When will Rents goes up?

Rental Property Investor · Member since 2020 · 215 posts · 137 votes

With properties prices going up like this, when do you think rents will catch up? Do you think we are in an economic environment to have a raise in rents?

as a background I have some properties in Houston, Texas. Over the last year prices moved up by 10-15%, but rentals are at same level...

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Marcus Auerbach

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

We have a similar situation in Milwaukee - median sales prices have gone up 10.26% in 2020 YoY, rents have increased only about 1.2% YoY.

Investors are part of that dynamic, more properties rented means fewer owner occupied and that is shifting competition from rentals to purchase.

Purchase affordability is still better than it was in the 1990s and 2000s, thanks to higher wages and lower interest rates. With a tidal wave of millennials pushing into the home buyer market we will continue to see upward pressure on home prices, especially below 300k. Sellers of these homes are buying in the 400 and 500 range and we see that pressure now cascading upward as well. In short: we can expect home value to continue to go up in 2021, rents will remain high, but I don't see them increase much.

More on this on my YouTube channel, which you can find on my BP profile page.

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Andrew Holmes
Rental Property Investor · Chicago, IL · Member since 2015 · 275 posts · 271 votes
5y
@Alexandre Marques dos Santos Rental prices are based on supply and demand which you already know. Rather than raising rents which a lot of investors try to do all the time the strategy for a real estate investor should be to buy the properties at a discount so you basis is lower than the typical competition. The next part should be to reduce the turnover of tenants. That is much more important than being at the top of the market for rents. My business partner and I have 240+ rentals in the Chicago market all single families and 2-4 flats. (Mostly all single families) We only do 2 to 3 year leases and yes that is even during corona. Average tenant lives in the property for 4.9 years with a 78% renewal rate.
Houston market is very similar to Chicago market and better upside that the Chicago market. Actually looking to build a portfolio in Huston as I type this.
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Aigo Pyles
Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes
5y
It depends on the area.
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Alexandre Marques dos Santos
OP
Rental Property Investor · Member since 2020 · 215 posts · 137 votes
5y
@Andrew Holmes
You are right. But looking marginally, financials are not favoring much more. The leverage strategy is being hurt. While rates are lower, its quite impossible for investor to get loan below 3.5%. And with raise in prices, those golden years of 6-7% ( before leverage) are a dream.
I have units at The Woodlands. With raise in prices a leverage strategy will top 5.5%. And if you get there!
The reduction in rotation is a must. But that efficiency are being used to keep returns instead of increase them. Maintenance costs are raising as well. This is a more challenging situation...
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
5y
It depends where you are. In one area that I have rentals, prices for house shot up and rents have as well as there are few rentals on the market.
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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
5y
We have a similar situation in Milwaukee - median sales prices have gone up 10.26% in 2020 YoY, rents have increased only about 1.2% YoY.
Investors are part of that dynamic, more properties rented means fewer owner occupied and that is shifting competition from rentals to purchase.
Purchase affordability is still better than it was in the 1990s and 2000s, thanks to higher wages and lower interest rates. With a tidal wave of millennials pushing into the home buyer market we will continue to see upward pressure on home prices, especially below 300k. Sellers of these homes are buying in the 400 and 500 range and we see that pressure now cascading upward as well. In short: we can expect home value to continue to go up in 2021, rents will remain high, but I don't see them increase much.
More on this on my YouTube channel, which you can find on my BP profile page.
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Elias CamhiBusiness Member
Property Manager · Houston, TX · Member since 2016 · 61 posts · 36 votes
5y
Good Morning.
I have a management company here in Houston and as we manage for others and for ourselves we have noticed certain trends. There are certain price sectors that have always performed better in the Houston areas. For instance the sweet spot for rentals here is somewhere between $1500-$1800 in rents. As prices for properties increase linearly, rental prices tend to taper off and not follow a parallel trend. Properties around the $2200 and higher seem to see less increases in rents over time and the increase in rents as property prices increase are very minimal or slow. This is especially true in this environment where many people are migrating from higher priced properties down to some of the more median priced. Anything we list right now is coming off the listings within a handful of days. This is especially true with the Woodlands, because it has undergone huge migration into the area for purchasing and prices are high. Lower priced properties ($120k - $170k), seem to be some of the better performance and continuous increase over the years. This is the trends I have seen over the last several years.
[email protected]281-894-8659
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
Originally posted by @Alexandre Marques dos Santos:
With properties prices going up like this, when do you think rents will catch up? Do you think we are in an economic environment to have a raise in rents?
as a background I have some properties in Houston, Texas. Over the last year prices moved up by 10-15%, but rentals are at same level...

