Double-digit rent hikes are on the way

General Landlording & Rental Properties
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Double-digit rent hikes are on the way

Jon Klaus
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes

http://www.marketwatch.com/story/double-digit-rent-hikes-are-on-the-way-2011-01-13

A perfect storm is brewing for rents to rise.

Some highlights:

"Multifamily developers broke ground on just 114,000 units in the United States in 2010, a figure so low that it wouldn’t account for all the multifamily units lost last year to the wrecking ball or natural disasters."

“I’ve never seen so much pent-up demandâ€

“Why the demand? It’s impossible to buy a home because it’s darn near impossible to get a mortgage,†Jacobson said. “And we have this huge population in the biggest renter cohort†about to hit the market."

“When we open a 100-unit project, with three- and four-bedroom units, we will have 800 applicants every single time, wherever we are building across the country,†he said. “Without more investors to provide equity and more capital financing it is going to be very difficult to meet that demand.â€

This is obviously good news for investors and landlords, but is it true in your market? Personally, I have 100% occupancy, and it doesn't tale long to lease when one comes open.

What are you seeing in your market? Have you increased your rents? Do you buy in to double digit increases coming soon?

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David Beard
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
15y

You can't effectively classify entire counties or cities as A,B,C,D. These designations apply at the neighborhood level, and sometimes block by block the closer you get to the urban core in major cities. It reflects in aggregate: location, as well as property condition, architecture, and amenities (i.e. appeal).

Small non-institutional Investors generally love to find cheap C buildings in A/B locations.

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  • Jon Klaus
    OP
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    15y

    Corroboration

    Dallas
    http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-apartment_05bus.ART0.State.Edition1.7e4c83.html

    Dallas
    http://www.bizjournals.com/dallas/print-edition/2010/10/29/as-apartment-occupancy-rates-climb.html

    Austin
    http://www.bizjournals.com/austin/news/2011/01/06/austin-apartment-rents-will-rise.html

    Memphis
    http://www.memphisdailynews.com/editorial/Article.aspx?id=55227

    National
    http://online.wsj.com/article/SB10001424052748703675904576064231553766022.html

    http://www.ibtimes.com/articles/98370/20110106/u-s-apartment-rebound-continues-in-fourth-quarter.htm#

    1Reply
  • Stefan Forsberg
    Real Estate Investor · Garland, TX · Member since 2010 · 86 posts · 34 votes
    15y

    Time to pick up some more cash-flowing units...

    0Reply
  • Steve M.
    Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes
    15y
    Originally posted by Stefan Forsberg:
    Time to pick up some more cash-flowing units...

    +1 and if you can take out commercial (or residential) loans with all time low interest rates right now, do it!!!!

    i plan to max out my 10 within the next year

    0Reply
  • Mitch Kronowit
    SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
    15y

    We raised the rent a modest amount on one unit (not double digits) and will probably raise another property next month.

    0Reply
  • Jon Klaus
    OP
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    15y

    The article is mostly referring to class A properties. I wonder how B's and
    C's will perform relative to A's?

    0Reply
  • Jon Klaus
    OP
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    15y

    More of the same:

    Dallas area expected to build on 2010's decade-high apartment demand

    http://www.dallasnews.com/sharedcontent/dws/bus/stories/011410dnbusapartmentoutlook.22bc7f.html

    0Reply
  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    15y

    We are noticing an uptick in our occupancy in our apartments for whatever it is worth.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    There is a difference between core urban centers and suburban to rural areas.

    In core markets is where recovery starts to happen first.It takes a much longer time for suburban to rural areas to recover.

    Most purchasers are not including rent increases for B or C product for the next 2 to 3 years in their cash flow analysis for purchase.

    What most apartment players I talk to are concerned about is increasing utility costs for commodities and upcoming inflation in the market.

    There are not many deals to be had in my core market but more in the suburban to rural areas.

    For class A core market product most definitely CAPS have gone lower and demand is higher.

