Unpacking the Rent Crisis: It's Not Just Greedy Landlords..
Michael CalveyPro Member
Head of Sales at BiggerPockets · Denver, CO · Member since 2023 · 124 posts · 154 votesUnpacking the Rent Crisis: It's Not Just Greedy Landlords..
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesI find it interesting that virtually every business in America is expected to maximize profits to the level possible in a free economy but a landlord (LL) that does the same is a “Predatory landlord”. Every business should strive to maximize profits in a free economy, but for some reason some people think this should not be the case for a LL.
Just over a year ago my umbrella insurance provider indicated they were no longer covering vehicles. They were reducing the premium slightly for this loss of coverage. It is important that my umbrella policy cover vehicles for reasons that are not important. I spent a significant portion of the next 2 days looking for umbrella insurance. Most umbrella insurance providers either did not cover vehicles in CA, did not cover structures in CA, or required that I had all vehicles and properties insured with them to provide an umbrella policy. I had very few choices. My umbrella insurance almost doubled over night.
The article mentions nothing about risk.
In the time frame that is covered by the article my market had the most stringent eviction moratorium in the country. You could only evict for health and safety issues. A tenant could stop paying and break every lease term not related to health and safety and you could not evict. I have not seen any statistic on what percentage of the tenants that did not pay during this eviction moratorium ended up paying the back rent but believe it is a very small percentage (unbeliever <5%). This in effect means LLs paid for the housing of these tenants by law without getting compensated. this newly identified risk mandates increased revenue (rent increases) to compensate for the increased risk of the government allowing tenant to not pay rent and damage unit with no legal means to get rid of the tenant.
Just prior to the period in the article, CA passed statewide rent control on MF (starting at 2 unit) properties. This took away the LL capability to not renew lease or, my preferred method, provide large rent increase above market to get rid of less than ideal tenants. Now LL are stuck with these less than ideal tenants. This raises risk and increases effort required which is to be reflected in rent increases. In addition, our rent increase is capped such that a crazy inflation period could exceed max allowed rent increase which again is a risk. This increased risk is the primary reason after rent control is started, the rent increases are maximum allowed for a few (minimum) years after rent control goes into affect. The rent control advocates, having zero understanding of economics, blames greedy landlords without realizing the rent control has increased risks.
My properties are in a very desirable area that is very constrained. In a free market the rents would reflect the scarcity of a great product but the government tries to meddle in the free market which at least in the short term increases the scarcity.
Best wishes
54 Replies
- Rental Property Investor · Atlanta, GA · Member since 2016 · 60 posts · 53 votes2y
Thanks Mike. For me personally, we have tired to keep rent increases to a minimum to reduce turnover and that led to having lower NOI unfortunately due to two things:
1. Higher PITI across the board (most of my investments are in Philly)2. Higher maintenance and repair costs (even low to no skill workers demand 35-40% higher labor)
This has led us to diversify our strategy and convert some of our units into MTR's instead of LTRs to increase margin. That has worked so far but it's hard to say how long that will last.
- Real Estate Agent · Honolulu · Member since 2021 · 2 posts · 3 votes2y
I think those that bought in the last few years for appreciation or with adjustable rate mortgages and had slimmer cash flow/margins are feeling the pinch a bit more. I live in Hawaii but invest in Pittsburgh. I’m seeing rents a flat or slightly down in my market and that is because then went up so quickly. I think landlords are looking for better ways to reduce cost and find ways to not have to increase rent too much. For example like shopping around for insurance or evaluating the portfolio between cash value and replacement cost insurance. Even possibly self managing. Even free Tools like BASELANE can help reducing cost or even allowing you to self manage.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Saad D.:
Thanks Mike. For me personally, we have tired to keep rent increases to a minimum to reduce turnover and that led to having lower NOI unfortunately due to two things:
1. Higher PITI across the board (most of my investments are in Philly)2. Higher maintenance and repair costs (even low to no skill workers demand 35-40% higher labor)
This has led us to diversify our strategy and convert some of our units into MTR's instead of LTRs to increase margin. That has worked so far but it's hard to say how long that will last.
This creates less of a rental pool, creating an artificially higher price within a year or two if done in masses. Then once everyone does, it's too much saturation in STR and folks go back to LTR creating the cyclical portion of this.
The strategy for the landlord is to have less debt that's how you make it out of these things.