Prices may have increased, but interest rates dropped. That means even though purchase price is higher, the payment can be lower. I have a house I purchased in late 2018 at 4.85% and I am now getting 2.99%. That interest rate difference equals 25% more in purchase price resulting in the same payment.
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Alexandre Marques dos Santos
OP
Rental Property Investor · Member since 2020 · 215 posts · 137 votes
5y
Elias, that's exactly my point. rentals suffers to get an increase. you can get some, but marginal compared to the price paid. But this range does not offer a great return... unless you get tenants forever (no vacancy at all) and can keep maintenance at lows... Even in this case, return is getting closer to 5%... and Joe, i dont know how can you get, as investor below 3%. i have almost no debt and have been having hard time to even get a 3,5%, in an INVESTMENT property.
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
5y
In SFBA(West Coast) rent has been down -20% or more for over a year. Most high techs allow one to work from home. As such those from out of the area have left. They broke the lease the ones still leasing are often behind rent using Covid to justify they can only pay a fraction of agreed rent. For 2021 big local companies allow employees to work from home or anywhere in US territory. Until employers find the model does not work needing to recall them back I do not smell rents in our area will be even higher than 2020 for sometime.
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Shahriar Khan
Investor · Houston, TX · Member since 2010 · 234 posts · 145 votes
5y
@Alexandre Marques dos Santos see attached MF forecast for Houston. Based on job losses for O&G , its in Recession Category aka rent growth is inflation or minus for MF cat which should be implied into rent growth for SFR as well. For MF - Class A took a major beating, Class C has higher delinquency and Class B are holding up in general. Looking at broader market, agree with @Elias Camhi as rent growth are minimal for 2K+/month properties as they are buy to live kind (e.g. Woodland, Katy, Pearland, Heights, Garden Oaks etc) . Rent growth are there for inner city + gentrifying areas for house built before 1980 . For those its not organic YOY increase rather its because of major rehab that one has to do to recover buying price + rehab.
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Alexandre Marques dos Santos
OP
Rental Property Investor · Member since 2020 · 215 posts · 137 votes
5y
@Shahriar Khan
Thank you. You mentioned something interesting, actually ( following previous post), Theres no growth in general rent, but in specific places ( Teresa mentioned in one region), and you mentioned inner cities.
So generally speaking margins are getting a hard hit. Prices going up, rentals stable ( not mentioning California or other regions), maintenance going up, and loses for credit in margins going up...
Challenging scenario to invest... need to be extra careful with new acquisitions...
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Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
5y
@Alexandre Marques dos Santos
Rentals in my area of Pa have gone way up, with tons more interest.
Listed a property early jan, had 113 messages in 30 hours
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Zachary Beach
Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes
5y
@Alexandre Marques dos Santos that's the nice thing about STR rents is they go up very fast my market rents are up 58% on the year as a whole last we checked a couple weeks ago
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Brock Mogensen
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
5y
I think in most markets it's hard to push rents right now..unless they are at below market rates. I think it also depends on the market. Some markets have actually seen rent growth in 2020 while others stayed flat or decreased. We've pushed rents at some of our properties and remained flat on some of the other ones.
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John Teachout
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
5y
I just sent a lease extension for a FL property 30 minutes ago and raised the rent $18.00. That was less than the $25 increase in taxes and insurance but they've been trouble free tenants and we're not really looking for a turnover. The property is still rented fairly close to market. We usually do significant rent increases at turnovers (to market) and small increases to existing tenants.
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Alexandre Marques dos Santos
OP
Rental Property Investor · Member since 2020 · 215 posts · 137 votes
5y
@Zachary Beach
I hear you. I just dont like the STR model, as it creates less stability in income, and i dont have much time to focus on managing it. Maybe i will vive a shot in the future, but its not for me at mom.
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Zachary Beach
Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes
5y
@Alexandre Marques dos Santos STR is definitely a lot more costly and time intensive and you need to create systems and hire people if you want it to be comparable to the level of passivity as a normal rental or hire a good management company (very hard to find that's why I started my management company). But at least in my market the worst moth of the year is better than top dollar LTR and the properties profit even after the extra costs more than the total rent for LTR's so for me it makes since but it's not for everyone. Are property manager has been raising are long term rents at least 5% a year and haven't had any problem with at either.
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Tucker Cummings
Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
5y
I’m looking at this less from the market of supply and demand and more from what we’re seeing with the virus.
Before we go any further, this is NOT a political post.
I don’t know about y’all, but I’ve already seen inflation kick in quite a bit in my area, which i think is a result of the money printing. Then if we see $15 minimum wage go through, we can expect inflation even more. I think given those two things, we can expect rents to really go up. As to when that will happen, I would assume it will be very gradual until all the eviction moratoriums are lifted. With that, we can expect both rent and housing prices to increase, but as for closing the gap between rent and housing, that’s anybody’s guess.
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Steve Maginnis
