Massive rental price surge, western PA

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Massive rental price surge, western PA

Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes

Following @Steve K.'s recent post on rising rents in his greater area, I took a look at what's going on in my small, urban target area. I'm looking at a clear 25% rise in newly posted rental properties per-square-foot costs in C-class SFR in just the last two months. Not desirable A, B-class, good old-fayshioned low-C-class SFR.

The bus to Crazytown seems pretty crowded when I watch it pass these days. Lots of smug idiots insisting, "There's just no end to this market!" Last time I saw this I was in Greece in 2007, learning the flip game in an environment so out of whack that after the bottom fell out of the giant Ponzi scheme that the country had become, the Greeks were forced to admit the situation would take generations to fix.

I'm not going to cry doom and gloom. I don't see half the same tragic recklessness here as I did in the Hellenic Republic, as it aimed straight for the abyss. But at some point, the music is going to stop and we're all going to scramble for chairs that aren't there. This is the law of asset bubbles from at least 1637 and the Tulip Mania till now. I'll stay the course and keep my eyes on the chairs that ARE there, the ones that are ALWAYS there for the DIY handyman investor: hold on to solid properties, find solid tenants, offer solid pricing and solid maintenance. But this rental price surge is just damned strange. Is it hitting your area?

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y

I had a 32% rent increase filling my rental in Vegas July 1st. (Vacant June 16th at $1395, new tenant moved in July 1st at $1850.). I had raised the rent 8% 2 years ago when they renewed after 2 years. So somewhere between 32% in 2 years and 40% in 4 years. 

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y

    Rents in my market have risen incredible.  Some local markets approaching 25% in the last ~10 months.  here are some thoughts/comments about it:

    • 2020 had flattish rents in my market for the first time in a decade.  Take the 25% spread across two years and it may still be crazy, but not as crazy.
    • We have the worse COVID eviction regulations in the country (no exaggeration).  This implies that there is multiple newly identified risks.  The politicians did not understand the ramification of their eviction regulations.  The consequences are the increased risks are passed to the tenants in the form of increased rent payments.
    • Supply has been small for years, but the temptation to take rental properties off the market has never been higher.  Between the ~25% property appreciation of the last year with associated temptation to sell and the eviction regulations.  If I had a tenant move out tomorrow, I would not be looking to fill the unit until the current eviction regulation expires.  I would let 20 units sit empty if necessary.
    • A property that costs ~25% more than a year ago is likely to have a massive rent increase.  There is a correlation between property values and the rent necessary to rent the property.
    • We recently sent out our highest rent increase ever ($600/month increase).  We did not hear a complaint or anything (at least not yet).  They cannot find a comparable place for less (even with this increase they are below the current rent market.  This will be the highest increase that we are expecting to send out (2nd highest will likely be $400/month).  I was expecting to hear something about that type of increase (and may still hear about it as it has about 1.25 months until it starts).

    As is often the case, there is a reason the rent in my market has increased so significantly.  The rents have not gone up without reason.  Tenants either pay the higher rent, downsize, try to purchase a property that has gone up on average ~$200K in the last year, or move somewhere else.

    Both the purchase and rent RE market is crazy in my area.

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  • Jim K.
    OP
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Linda S.:

    @Jim K.,

    Rental rates where we invest in Petersburg have skyrocketed!   I'd say rental prices have gone up about $200-300.   A 2bd used to go for $700-800, now they are going for $1095.  Flippers are coming in, renovating vacant homes (YAY!) , and investors are grabbing them and trying to get the max rental income.     I see it all the time.  

    It's absolutely crazy-- and on top of this, like 2500 Afghan families are being housed by Fort Lee, so it's about to get crazier!    I really feel bad for anyone trying to rent now, it's insanely competitive, and I can't see prices going down anytime soon.

    Sounds like the Wild West down there. Good luck hanging on, Linda. Thanks.

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    5y

    Everyone is loaded.  Hot economy, jobs, all types of loan forbearance, stimulus checks, child tax care credits, raging stock market, rock bottom interest rates, quantitative easing, extra unemployment benefits, home value increases, highest savings rates in history, the list goes on.  Adding value in this market is hugely profitable.

    1Reply
  • Jim K.
    OP
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Dan H.:

    Rents in my market have risen incredible.  Some local markets approaching 25% in the last ~10 months.  here are some thoughts/comments about it:

    • 2020 had flattish rents in my market for the first time in a decade.  Take the 25% spread across two years and it may still be crazy, but not as crazy.
    • We have the worse COVID eviction regulations in the country (no exaggeration).  This implies that there is multiple newly identified risks.  The politicians did not understand the ramification of their eviction regulations.  The consequences are the increased risks are passed to the tenants in the form of increased rent payments.
    • Supply has been small for years, but the temptation to take rental properties off the market has never been higher.  Between the ~25% property appreciation of the last year with associated temptation to sell and the eviction regulations.  If I had a tenant move out tomorrow, I would not be looking to fill the unit until the current eviction regulation expires.  I would let 20 units sit empty if necessary.
    • A property that costs ~25% more than a year ago is likely to have a massive rent increase.  There is a correlation between property values and the rent necessary to rent the property.
    • We recently sent out our highest rent increase ever ($600/month increase).  We did not hear a complaint or anything (at least not yet).  They cannot find a comparable place for less (even with this increase they are below the current rent market.  This will be the highest increase that we are expecting to send out (2nd highest will likely be $400/month).  I was expecting to hear something about that type of increase (and may still hear about it as it has about 1.25 months until it starts).