    Developers for class A space aren't stupid.The ones I have had meetings with are in a holding pattern to time the market just right to build the ground up development.

    They are waiting for more liquidity and better terms to build and more pent up demand to lease up phases of their project faster.If they started building too much product right now it would impede their balance sheets too much as a company.

    Typical developers build 250 to 300 units at a time in my area and map out 2 to 3 sites in the area for phases 1,2,and 3 built over a 5 year horizon.

    So I wouldn't get to overexcited. Most of us are in the B and C sector and not the A and those are different assets.

    Multifamily is definitely posed to top out for acquisition over the next few years.

    Many investors feel retail has a few years to go before it hits bottom.

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  • Jon Klaus
    OP
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    15y

    Joel, I don't disagree with your analysis of B and C vs. A, but how about nicer SFRs?
    That's all I have and I have good demand each time I advertise one. And though I'm not in the core, my tenants work in the same places the core tenants work. Thanks for your insight.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    SFR's are harder to control as they are more spread out.

    Taxes and maintenance tend to be higher on a per unit basis compared to multifamily 5 units or more.

    The Dallas market is healthier than many other parts of the country.With SFR's the renter usually gets more space for the money.Also the SFR will usually appreciate at a higher clip per unit once the economy turns around versus multifamily 5 or more.

    If there is low housing supply and permits for new builds versus more demand for housing then rents will go up.

    I believe many potential tenants don't see purchasing a house as a smart move in some markets so they just want to rent and let someone else handle the upkeep.

    I would just make sure that as inflation and commodity cost rises that your SFR are not to far away from the core.

    There will be in the future a wave of more intown living to reduce waste and cost of living since wages have pretty much remained stagnant.

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  • Ben Kevan
    Investor · CA · Member since 2010 · 150 posts · 40 votes
    15y

    I'm in contract to purchase my first property in the core of dilapidated Cleveland Ohio.

    I also have a hunch that rising commodities will cause a move back into the core cities and out of sprawled suburbs. At least until the pay catches up to the upcoming inflation wave (which has hit if you don't follow the con of the CPI).

    The rent rise is very good news for landlords, and I really hope that my decision to get into Buy and Hold REI pays off in the long run (it's a long term investment for me).

    I can't wait to finish my first deal, and start planning for the second.

    0Reply
  • Sorin T
    Investor · colorado springs, CO · Member since 2009 · 283 posts · 45 votes
    15y
    Originally posted by Ben Kevan:
    I'm in contract to purchase my first property in the core of dilapidated Cleveland Ohio.

    I also have a hunch that rising commodities will cause a move back into the core cities and out of sprawled suburbs. At least until the pay catches up to the upcoming inflation wave (which has hit if you don't follow the con of the CPI).

    The rent rise is very good news for landlords, and I really hope that my decision to get into Buy and Hold REI pays off in the long run (it's a long term investment for me).

    I can't wait to finish my first deal, and start planning for the second.

    Careful what you purchase there, make sure you see it first. I used to work in that area and I wouldn't touch some of those houses for free, or even if I get payed for it. Much like Detroit's warzones. And I don't see those bouncing back soon either. Just my $0.02

    0Reply
  • Ben Kevan
    Investor · CA · Member since 2010 · 150 posts · 40 votes
    15y

    Hey Sorin,

    Thanks for the warning. I chose the west side of Cuyahoga County, near the house from "A Christmas Story".

    I do agree, that much of the area is desolate, but I don't think it's at the levels of Detroit. They have some growth coming, and have some private investors coming in do revamp downtown. I have hope, but kept my initial capital low, since it is semi speculative.

    I can't wait to be able to afford those A ranked homes :o)

    0Reply
  • Sorin T
    Investor · colorado springs, CO · Member since 2009 · 283 posts · 45 votes
    15y

    Ben,
    West side is somewhat better. East Cleveland is what rivals Detroit. As far as A ranked homes... careful what you wish for, everyone knows they don't cash flow :).
    Best of luck!