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
I pass on my yearly increase in costs from taxes and insurance onto my tenants. I let them know every year when it’s lease renewal time. They appreciate the transparency and understand. I just raised rent only $25 to a tenant and told him my costs have only gone up $25/month so that’s his increase. I try and be fair. But at the same time not running a charity.
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes2y
Our biggest expense has been property taxes. We increase 4% a year in NJ, 5% a year in NY and CT. Philly, it depends. The prop. taxes increase because of increased benefits, social programs and costs to operate the city/schools. If cities had people actually budgeting correctly, maybe we could stop raising the rents every year.
- Member since 2023 · 40 posts · 44 votes2y
Yep, the taxes. I realize it's not my right to tell people how to vote, but I'd like to put a clause in that reads, "Every time a levy, school tax increase, or special tax assessment passes, rent will increase by 5x the amount of that cost." Because you KNOW it's not the people paying the property taxes that are voting for this crap.
- 2yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I'd love to know whose wages went up 22% since 2020, definitely not mine or most people that I know. I need new friends!
The only way to make housing less expensive is either increase everyone's income (not going to happen), build more housing or allow fewer people in the country (assuming populations are increasing-they are in Canada).
I've increased rents, but I have 3 rentals in areas with caps on rent increases and all of them are far below market value because of rent caps and long term tenants. Property taxes have gone up a bit, but so has insurance-all the little bits add up over time.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
I find it interesting that virtually every business in America is expected to maximize profits to the level possible in a free economy but a landlord (LL) that does the same is a “Predatory landlord”. Every business should strive to maximize profits in a free economy, but for some reason some people think this should not be the case for a LL.
Just over a year ago my umbrella insurance provider indicated they were no longer covering vehicles. They were reducing the premium slightly for this loss of coverage. It is important that my umbrella policy cover vehicles for reasons that are not important. I spent a significant portion of the next 2 days looking for umbrella insurance. Most umbrella insurance providers either did not cover vehicles in CA, did not cover structures in CA, or required that I had all vehicles and properties insured with them to provide an umbrella policy. I had very few choices. My umbrella insurance almost doubled over night.
The article mentions nothing about risk.In the time frame that is covered by the article my market had the most stringent eviction moratorium in the country. You could only evict for health and safety issues. A tenant could stop paying and break every lease term not related to health and safety and you could not evict. I have not seen any statistic on what percentage of the tenants that did not pay during this eviction moratorium ended up paying the back rent but believe it is a very small percentage (unbeliever <5%). This in effect means LLs paid for the housing of these tenants by law without getting compensated. this newly identified risk mandates increased revenue (rent increases) to compensate for the increased risk of the government allowing tenant to not pay rent and damage unit with no legal means to get rid of the tenant.
Just prior to the period in the article, CA passed statewide rent control on MF (starting at 2 unit) properties. This took away the LL capability to not renew lease or, my preferred method, provide large rent increase above market to get rid of less than ideal tenants. Now LL are stuck with these less than ideal tenants. This raises risk and increases effort required which is to be reflected in rent increases. In addition, our rent increase is capped such that a crazy inflation period could exceed max allowed rent increase which again is a risk. This increased risk is the primary reason after rent control is started, the rent increases are maximum allowed for a few (minimum) years after rent control goes into affect. The rent control advocates, having zero understanding of economics, blames greedy landlords without realizing the rent control has increased risks.
My properties are in a very desirable area that is very constrained. In a free market the rents would reflect the scarcity of a great product but the government tries to meddle in the free market which at least in the short term increases the scarcity.
Best wishes
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes2y
I think:
1) Landlords are going to make as much profit as they reasonably can. The market will set the price for rentals if it is allowed to operate freely. If the rent is too high people move. If the rent is too low, it will come up due to demand.
2) Landlords expenses have been increasing significantly so some of this increase in expense is going to be passed onto the tenant so that the landlord can still operate a profitable business. I think, in fact, a lot of times the expense increase cannot be made up for by rent increases. Insurance is through the roof over the past couple of years. I used to get plumbers for $85/hr - same place is now charging $175/hr, cheapest place charges $145/hr. I mean that is absolutely insane.
My tenants are responsible for their utilities and I haven't seen to much of a rate increase here personally - although lots of people in my city have. It seems to depend on the utility provider.
