was not rented at least 1-2 months, which cost the complex way more than my 10% discount.

[cktc]

In my area corporations do raise rents more. I avoid places that offer specials because you can count on a big jump after the first year. They also tend to be terribly managed. 

Of course I've never rented a place for more than 2 years. Mobility is a perk of renting, and I'm always more than happy to take my money elsewhere.

[Mardi Gras Audrey]

Sept 16, 2014 13:12:01 GMT -5 The Walk of the Penguin Mich said:

Sept 16, 2014 12:44:47 GMT -5 Mardi Gras Audrey said:

The bad thing is that people never appreciate the deal they got.  They usually get pissed that the "deal" is over and think it should go on forever.  Once you gave it to them, they think it is theirs forever and they are entitled to it, as opposed to getting it because you made a mistake/were busy/were being nice/etc.

That's what you think.  I paid about 10% less than market rent for the 13 years I lived in my last complex and appreciated it.  However, I am sure that my slightly less than market rent compensated for the fact that I paid on time every month for every year I lived there.  The other side of the coin was the unit across the hall from me that was turned over every 6-12 months, including 2 evictions.  I know that one tenant trashed the place so bad that they even had to pull out the kitchen cabinets.

I know that each year, that unit was not rented at least 1-2 months, which cost the complex way more than my 10% discount.

Mic, maybe I shouldn't have said "people never appreciate" but most people don't.  You and the other folks here are not a common subset of people (at least not of the ones I've seen).  Most of the people I've had experience with think once they get something once, they are entitled to it at that price for all time. 

Look at the OP's example.  The lady thinks it is some great conspiracy that rents are going up, despite a change in market conditions that would support those changes.  She is ready to call for an "investigation" and is outraged. It's ridiculous. 

[Bonny]

I tend to agree with Mardi Gras Audrey that people don't appreciate the bargain they have.

As you all know I had a tenant in the SF Bay Area house for 9 years. Original rent was $2500. At the end of year 2 I raised the rent by $100 or less than 2% per year. At year 4 I was going to raise the rent again but she had breast cancer so I didn't. The following year I raised it by $100. Therefore at the end of the nine year term they were paying $2700 and FMV would have been around $3,500. Keep in mind that although it is a 50 year old house it wasn't a beater rental. It was in excellent shape including brand new Berber carpet and new paint through out.

You know the end of the story. Tenants get themselves into financial trouble and can't pay the rent. I have to start eviction proceedings; I even offered to lend them the money to go rent a smaller home but instead they skip out on two months of rent and go rent another place for nearly $4000/mth. I'm left with a shell of what I handed them. There were nearly 2000 holes in the walls, nearly all the interior doors, the front door and the garage door all need to be replaced due to their damage. And the husband had the audacity of telling my neighbor that when I turned the property over to them that it wasn't clean.

The take away for me for this type of property (higher end home) is that I don't want to rent to someone for more than 3-5 years. Frankly they don't take good care of the home (some don't know how and some just don't care) and it's going to need some sprucing up about that time anyway. I'm also likely to catch problems before they get out of hand. At that point I can bring the rent back up to market (like I did with a $400 increase for my San Diego County home this summer) to recapture my investment.

[The Walk of the Penguin Mich]

Mic, maybe I shouldn't have said "people never appreciate" but most people don't. You and the other folks here are not a common subset of people (at least not of the ones I've seen). Most of the people I've had experience with think once they get something once, they are entitled to it at that price for all time.

Look at the OP's example. The lady thinks it is some great conspiracy that rents are going up, despite a change in market conditions that would support those changes. She is ready to call for an "investigation" and is outraged. It's ridiculous.

Look at it from the other side of the coin.  A small, 1 BR apartment would rent for around $550-600 in Lexington, which is a MCOL area.  A $60 increase is 10%.  I have NEVER had such a large increase in my rent, most times they have been in the 3-5% range.  From what I understand, this is standard.

If all of a sudden I was getting 10% increases in rent, I would start to wonder why as well.

[Phoenix84]

I rent, and there has been a pretty significant increase in rent where I live. I moved here three years ago, and rent was a little over $1000, and that included a $40 a month garage. Now rent is a little over $1100 a month and I dropped the garage to save the $40 a month (I hardly used it anyway).