    As is often the case, there is a reason the rent in my market has increased so significantly.  The rents have not gone up without reason.  Tenants either pay the higher rent, downsize, try to purchase a property that has gone up on average ~$200K in the last year, or move somewhere else.

    Both the purchase and rent RE market is crazy in my area.

    Thanks for the education, Dan. What I know about California real estate can be written with a blunt crayon on the inside of a matchbook. But yeah, once the COVID regulations went in and the federal government claimed that kind of power for itself through the CDC, the outcomes didn't need a crystal ball to be correctly predicted. More risk requires more reward.

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  • Jim K.
    OP
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Mike Dymski:

    Everyone is loaded.  Hot economy, jobs, all types of loan forbearance, stimulus checks, child tax care credits, raging stock market, rock bottom interest rates, quantitative easing, extra unemployment benefits, home value increases, highest savings rates in history, the list goes on.  Adding value in this market is hugely profitable.

    Sure...if you can find the people to add the value for you! Sometimes I think every homeowner here in Allegheny County earmarked their stimmy to fix up their house. Finding ANYONE right now, and I'm including guys with ankle bracelets who have to knock off at 4 to get back home by 5:30 pm to comply with the terms of their house arrest, is almost impossible.

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Jim K.:
    Originally posted by @Mike Dymski:

    Everyone is loaded.  Hot economy, jobs, all types of loan forbearance, stimulus checks, child tax care credits, raging stock market, rock bottom interest rates, quantitative easing, extra unemployment benefits, home value increases, highest savings rates in history, the list goes on.  Adding value in this market is hugely profitable.

    Sure...if you can find the people to add the value for you! Sometimes I think every homeowner here in Allegheny County earmarked their stimmy to fix up their house. Finding ANYONE right now, and I'm including guys with ankle bracelets who have to knock off at 4 to get back home by 5:30 pm to comply with the terms of their house arrest, is almost impossible.

    Agreed.  We had to get quotes from 7 or 8 painters before we found a reasonable one to paint our house.

    But, there are different ways to add value.  I am trying to convert hotels (high cap rate) to multifamily (low cap rate).

    1Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    5y

    My market is insane... no inventory and steep mark-ups. The city is a great place to visit. Builders are currently building apartments - but I can only imagine their expenses have doubled, at least= high rents.

    WSJ yesterday had an article detailing people's willingness to increase their commute times substantially as the hybrid work model takes shape.

    For Home Buyers, Length of Commute Drops in Importance, New Data Shows - WSJ

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  • Jim K.
    OP
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Mike Dymski:
    Originally posted by @Jim K.:
    Originally posted by @Mike Dymski:

    Everyone is loaded.  Hot economy, jobs, all types of loan forbearance, stimulus checks, child tax care credits, raging stock market, rock bottom interest rates, quantitative easing, extra unemployment benefits, home value increases, highest savings rates in history, the list goes on.  Adding value in this market is hugely profitable.

    Sure...if you can find the people to add the value for you! Sometimes I think every homeowner here in Allegheny County earmarked their stimmy to fix up their house. Finding ANYONE right now, and I'm including guys with ankle bracelets who have to knock off at 4 to get back home by 5:30 pm to comply with the terms of their house arrest, is almost impossible.

    Agreed.  We had to get quotes from 7 or 8 painters before we found a reasonable one to paint our house.

    But, there are different ways to add value.  I am trying to convert hotels (high cap rate) to multifamily (low cap rate).

     OK, that makes much more sense. Thanks for clarifying, Mike. I'm not exactly the most sophisticated of investors outside my narrow niche.

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Jim K.:
    Originally posted by @Mike Dymski:
    Originally posted by @Jim K.:
    Originally posted by @Mike Dymski:

    Everyone is loaded.  Hot economy, jobs, all types of loan forbearance, stimulus checks, child tax care credits, raging stock market, rock bottom interest rates, quantitative easing, extra unemployment benefits, home value increases, highest savings rates in history, the list goes on.  Adding value in this market is hugely profitable.

    Sure...if you can find the people to add the value for you! Sometimes I think every homeowner here in Allegheny County earmarked their stimmy to fix up their house. Finding ANYONE right now, and I'm including guys with ankle bracelets who have to knock off at 4 to get back home by 5:30 pm to comply with the terms of their house arrest, is almost impossible.

    Agreed.  We had to get quotes from 7 or 8 painters before we found a reasonable one to paint our house.

    But, there are different ways to add value.  I am trying to convert hotels (high cap rate) to multifamily (low cap rate).

     OK, that makes much more sense. Thanks for clarifying, Mike. I'm not exactly the most sophisticated of investors outside my narrow niche.

     You can run circles around me and most of the rest of us part-timers!

    0Reply
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