A couple of mine off the top of my head:
Duplex - PITI has increased from $616 to $807 in 2 years
Fourplex - PITI has increased from $909 to $1179 in 2 years
SFH - PITI has increased from $919 to $1062 in 2 years
SFH - PITI has increased from $675 to $776 in 2 years
Primarily due to insurance - it's ridiculous. I can increase my rents some - but not enough to support the expense increase
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
The government increased the money supply by 40% causing record inflation and interest rate increases. It impacts the cost of everything...food, shelter, transportation, health, recreation, labor. There are consequences for our government decisions and a lot of current policy and national sentiment continues to be inflationary (tighter immigration, high tariffs, wars, nationalism/isolationism, child tax credits, student loan forbearance, high government spending/deficits). There are no surprises here...inflation is a human made thing. I am not advocating for or against anything...just stating facts. Absent massive government intervention, normal innovation and globalism keep inflation low (i.e., the 40 years prior to 2022).
- Investor · Broken Arrow, OK · Member since 2016 · 210 posts · 314 votes2y
Quote from @Saad D.:
Thanks Mike. For me personally, we have tired to keep rent increases to a minimum to reduce turnover and that led to having lower NOI unfortunately due to two things:
1. Higher PITI across the board (most of my investments are in Philly)2. Higher maintenance and repair costs (even low to no skill workers demand 35-40% higher labor)
This has led us to diversify our strategy and convert some of our units into MTR's instead of LTRs to increase margin. That has worked so far but it's hard to say how long that will last.
I totally agree and will say that I communicate proactively with my tenants and provide examples of the increasing costs of property taxes, insurance and repair costs (labor and materials).
My theme to them is "we must raise rents to keep pace with rising costs, but we are doing the minimum increase as we want to retain you our valuable tenant".. To that end, the one factor that kills long-term profitability is turnover so even if we raise rents less or equal to our cost increases, that still benefits us in the long-term even if in the short-term our NOI might dip a little. Almost all of our tenants have been with us 5+ years.
Also, and some may disagree with this, but we went into a "get to zero debt" strategy a few years back so we had less exposure to potential interest rate hikes. Am now, looking back, so glad we did that.. - Member since 2022 · 20 posts · 26 votes2y
A huge one for me was my property tax in a town north of Huntsville, AL almost doubled. I suspect the town is growing so fast they need to increase funding but damn... that hit hard.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Theresa Harris:
I'd love to know whose wages went up 22% since 2020, definitely not mine or most people that I know. I need new friends!
The only way to make housing less expensive is either increase everyone's income (not going to happen), build more housing or allow fewer people in the country (assuming populations are increasing-they are in Canada).
I've increased rents, but I have 3 rentals in areas with caps on rent increases and all of them are far below market value because of rent caps and long term tenants. Property taxes have gone up a bit, but so has insurance-all the little bits add up over time.
I understand why you say this, but saying more supply will lower renting costs is a false narrative "Spruce Goose". It's a political speaking point directed to be regurgitated so politicians don't have to speak of actual true "why" to rents.
Look, to simplify let's change this to hamburgers and look at it that way.
If 2x, 3x, 10x the # of burger trucks flood onto a given street to offer burgers to the people, to meet demand 1:1 it has an economic effect of competion driving prices to REMOVE any bloat, any false margins, right. BUT, does it lower cost of the burger, the bun, fuel to run the stove, wages of cooks to cook the burgers..... No, those expenses are those expenses.
So reality is, no, added supply will NOT "fix" rents, it will ONLY assure rent's are as "fair" as they can be. It is the EXEPNSES on landlords that dictates rents, how high or how low they can go. And that, is the hot potato no politician is willing to give any light to.
And we know there is NOT rampant "bloat" in rent prices because if there were, it's also simple math that landlords would be rushing to create additional units to capitalize in that "pay day" right, because it's "bloated" rents, meaning over sized profit margins, which to be true would mean it's "cheap" to create new units vs the over sized profits it's producing....... And we all know this simply is not true in vast majority of cases.
We know that in vast majority of markets it's very VERY hard to produce or create new rental inventory because the margins are so razor thin or non-existent.
Added inventory will not create more profit margin.
Follow?
Do you see the BS propaganda at play in this narrative being spoon feed to the public? Calling it a supply issue. No, it's not a supply issue, it's a net margin issue because if margin was there supply would follow.
The statement of supply lowering price is one of operators working at net loss. That is not sustainable, no business can operate without the capital to operate.
The truth is supply shortage is BECAUSE of the "net margin crisis".