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    We have houses like that in Atlanta where you can buy real cheap but the taxes are over 3k a year that are selling for 8k based on inflated assessments of 150k 3 to 4 years ago. So the taxes are close to what you could rent them for.

    So even if free not a good investment unless you are banking on appreciation.Usually these properties have much more deferred maintenance than anticipated.

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  • Bienes Raices
    Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
    15y

    I was thinking of increasing the rent 2-3% when the tenant's lease renews. I honestly still don't know if that's too much or too little, in this environment with high unemployment.

    0Reply
  • Gene HackerPro Member
    Flipper/Rehabber · Lake Isabella, CA · Member since 2011 · 974 posts · 488 votes
    15y

    Bienes,

    What are similar units renting for?

    If your rent is less than the competition, you should attempt to raise it market.

    2Reply
  • Mitch Kronowit
    SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
    15y
    Originally posted by Bienes Raices:
    I was thinking of increasing the rent 2-3% when the tenant's lease renews. I honestly still don't know if that's too much or too little

    What Gene said. You have to look at the surrounding market and determine if your rent is on track, above or below market, and then adjust accordingly.

    Some landlords simply jack up the rent a fixed amount every lease renewal, and in a declining market, wonder why their tenants move out and none move in.

    I use a combination of:
    www.rentometer.com
    www.rentjungle.com
    and
    www.craigslist.com

    to get a handle on what I should be charging for rent. The process is practically identical to the analysis you may have done when you first acquired the property.

    3Reply
  • Jimmy C.
    Flipper/Rehabber · Seminole, FL · Member since 2010 · 859 posts · 316 votes
    15y

    A great market for landlords means a great market for me. I remember back in 2005 when landlords Here were not buying because cash flow was rare. Of course then everyone qualified for a mortgage.

    now The lower prices are setting some folks up with passive income for a long time to come.

    2Reply
  • Bienes Raices
    Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
    15y

    I think I need to go back to craigslist and see how the rents have changed over the last year...

    0Reply
  • Mitch Kronowit
    SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
    15y
    Originally posted by Bienes Raices:
    I think I need to go back to craigslist and see how the rents have changed over the last year...

    Craigslist is good for getting an overall picture of what might be renting for what, but remember those rents are "asking" prices. Check a few other web sites that I listed to see what rents are actually being received.

    It's like gathering comps based on listed prices. Yeah, that's great and kind of let's you compare the property values in one area to another, but you need to find what has actually SOLD recently and at what price to get a solid grasp of values.

    Report back here what you find. In SoCal, rents are finally on the increase after a year or two of dropping.

    0Reply
  • Gene HackerPro Member
    Flipper/Rehabber · Lake Isabella, CA · Member since 2011 · 974 posts · 488 votes
    15y

    This trend was reflected in this Decembers CPI numbers.

    0Reply
  • Jon Klaus
    OP
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    15y

    "The smart money is renting"

    I wonder what he'll say when he's hit with a 29% rent increase.

    http://www.miamiherald.com/2011/01/17/2020831/rental-market-on-upswing-in-south.html

    0Reply
  • Justin Case
    Real Estate Investor · Seattle, WA · Member since 2009 · 308 posts · 61 votes
    15y

    I been seeing rents go up more this week on craigslist postings than I would expect here around downtown Seattle.
    Kinda interesting. Home prices still have a ways to fall here and rents going up.

    I just am sure if they are getting the rents they are asking. A comp to mine is $350 more a month than I could rent mine out nine months ago. Only difference is it is brick. People here in Seattle demand curb appeal.

    0Reply
  • Ben Kevan
    Investor · CA · Member since 2010 · 150 posts · 40 votes
    15y

    Another article:

    http://www.mortgagenewsdaily.com/01312011_vacancies_and_homeownership.asp

    2Reply
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