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Inflation

July is the time of year when I do the budget for the coming year for my businesses. That’s the main reason why I didn’t post yesterday. Busy with business. From an inflation standpoint, things are actually looking more dire than they were last year. My property taxes are up 10%, my landscaping costs are up 15%, insurance costs up 21%, and interest (in dollars) on the mortgage is up 18% year over year.

In December, I posted about the increasing popularity of rent control. It turns out that Florida’s constitution and state laws make rent control a difficult prospect at best. So the communists in the blue counties are looking at other ways to make financial war on landlords. Miami-Dade is looking at requiring that tenants be provided government funded attorneys in landlord/tenant disputes. That also increases both the expense and risk for landlords. If that catches on, then there will be even more increases.

I predicted that landlords would find other ways to increase income without increasing rent. Things like fees for lawn maintenance, rental fees for appliances like washers and dryers, forcing maintenance costs like pressure washing on to the tenants.

It seems like I called it, because that is exactly what is happening. Landlords are passing these “extras” on to tenants, adding all sorts of fees on to the lease. These are costs that are associated with a rental property that tenants just don’t think about. Here is a complaint:

“Usually these increased costs do not come with increased services or amenities,” Rabin said. “They are often used as a way to deprive people.”

Take washers and dryers. Once common in rentals across Florida, now, many tenants rent not just their apartments and homes, but the appliances within it.

I don’t see how making you rent a washer and dryer is a way to deprive a tenant. A washer and dryer is an unnecessary convenience item that costs the landlord to both purchase and maintain. Many tenants destroy these appliances because, well, they just have no respect for the property of others.

The cost of buying and maintaining property is increasing. That includes opportunity cost. Let’s say that I bought a house for $200K. I can rent it out, or I can sell it. The only way that I would (and do) choose to rent is if I can get a better return on that investment by renting than by selling it. As housing prices rise, so do rent costs.

The same goes for appliances. Washers, dryers, kitchen appliances, they all cost money. In the past two years, I have had to replace a range, repair a refrigerator and a central air conditioner, and replace a dryer. That costs money that must be recouped. As appliance prices increase, so do my costs. As the cost of lawn maintenance and appliance repairs increase, so do my costs. That means higher fees and rent.

So far, I limit the fees on my rental property. I charge an application fee for each adult who will live at the property. That covers my cost to do the background and credit check. I provide a washer, dryer, and lawn maintenance. I pay HOA fees. The tenant provides for electric, water, and trash service. They also have to pay for cable TV and Internet service, if they so desire.

So how rents are priced is actually pretty straightforward: the amount that it costs me to maintain and rent the property is my base. That includes maintenance expenses, insurance, taxes, landscaping, administrative overhead, and legal expenses. To that, I add my expected return on investment. Since there is more risk than previous years, my expected return is around 8 percent. If I get much less, it is more profitable to sell. The resulting number is my rent.

What all of this means is that my rents this year will be increasing to reflect those added costs and risks. Last year, I increased rent on my rental property by 8%. This year, the increase will likely have to be around 9 or 10 percent.

8 replies on “Inflation”

You also need to count in the built-in obsolescence of appliances. I’ve discovered that the washer(s)/dryer(s)/refrigerator(s) I’ve purchased last just a few months beyond the warranty, and then die. Repair cost is 90% of the new appliance price, which tells me the manufacturer doesn’t intend it to be repaired.

It’s a scam to insure continued business or as Lee Iaccoca said, “A consumer good is by definition consumed, and if it is not, you must engineer it so it is.”

Appliances in rentals seldom last more than 4 years. That is priced into the rent.

In my area (NC) I’m hearing rumors of mgmt co’s clearing out S8 and raising rents. No doubt the fees are in there too.

I don’t have a dog in the fight, but after what I saw the govt do to landlords during the china flu, I support the landlords in running it like a business – Ruthless. Get the best price you can. The customers will walk if you charge too much.

I know some people that own rental properties (houses/small lots). I asked why they spend their weekends mowing grass. They said the people that live in the property can’t be bothered to mow grass or pickup trash. Not exactly the demographic I would want to entrust my most valuable asset to….

I include lawn maintenance in the rent and charge accordingly. It costs me $900 a year to have it done.

I mean ultimately they are commies that want any if not all private property eliminated. That is the base, and the base is also economically ignorant, not to mention often somewhat insulated against inflation or cost of living increases by a .gov stipend. So what do they care if everything goes up? They get covered for that anyway in many cases. But hey .gov funded housing in the projects and the like worked well for everyone involved right? Which is what the end goal is. This shit, this fuckery the proposal from your governer hopefull will eliminate everything and anyone that’s a small market player outside blackrock. Why rent at all to anyone when, well you can be told you can’t cover inflation, or better yet be told no you can’t even charge rent while you’re on the hook for those mortgage payments? Why would a landlord not just sell to be done with the frusteration?

My current tenants have been in the house for about 3 years. In previous years we redid the kitchen and bath, replaced the A/C condenser, in-sinker-ator, painted, fixed the windows, repaired fence, etc. Just in three years I’ve replaced the dishwasher, washing machine, dryer, range, and microwave/exhaust hood. I’ve had to repair plumbing in the shower and in the tub drain. I had to replace the A/C main board, and replace the T stat. Oh, and I replaced the fridge.

They didn’t know they were supposed to change the filters for the A/C, and didn’t know that the exhaust vent over the stove was part of the microwave, they never used the vent.

They are both working in good jobs and aren’t stupid, just completely ignorant of what living in a house entails.

When they buy a house of their own, (they are looking) they’ll move out and I’ll do some small upgrade, like swapping the formica counters for cheap granite, or replacing the water heater (aging) with an on demand unit.

The house is an old bungalow, minutes from downtown (“inside the loop” in Houston parlance.) It’s one of the last rental properties in the neighborhood. All the rest have been bought up and developed into 3 story town houses for hipsters.

I can charge a lot over market, because of scarcity. And it’s a cute little place with good location. I’ve had all good tenants in the last 14 years, so I’ve been lucky.

EVERY day I get calls from someone looking to buy the house. So far, no one wants to pay me enough money to replace the profit from the rental, they all just want to buy the dirt it sits on. If Houston were to start playing games with landlords, I’d just build a 3 story town house on it myself, or sell it to Blackrock to add to their rental portfolio…and then the whiners would complain about the lack of affordable rental properties.

The socialists always hate landlords, but who do they think will rent to the proles in a world where they “own nothing, and love it”?

As long as it’s worth my while, I’ll still do it, but as soon as they f with me? No more rental. And the meddlers can have the former renters sleeping in their cars or tents in their neighborhoods.
nick

Youre right, “The socialists always hate landlords” and this hatred is state-sponsered.

My daughter was pissed at her landlord – he is kicking everyone out of a small apartment building to renovate with the hopes of making more $$$ by going the Air BnB route. I had to explain to her that the landlord doesnt give a rip that it sucks for her, that she was a good tenant etc but he wants to make more money the same way she does at her jobs. It aint personal, its business. She bemnoaned the fact that business doesnt care about the personal, but gets it. I think we watched Its A Wonderful Life one too many times.

It seems that all tenants think the landlords are wealthy beyond measure and that somehow there is no need to increase rents to match increased costs. When the govt propagandizes the same, it won’t end well.

We just sold a home in the Villages, FL after running the numbers. We got a good price that reflects the local bubble, and taking the money and running (into silver, improving other real estate holdings and I get my IR scope for spicey times. And 1000 168g and 1500 5gr baubles.)

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