Over the years I have spoken with so many people who own rentals, and so many people who rent homes, and the possibility of rent increases is always on both sets minds, for several reasons. So, let’s look into this topic, one that ought to be fairly straightforward, but for whatever reason is not.
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Don’t Fix Anything – I’m Afraid of Rent Increases
Well, I have some bad news for you, regardless of whether things are repaired or not, your rent is probably going to go up no matter. If the owner likes to eat and pay their bills, such as the property mortgage, or if there is a good property management company working for the owner, rental rates and subsequent rent increases will be governed more by market forces than any other single thing.
There is No Grand Design
Owners and property managers do not sit around and plot, “Oh, let’s get some more money out of this guy because we can and we are greedy.” It does not work like that. Most enjoy having a good resident who pays on time and does not have a gazillion maintenance requests but often the over-riding factor is supply and demand. 10,000 people, 9,000 units, the price goes up.
What is at play in the background is the fact the housing is a finite commodity, and when the demand is higher than the supply, rates rise.
Not fixing things simply means that you’re paying more rent AND have items that do not work.
Here is an example from another post I wrote:
“Insurance case a few years back, exterior only, Banning, <1000 square foot rental house, near a rural area, the house is approximately 55 years old.
The resident tells me he has lived at the house for about 15 years. The owner is VERY absentee, so much so that the occupant NEVER calls the owner for anything. In fact, he hasn’t seen the owner for nearly 10 years.
The occupant is on public assistance. He cannot afford his rent to go up, so “that wall that fell apart inside due to water damage, why, I rebuilt it myself, at my own cost. Added another wall too, made a bedroom into two bedrooms while I was at it. And the fence, well shoot, I’ve replaced that 3 times in 5 years. I may be cheap (spit, ding) but I ain’t no carpenter.”
This is a case of owner mismanagement, plain and simple, and it is more widespread than you may guess.
Sometimes Repairs DO prompt Rent Increases
Go right ahead, make a silly request, repeatedly, to a property owner or property management company, I double dog dare ya.
Example:
Renter: “I don’t like the color of the ceilings, white is so…yesterday. I want them painted orange, or I’m going to move.”
Owner: Okay, see ya.
Renter: Doesn’t move.
Next month, repeat the pattern.
Tell me, what do you think will happen?
The owner will evaluate the comparables for the given area, house size, and amenities, if they are savvy, or have a good property management company. And guess which side of the spread they will be inclined to price the property at? The high end.
Let me explain Comparables, aka Comps.
Comps, like in real estate sales, are used to determine the relative value of a property, for sale or rent. Done right, comps will clearly reveal, in hard numbers, what a property ought to be priced at, whether for sale or rent. Rent increases are determined with this and extraneous, and sometimes intuitive, information. I’ll explain that later.
If there are 3 identical houses in a mile or so, same lot size, house size, number of bedrooms and bathrooms, and they range from $1500 a month to $1700 a month, and you are paying $1400 a month, the $1500 to $1700 spread will be the basis of the decision on a possible rent increase. It’s just numbers, and not running the comps and being compensated accordingly is a poor idea.
You see, gas goes up in price, groceries go up, insurance goes up, name it, money devaluates and prices rise, property taxes rise yearly. Why should an owner lose money on a property they pay for? They only want what’s right, a fair market value.
Intuitive information explained. House is next to a school. School is out for summer, and summer is prime moving time. The upper range of the comparables may be more appealing to the owner at this time, as they are perhaps more likely to get their price than they would in the middle of the school year.
Upkeep and Curb Appeal Also Matters
This may seem counterintuitive to some folks, and I mean that from the point of view of someone who has inspected literally thousands of homes over the years, rented and owner occupied.
If the exterior of a house is not kept up, meaning the structure and the landscaping, there is a much higher likelihood that the interior is being abused, damaged.
“Oh, come on, Mr.-Smarty-Pants-Inspector-Guy-Who-Writes-Stuff, you cannot know that.”
Actually, yes, I can, I have seen the correlation so many times, not always, mind you, but maybe greater than 85% of the time it rings true. The yard is trashed, the house is trashed. There are exceptions, but very few, and this includes rental, and owner-occupied properties.
So, when an owner drives past and the yard is dead, and shrubs are overgrown, do you think the owner is going to default to the high or low comps? Oh, I’m sorry, the answer we were looking for is high. High.
The Owner’s Expenses Didn’t Go Up THAT Much…
…so my rent should not go up?
Well, okay, maybe, maybe not. I know my property taxes rise every year. My monthly payment rises. I know my property insurance goes up yearly, so…. Yeah, just as an owner has no idea of a renter’s personal travails, a renter cannot know an owner’s either. No matter, as I said before, it’s the market.
If It Needs Fixing, Call It In
Your water heater is leaking. Do you just let it go, or do you call it into the property management company, or owner, to repair? The latter. Why? What’s worse than an expense for a water heater replacement? An expense for repair of extensive water damage AND a water heater.
“But my rent will go up!”
Not likely. If an owner does not realize that expenses come part and parcel with owning a property, then I got news for them. It does. Some things are unavoidable. However, if a renter has a habit of throwing things through windows, that renter will be buying some windows or is probably going to see a large rental increase in the future.
Wrapping it all up
Rental increases are on the minds of both homeowners and residents alike. At the end of the day, both sides know a rental increase is more than likely coming down the pipe, but finding the balance between what the owner wants in rent, what the comps are showing, and what residents can afford is a delicate process. A process that Management One has worked hard at perfecting over the last 30 years.
We don’t take a “haphazard” approach to rental increases, going with whatever, the owner wants, or going on our “gut”. We run new rental comps for every lease renewal to verify what the true rent rates are. We take all the items mentioned into consideration as well before we make our recommendation to the owners of the property.
So they next time you are looking for a home to rent, consider using Management One!
