Are you lowering your rents for new tenants?

Question

Hey BP Chicago Fam,

I recently read this article on redfin and wanted to get feedback from those more experienced than myself. The article basically states that asking rental prices have seen a decrease and areas such as Chicago and Houston, TX are at the top of the list when experiencing a reduction in asking rent prices.

When running my numbers for a house hack, my sheet accounts for a 3.5% increase year over year for rents to keep up with rising expenses. For those currently owning rentals, have you experienced difficulties increasing your rental rates? Have you adjusted your formulas to account for a lack of increase within the next, let's say 2-3 years?

I'm looking to understand how to accommodate for this information (or if I need to at all) when determining if a property will cash flow within a certain period of time.

Eudith Vacio · Answer

Hey @Dannielle Givens - I increase rents on my properties at least 2% each year but definitely think it's all important to look at other forms of revenue, coin-laundry, garage rental, etc and I would be more conservative on the rental increases to plan for worst case scenario. You can also sign up for a free trail on rent-o-meter to look more specifically in the area you're looking to buy..I hope that helps! :)

Alan Asriants · Answer

Luckily I havent had turnover to see if my personal properties have seen a rent decrease but I have been noticing that the rental listings coming out are not getting as much traction. This is mainly from the landlords who "put lipstick on a pig" and are trying to get top dollar. couple months back it would work, now tenant demand is lower, so only the better products can yield higher rents

John Warren · Answer

@Dannielle Givens rent numbers in cities like Chicago and Houston will always be skewed by class A new construction that rents for double or triple what most neighborhood buildings will rent for. Across the areas I invest in, a quality two bedroom will rent for $1150-1350 per month. This is true across a vast swath of NW and SW suburbs. These rents creep up a little each year (2-3% probably on average), and the renters for these units work in jobs making $18-35 per hour.

The stuff that is more volatile is the stuff where there are dog parks, garbage service, etc. There are rent specials to get people in and all kinds of concessions. When things get bad, the people who can rent for 3k per month can always just go rent a 2 bedroom somewhere for $1350 to save some money (or buy a house).

Mark Ainley · Answer

@Dannielle Givens as a Property Manager in A-D class properties in city and suburbs we are not seeing any “reductions” but we also didn’t max out rent increase potential in 2022. Keep in mind less opportunity to buy here in entire Chicago market so rents will stay strong and we are not even into the rental season yet.

Mario Morales · Answer

I've increased rents this year to 6 of my units, and leases were signed almost immediately. There are social economic factors to consider. People will pay more to not live in certain areas and that usually involves sacrifices in their budget. If you are responsive and a decent human being as a landlord, your tenants will stay and raising rents allows you to be as responsive as they'd like you to be.

Dannielle Givens · Answer

That makes sense. Thanks Alan!

Alecia Loveless · Answer

@Dannielle Givens I’m increasing rents. I haven’t raised mine to the heights others have over the past two years. I try to stay fair and affordable with really nice units.

No one in my area is decreasing.

Bill B. · Answer

Any article that doesn’t break it down in to at least 5-10 categories isn’t worth anything. (Is it $500/mo studios in the ghetto, $1,500/mo nice apartment, $3,000/mo high rise, 50 year old 3 bedroom homes close in to the city, 5 bedroom new build out in the suburbs, or lake front property?) If they bother to do that, it’s probably true for the city, or part of a city they specifically cite. (Obviously no state or country wide study is worth anything.)

In my personal experience Las Vegas SFH rents increased 13% ($225) and MN lake front townhome rent increased 7% ($210) YOY this week. So for me it would be more accurate to say rents are up a little over $200/mo rather than a percent. But I doubt that translates very well to other markets or property types.

Lieren Schuette · Answer

I live in in southern Illinois...I wonder if this would impact us here?

Are you lowering your rents for new tenants?

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