It is a pretty crazy increase, maybe 10% in three years. That's well above the rate of inflation.

I don't get really "upset" over it.  I can afford an additional $100 a month hit easily enough.  I make a decent income for the area and have always lived below my means.  But I can see how for many that would be an issue.

I figured it was market factors. Supply and demand and all that.  Corporations and private landlords will charge what people will pay.  I don't think there is a conspiracy or anything.

[TheOtherMe]

When I rented in the Denver, CO area, my rent went up every year.  It was less of an increase if I extended it for 18 months, so that is what I did.  This would have have been back about 2005-6 or so.  The worst part was that it included heat and water.  I received a bill for electricity, phone & cable.  In the winter, there would be tenants with the patio doors wide open.  I was one person in a 1 bedroom apartment so I know I used less water than all the people in a 3 bedroom apartment above me.  

I moved at the end of the lease to be closer to my job.  Another corporate rental.  Water was part of the rent but not heat.  At the year mark, big increase in rent, but less if you extended for 18 months.  This time it turned out to be a mistake as after about 12 months, I needed to move.  If you found your own tenant to take over the lease (not sublet), you were done.  I put it on Craig's List and had a ton of responses.  People that got it even extended the lease another year.  

[Mardi Gras Audrey]

Sept 16, 2014 16:08:50 GMT -5 The Walk of the Penguin Mich said:

Mic, maybe I shouldn't have said "people never appreciate" but most people don't. You and the other folks here are not a common subset of people (at least not of the ones I've seen). Most of the people I've had experience with think once they get something once, they are entitled to it at that price for all time.

Look at the OP's example. The lady thinks it is some great conspiracy that rents are going up, despite a change in market conditions that would support those changes. She is ready to call for an "investigation" and is outraged. It's ridiculous.

Look at it from the other side of the coin.  A small, 1 BR apartment would rent for around $550-600 in Lexington, which is a MCOL area.  A $60 increase is 10%.  I have NEVER had such a large increase in my rent, most times they have been in the 3-5% range.  From what I understand, this is standard.

If all of a sudden I was getting 10% increases in rent, I would start to wonder why as well.

The OP lives in a HCOLA though (I believe).  I understand that 10% per year would be outrageous but $60 isn't 10% in most places.  When I ived in the Boston area, my rent was $1300+ on a 1 bedroom in 2003.  $60 would have been 5% then.  Nowadays, the base rent is even higher, making $60 even less than 5%.   The question is for landlords, should you increase the rent a little every year or do you not raise the rent for a few years and then try to recapture the loss by raising it a lot once?  Either way, the landlord ends up looking like the "bad guy" (either he is the meanie who "raises rents every year" or the one that "raised my rent by 10%" (not accounting for the 3 years before when there was no rent increase)).  They can't win. 

[Mardi Gras Audrey]

Sept 16, 2014 16:51:54 GMT -5 Phoenix84 said:

I rent, and there has been a pretty significant increase in rent where I live. I moved here three years ago, and rent was a little over $1000, and that included a $40 a month garage. Now rent is a little over $1100 a month and I dropped the garage to save the $40 a month (I hardly used it anyway).

It is a pretty crazy increase, maybe 10% in three years. That's well above the rate of inflation.

I don't get really "upset" over it.  I can afford an additional $100 a month hit easily enough.  I make a decent income for the area and have always lived below my means.  But I can see how for many that would be an issue.

I figured it was market factors. Supply and demand and all that.  Corporations and private landlords will charge what people will pay.  I don't think there is a conspiracy or anything.

Actually, it isn't that much above inflation.  10% over 3 years = ~3.33% per year.  Isn't the rule of thumb that inflation is generally 3%?  So in that time, the property taxes and utilities probably went up, the people working for your rental company probably got wage increases, etc. Those are all costs that go into pricing rentals.

[Bonny]

Sept 16, 2014 19:14:31 GMT -5 Mardi Gras Audrey said:

Sept 16, 2014 16:51:54 GMT -5 Phoenix84 said:

I rent, and there has been a pretty significant increase in rent where I live. I moved here three years ago, and rent was a little over $1000, and that included a $40 a month garage. Now rent is a little over $1100 a month and I dropped the garage to save the $40 a month (I hardly used it anyway).