And tight supply empowers landlords to simply price in the expenses. Or, better said, FAIR market rents. A landlord operating at net loss is NOT fair, it's parasitic.
- Property Manager · Raleigh, NC · Member since 2023 · 11 posts · 8 votes2y
Quote from @Michael Calvey:
TL;DR: Recent article suggests rent hikes aren't just about landlord greed - rising costs across the board are a major factor.
Just read an eye-opening article about the recent rent crisis.
It challenged my assumptions, so I thought I'd share the key points:- Rents up 25% since 2020, but wages only 22% - ouch.
- 50% of renters now "rent-burdened" (>30% income on rent).
- Landlord costs skyrocketing:
- Insurance: +30% (thanks, climate change)
- Utilities: +30%
- Property taxes, materials, maintenance all up
- Even lawn care and cleaning services cost more
The article argues these costs are being passed to tenants, not just padding profits. Interestingly, it cites data from Baselane, banking built for Landlords, showing a 30% increase in landlords' monthly expenses from 2022 to 2024. This kind of data gives us a more concrete picture of the situation.Questions for discussion:
- Renters: Has your landlord mentioned any of these factors when raising rent?
- Landlords: Are these costs hitting you as hard as the article suggests?
- Everyone: What solutions do you see to make housing more affordable?This is a big part of the problem
"AMH, formerly American Homes 4 Rent, grew its portfolio of single-family homes by 8.5% between 2019 and 2021, but its fee revenue grew by two-thirds during this time period, according to the group's securities filings. Speaking to investors last spring, AMH executive Bryan Smith touted a recently implemented "pet program" and said, "we're very excited about the opportunities we're going to have for ancillary revenue," referring to fees. (AMH did not respond to a request for comment from CBS News on its fee strategy.)
Tricon Residential, which owns 36,000 single-family home rentals, increased its fee revenue by 42% since the pandemic (when many late fees were banned). Last year, COO Kevin Baldridge told investors the company planned to increase that by 30% per renter "as we continue to roll out fees and other ancillary services," according to earnings transcript"
- Head of Sales at BiggerPockets · Denver, CO · Member since 2023 · 124 posts · 154 votes2y
@Joshua Mumford Wow. This is frustrating. "Tricon Residential, iincreased its fee revenue by 42% since the pandemic." Its a bit predatory to me.
- Property Manager · Raleigh, NC · Member since 2023 · 11 posts · 8 votes2y
Quote from @Michael Calvey:
@Joshua Mumford Wow. This is frustrating. "Tricon Residential, iincreased its fee revenue by 42% since the pandemic." Its a bit predatory to me.
I had a friend rent from Darwin Homes, they were getting charged a smart-home fee of ~$25/month. The only "smart" thing in the house was a thermostat.
So many of these ancillary revenue streams provide no actual value to residents, and are actively robbing them of $50+/month just to get a $5 air-filter delivered.
- Property Manager · D.C Metro Area · Member since 2017 · 3 posts · 3 votes2y
In the D.C. metro area, we’ve faced similar struggles with our mini apartments. We initially tried splitting utilities among tenants, but it proved too complicated. Instead, we added the average utility cost on top of rent, thinking it would simplify things. Unfortunately, these units are now sitting vacant, despite our efforts. It's becoming increasingly tough to justify these costs, especially when we see other listings in the area also struggling to attract tenants.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Michael Calvey:
@Joshua Mumford Wow. This is frustrating. "Tricon Residential, iincreased its fee revenue by 42% since the pandemic." Its a bit predatory to me.
Huh, ya don't say.... So what would you call the assorted actions BP has done to increase revenues as of recent? "Bad for thee but not for me" kind of thing?.......
- Rental Property Investor · Atlanta, GA · Member since 2016 · 60 posts · 53 votes2y
@V.G Jason Your point is well taken. But keeping leverage low is not something we can execute right away and in this market. We're at 65% LTV on avg, which is higher than we'd like but we're early (only 3 yrs into it). It's not that we have adjustable rates that are killing us but refinancing to lower LTV's in this market also doesn't make sense (like others said, it requires advanced 3-5 yr+ planning)
It's what others said. Risk is higher (eviction, no payment, unfair laws).We've raised rents slightly $25-30/per door. Similar to what John Kunich said.
And we have used Baselane to organize our finances and manage our spend better, e.g we don't defer maintenance, we still spend the money as needed. With Baselane we just budget better with an actual reserve account.
