Inflation and rent raise
Hello,
I was wondering how other investors are dealing with the inflation in terms of passing it on to their new leases? With an 11% of rental inflation rate in California, I feel it's too much to pass it on to my tenants (the maximum allowed is 10% anyway). On the other hand, I do get the effects of it... How are others dealing with it?
Does anyone know of a reliable source of rental inflation rate per city or county?
Thanks.
You're running a business...not subsidizing the housing market. The best way to price your properties that reflect the actual value is to the market - not to inflation. So if you're tenants were to move out at lease end, what would the market rent be for a comparable property in your market? By letting the market set the price, you avoid grand debates, Fair Housing threats, and more. Again, you're running a business so let the market - based on supply and demand - set your rent. Hope this helps...
Invest near military bases, the government raised "Basic Allowance for Housing, BAH" by 30% near a subdivision where I plan to build duplexes in Mountain Home, ID.
I agree with @Patricia Steiner above. You are in the business to make money, not to keep the housing market affordable- because let's say you sell the property in a year, the new owner may raise rents to market rent right off the bat, wiping away any work you did to keep their rents at a lower price.
Look at local rents in the area for a comparable unit & keep them in that range. I know my water & sewer bills are about double from last year, so you will be the one getting hurt in the end if you don't keep your rents up to market price.
I am raising rent at the start of next year. My rents are currently two hundred under the other duplexes on the street. A few are three hundred more. Most of my tenants are elderly and on a fixed income. That said, due to a tornado that hit the street last December, I had claims on 4 of my six duplexes. This has caused my insurance to rise by 20%. I expect to see a rise in property taxes as well.
I will be raising the rent 8%. I am also adding the garbage pick-up to the rent. I have two tenants who cancelled their trash pick-up and have been dumping their trash in other tenant's cans. After a discussion, it came to light that several were sharing the trash bins. I will solve the issue by including the trash fees into the rent.
I would raise rents according to where the market is trending. You want to retain great tenants but also can't fall behind the 8 ball. Every 12 months(based on a 1 year lease) you should adjust the rent if needed. As others said it's a business and needs to be treated as such.
Nothing has changed. I keep rentals at market rate, or very close to it. If rent rates increase 10% in one year, I'm trying to keep my existing renters close to that at renewal so they're never more than 10% below current market rates. When I have a turnover, I make sure the new rent rate is maximized.
Just wanted to echo the points made above, raising rents to the market is the only way to go. By not doing so you are not running your business effectively and anyone you end up selling to will end up raising them anyway. You aren't doing anything wrong by keeping up with the market, best of luck!
@Maria G. The topic of ethics is not discussed too much in the RE world. RE investing is business and the mantra "it's business" is generally applied. There are people who believe it is unethical to be paying someone else's mortgage when they are paying rent. I own a few properties, but am currently renting, paying the owner's mortgage just like my tenants pay my mortgage. There could be a better system for all of this to decrease the gap between the haves and the have nots but I don't think our current system of capitalism is going away anytime soon. That leaves it up to the individual to decide what they are morally and ethically ok with and what they are not ok with. Just because the ridiculous boom in rents is simply termed "market rent" doesn't mean that everything is hunky dory and that's just the way it is. In real estate we who own rentals are the ones in the position of power and people are struggling with current rents. Personally, I split the difference. One of my properties is in an area where home values and market rents have gone through the roof, but I wouldn't feel good about maximizing rents. I've kept rents a few hundred dollars lower than they could be. As a result my tenants are very happy, they take great care of the property, things flow easier, I worry less, and I still get enough money out of the whole thing. And I feel better for not gouging them. So, it's whatever you find to be the right thing.
@Manco Snead That is exactly what I ended up doing. I raised the rent by 5.3% and in my note sent an explanation about inflation affecting us all and me willing to absorb half of it "this time" but needing to pass on the other half to them. And your rationale is exactly right: they are very happy and eager to take better care of the property.