It is a pretty crazy increase, maybe 10% in three years. That's well above the rate of inflation.

I don't get really "upset" over it.  I can afford an additional $100 a month hit easily enough.  I make a decent income for the area and have always lived below my means.  But I can see how for many that would be an issue.

I figured it was market factors. Supply and demand and all that.  Corporations and private landlords will charge what people will pay.  I don't think there is a conspiracy or anything.

Actually, it isn't that much above inflation.  10% over 3 years = ~3.33% per year.  Isn't the rule of thumb that inflation is generally 3%?  So in that time, the property taxes and utilities probably went up, the people working for your rental company probably got wage increases, etc. Those are all costs that go into pricing rentals.

The costs correlate but don't necessarily track especially for SFHs.

In the Phoenix area we saw about a 15% decrease in rents in 2009 when investors started snapping up foreclosures and then flooding the market with rentals. 5 years later we are now back at 2007-2008 rental prices.

When we left for Germany we had about a $300/mth negative cash flow before repairs. And that was with 40% equity. 

My 16% increase in rent for my San Diego property is the first time since 2007 I've been able to increase the rent. That's only a 2.3% average annual increase over 7 years. We've been about break-even cash flow before repairs.

Fortunately we refinanced last year to lower rates and I've been successful with property tax challenges so we should FINALLY break-even with the repairs. And the prices have rebounded back to their 2005-2006 levels.

If we hadn't planned on moving  into these properties again/at some point it would make no sense to be a LL.

[Anne_in_VA]

DH and I rented a house for almost 6 years and our LL never increased our rent in all that time. We fully expected that she would, but she didn't. We were paying slightly above market value when we first rented the house and by the time we left it was a little below market value, so we were OK with it.

[zibazinski]

It costs money to lose a tenant. It takes time at increased rent to make that up. I'm not raising my rents because I'm booting the one tenant in march so they will be out in may so I can get it sold over the summer. The next year I'm doing the same to the next door neighbor. But if I were keeping them, I'd raise them both. My taxes and insurance most assuredly go up every year.

[DagnyT]

We have two rentals. We usually raise the rent between tenants, if the comps show that we should. It really depends on the market and how long someone has stayed. If they have been there two years and are leaving, the rent is usually raised for the new tenants. I have only raised the rent for a current tenant two times in the 14 years we have had the rentals. Each time the tenant had been there five years. The first time I raised it $25 a month and the second time, it was $30.  Rents in our rural county have not seen great rate increases in the last ten years. Homes that rented for $600 a month ten years ago, now go for $675 to $700, so no more than a $100 per month increase in ten years. Insurance and taxes have increased about $450 to $500 a year, so that has eaten up a good portion of the increased rental amounts.

[NastyWoman]

Holy canolli Dagny. We paid that much in this area 30 years ago! The house may have been nicer than you rentals, but still...

[justme]

If you're going to raise it, I'd do it slowly. If it was a 2-3% raise odds are I'd shrug, maybe grumble at bit, but resign. But if it's a big raise - especially enough to get it to market rate - the first thing I'd be doing is looking to see if I can get a better place for the same price or not much more.

Like with my current place, if he had raised it to market rate (which isn't more than $100 more than what I'm paying, prob less) at any of the years I would have said see ya and moved literally down the hall to an apartment that had a balcony overlooking the pool that was farther removed from the construction that's right outside my window that has been going on for 3 years. 

[DagnyT]

Sept 17, 2014 1:09:59 GMT -5 NastyWoman said:

Holy canolli Dagny. We paid that much in this area 30 years ago! The house may have been nicer than you rentals, but still...

We are in northwestern North Carolina in a LCOL area. This rental is actually a doublewide (just under 1200 square feet) that rents like the small 950 square feet homes that are twenty years older. It was our home before we built our new one. It is actually quite nice. I showed a picture of it to a co-worker last year after we had the roof replaced. She was amazed that it was so nice. I looked at her and said, "I told you that I'm not a slumlord!" (in a jovial way).