Property Manager · Charlotte, NC · Member since 2012 · 135 posts · 156 votes
5y
In the Charlotte, NC market, we have seen rental rates for new vacant properties increasing over the same time last year. Properties rented last year for around $1400 are renting closer to $1500 a year later. We are also renting units faster this year than last. This is likely due to the lack of supply. However, due to Covid-19, owners are generally deciding not to increase rents on renewals, where we normally would push for a slight increase to offset cost of living, taxes, etc.
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Nate Sanow
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
5y
@Alexandre Marques dos Santos
I’m observing a similar compression in Tulsa.
I’m actually often wondering if a lot of economic factors will lead to micro corrections and not macro crashes. In other words, a small degree of a cool off in C class areas especially as we are seeing what was once a sub 100k rental sell for north of 100k in areas traditionally known as rental areas.
Locally we are seeing tremendous appreciation at literal record rates - a statistical fact not a pontificated statement - and yet wage growth for the middle class isn’t growing at that same rate, not even close.
I therefore imagine that the obvious answer is general job growth and median wage increases, and will vary from market to market and even regionally within more micro market areas.
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Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
5y
The reality we find ourselves in right now isn't sustainable from a fiscal perspective, heck, emotionally too!
We are in a global pandemic and prices are going up due to external factors but the unemployment figures are still not where they need to support these price hikes.
Isn't it fascinating that house prices are off the chain with cash buyers all over the place while many who already own a home are in forbearance on their loans?
As of Jan 2021, about 2.7 million homeowners are now in forbearance with their loan servicers, and let's think about how these folks are going to make their loan current (loan forgiveness?).
Many people are grappling with what pundits are calling a fiscal cliff, and rents going up will further exacerbate this issue.
What I think we should try to figure is how we can provide more affordable houses for the average American so that rents can stay current with the market.
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Alexandre Marques dos Santos
OP
Rental Property Investor · Member since 2020 · 215 posts · 137 votes
5y
@Ola Dantis
Your words are summarizing my concerns.. while i call for the catch up btw rent and prices, its not happening. This is not sustainable in the long run. Landlords needs to have their profit as they run the risk AND keep places up for rentals. Their margin is being smashed and they are surviving only cause inventory was bought long ago. But MTM shows a different picture. Marginally many houses dont match most of the criteria. Its all over BP. Ao ppl now start to think they need to compress their margins. This is a mistake!
Rehab cost, maintenance cost is on the rise. Default rates are on the rise, so another cost in average. Obviously its not for all, but risk is on the raise...
Rates are low for owner, but investor dont get same lvls. Lets be franc, a cash out refinance rate is more expensive than owner rate. An investor is also more expensive. I have 825 FICO and trying to raise 70% LTV got average 3,75% and best was 3.5%. Thats far from sub 3% ppl point out.
I am not calling for a crash. But an adjustment. Either one or the other looks wrong. I really think economics are not supportive on the prices we are seeing...
Another factor.. lots of cash out buying houses might be “new RE landlords trying to make 5% against 1% in the bank. Not sure how long will that lst...
On the foreclosure, banks will renegotiate tenors and incorporate in the new contract what was not paid.. but if jobs doe not comes back, some of that will hit market., but at least this time prices favoured those owners...
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Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
5y
Originally posted by @Alexandre Marques dos Santos:
@Ola Dantis
Your words are summarizing my concerns.. while i call for the catch up btw rent and prices, its not happening. This is not sustainable in the long run. Landlords needs to have their profit as they run the risk AND keep places up for rentals. Their margin is being smashed and they are surviving only cause inventory was bought long ago. But MTM shows a different picture. Marginally many houses dont match most of the criteria. Its all over BP. Ao ppl now start to think they need to compress their margins. This is a mistake!
Rehab cost, maintenance cost is on the rise. Default rates are on the rise, so another cost in average. Obviously its not for all, but risk is on the raise...
Rates are low for owner, but investor dont get same lvls. Lets be franc, a cash out refinance rate is more expensive than owner rate. An investor is also more expensive. I have 825 FICO and trying to raise 70% LTV got average 3,75% and best was 3.5%. Thats far from sub 3% ppl point out.
I am not calling for a crash. But an adjustment. Either one or the other looks wrong. I really think economics are not supportive on the prices we are seeing...
Another factor.. lots of cash out buying houses might be “new RE landlords trying to make 5% against 1% in the bank. Not sure how long will that lst...
On the foreclosure, banks will renegotiate tenors and incorporate in the new contract what was not paid.. but if jobs doe not comes back, some of that will hit market., but at least this time prices favoured those owners...

Couldn't agree more!
I think there has to be a market adjustment coming our way soon.
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Lauren Ruppert
Rental Property Investor · Member since 2019 · 67 posts · 29 votes
5y
@Alexandre Marques dos Santos
I just bought a multi at 3%. My husband was at 3.65% on his.
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Lauren Ruppert
Rental Property Investor · Member since 2019 · 67 posts · 29 votes
5y
@Matt M.
Matt, we have properties in Reading. The tenants were paying far below market...675 for a 3+1. We adjusted the rent to $800, which is still about $150-$200 below going rates. Those folks are having a fit. The threat is, "I'll move"...please do; then I can list for $850 or $900.
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