We also use partners like Obie to get savings on Insurance.
I'm looking into some companies to help appeal property taxes, but not sure that will be worth the effort. Has anyone used a service in PA or Philly for that?@John Kunickundefined
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Saad D.:
@V.G Jason Your point is well taken. But keeping leverage low is not something we can execute right away and in this market. We're at 65% LTV on avg, which is higher than we'd like but we're early (only 3 yrs into it). It's not that we have adjustable rates that are killing us but refinancing to lower LTV's in this market also doesn't make sense (like others said, it requires advanced 3-5 yr+ planning)
It's what others said. Risk is higher (eviction, no payment, unfair laws).We've raised rents slightly $25-30/per door. Similar to what John Kunich said.
And we have used Baselane to organize our finances and manage our spend better, e.g we don't defer maintenance, we still spend the money as needed. With Baselane we just budget better with an actual reserve account.
We also use partners like Obie to get savings on Insurance.
I'm looking into some companies to help appeal property taxes, but not sure that will be worth the effort. Has anyone used a service in PA or Philly for that?@John Kunickundefined
You need to consolidate then. Quality and a flight to primo will remain the common theme in the solvent participants.
- Property Manager · Raleigh, NC · Member since 2023 · 11 posts · 8 votes2y
Have you looked at Steadily?
- Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes2yI don't know if it works in PA or Philly but I fight my taxes every year here in Texas and I usually get quite a bit knocked off. 9 appeals so far and we have lowered assessments by $243,940. I just use CMA's from my realtor to appeal. Still have 8 more pending results. I swear they just throw numbers out there and don't expect people to protest.
Quote from @Saad D.:
I'm looking into some companies to help appeal property taxes, but not sure that will be worth the effort. Has anyone used a service in PA or Philly for that? - 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Michael Calvey:
@Joshua Mumford Wow. This is frustrating. "Tricon Residential, iincreased its fee revenue by 42% since the pandemic." Its a bit predatory to me.
Predatory? Businesses should strive to maximize profits. Anything else is incompetence and should result in the board firing the ceo and if they fail to do that, the share holders should replace the board.
This maximized profit is desired as increased profit provides incentive to increase supply. If there is little profit, who would want to build/buy new units?
I find it hypocritical to not be against other companies maximizing profits, but a housing provider does this and they are “predatory”.
Note maximizing profit does not necessarily mean having rent at top of market. There is financial benefit in keeping quality tenants, reducing tenant turn over, and having multiple tenant applications to choose the best tenant. This is more likely to occur with rent just below market level.
Best wishes
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2yKudos to you for putting in the effort, but I gotta ask, how much time and $ do you have invested in achieving these results?
Quote from @Account Closed:
I don't know if it works in PA or Philly but I fight my taxes every year here in Texas and I usually get quite a bit knocked off. 9 appeals so far and we have lowered assessments by $243,940. I just use CMA's from my realtor to appeal. Still have 8 more pending results. I swear they just throw numbers out there and don't expect people to protest.Quote from @Saad D.:
I'm looking into some companies to help appeal property taxes, but not sure that will be worth the effort. Has anyone used a service in PA or Philly for that?
Curious how it comes out in ROI if viewed it that way. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Dan H.:
Quote from @Michael Calvey:
@Joshua Mumford Wow. This is frustrating. "Tricon Residential, iincreased its fee revenue by 42% since the pandemic." Its a bit predatory to me.
Predatory? Businesses should strive to maximize profits. Anything else is incompetence and should result in the board firing the ceo and if they fail to do that, the share holders should replace the board.
This maximized profit is desired as increased profit provides incentive to increase supply. If there is little profit, who would want to build/buy new units?
I find it hypocritical to not be against other companies maximizing profits, but a housing provider does this and they are “predatory”.
Note maximizing profit does not necessarily mean having rent at top of market. There is financial benefit in keeping quality tenants, reducing tenant turn over, and having multiple tenant applications to choose the best tenant. This is more likely to occur with rent just below market level.
Best wishes
Is this where i chime in saying I'd raise rents by 400% annually if I could.
And yes, if I could, I'd add a fee's list a mile long, if I could get it, damn right.
And guess what, I have 0 guilt, not a drop.
I do this for profit. Should Brady feel guilty he won "too many" super bowls? I will make every $ I can, period end of story.
If you want to do housing for charity, hit up Ronald McDonald house, I think your charity is better use there.
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