OT: Rent inflation - what's the cause?

[MikeD]

I wonder if real estate is on a bubble. There's got to be a correction sooner or later, as past history has shown.

[Clean39T]

Originally Posted by Likes2ridefar

Perhaps it is your area but section 8 seems almost nonexistent in Scottsdale. Rents have skyrocketed here, some of the highest in the country now, and where I live they increased it by 20% roughly since Covid became a thing….not saying that is why but that is when the increases began, about a year in. If they raise ours that much next year we are screwed and basically have nowhere to move in the area and will be forced to leave the state.

$100-200/mon more is a rounding error to the landlord but may be the difference between having a place to live and being homeless, or not being able to feed your kids, for the working-class renter.

It’s the same for “transitory inflation” in food, gas, utility, and everything else costs.

The trajectory of this is not good.

[Likes2ridefar]

Originally Posted by Clean39T

$100-200/mon more is a rounding error to the landlord but may be the difference between having a place to live and being homeless, or not being able to feed your kids, for the working-class renter.

It’s the same for “transitory inflation” in food, gas, utility, and everything else costs.

The trajectory of this is not good.

Since we were burglarized over the summer and they were partially responsible the manager agreed to keep our rent the same this year. The exact same unit on the opposite side of the building just rented for $700 a month more than we pay.

We can afford it but I refuse to comply. Good excuse to move to Durango where we are now planning to retire after scoring some land in the area.

[Clean39T]

Originally Posted by ORMojo

That 0.5% increase was over one month, so not 10%+ per month, but agree it is that much or more annually right now.

Oregon now has statewide rent control laws. Rent can not be increased during the first year of tenancy. Rent can not be increased without 90-day prior written notice served to the tenant. Rent can not be increased in any 12-month period by more than 7% plus the previous calendar year's increase in the CPI. That last part also applies to increasing rent when changing to a new tenant.

There are loopholes/caveats. Our landlord tried to raise our rent 20% and because the home was built recently (2014) there was no protection. They paid ~$400k for the home in 2018 and were trying to get $3k/mon in rent out of it while refusing to do even basic safety-related maintenance. We move out Monday.

[bigbill]

Originally Posted by Clean39T

There are loopholes/caveats. Our landlord tried to raise our rent 20% and because the home was built recently (2014) there was no protection. They paid ~$400k for the home in 2018 and were trying to get $3k/mon in rent out of it while refusing to do even basic safety-related maintenance. We move out Monday.

Wow, I paid $2500/month on Oahu. My military housing allowance was $3200/month.

[Ralph]

Is there any trend of older people or boomers moving out of the homes they have owned a long time? Kids are gone, school districts don't matter any more, not concerned with commuting distance to jobs, etc. When I add up the cost of maintaining our home.....roofs, new driveway, plumbing, heat and AC units, RE taxes, homeowner insurance, landscape expenses, pool expenses, other maintenance, and the biggest of all....opportunity cost on a paid for house....I believe I could pay "a lot" in rent and be as well off or better off....and have all our money back. And if I want a RE investment....can do that easily in the securities markets....and not live in that investment. Is any of this thinking a factor in rents? Someone entity owning 10,000 houses definitely has lower costs maintaining per house than a person who only owns one. Are there significant economies of scale? I know a few wealthy people who own substantial real estate, but rent what they live in.

I recently took a tour of a so called luxury (it was nice) apartment complex...on site manager and 24 hour security...3/2 single story apt with attached 1 car garage, and I could rent 1-2 additional garages for $2500 or so...maybe $3000 with extra garages...no lawn expenses, minimal insurance expense, no pool expenses, no county taxes....no roofing driveway repair expenses, and if I took 3% annually plus savings of a non home owner .... from house sale proceeds....I think my life would be better. it's compelling to this 80 year old. I know people doing this now. And not especially rental price concerned. Have they driven up prices?

I guess what I'm asking some of you guys in the industry is....Is there a change in how people are viewing what they live in? Increasing the number of people who rent?

[Likes2ridefar]

Coincidentally was just at my LBS restocking on Assos and Rapha bibs when i overhead a customer bragging to the owner how much he’s been able to inflate his rental property rates the past year. Mentioned a studio from 1400 to 2000 and converted one to an Airbnb some person rents for 4500/m. Insane…

[unterhausen]

I have money in a REIT fund, I have wondered if some of this is my fault.

Originally Posted by MikeD

I wonder if real estate is on a bubble. There's got to be a correction sooner or later, as past history has shown.

Sometimes I think that it doesn't matter much if the RE market corrects unless you way overpaid. Although it does seem like some of that is going on now. OTOH, my mom paid $150k for her house and we were lucky to get $65k out of it. There were perfectly serviceable houses down the street that were listed for $20k on zillow. Made me think of becoming a landlord. OTOH, I have seen that's a tough way to earn money.

[ripvanrando]

Son is graduating soon with offers in the 60-65K range, call it $5250 per month. The apartments are now renting for $2200-2500 in those areas whereas 2 years ago, they were renting for $1600-1700. Instead of 32% of income, the rent is 42% of income. Nuts. I am sure the hiring company thinks they are offering a good wage and it probably was pre-inflation policy errors of late. If I could do it, I would give him a gift to make a downpayment on a house but that would be a taxable income to him and house prices are also nuts. Good thing this inflation is merely a first class transitory bump in the road.

[Ken Robb]

An important motivator for renters to become buyers if they want to live in a single family home/townhome is security. Most of these structures that are available to rent are unlikely to stay rentals indefinitely so the tenants have to be prepared fo the possibility they will have to move at what may be an inconvenient time and will be a lot of trouble and expense.
The renters can also be sure over time the rent will continue to rise more than an owner's expenses will rise. Being an owner goes a long way to protecting people from these insecurities.

OTOH if a person is happy renting in an apartment complex he can be pretty sure his apartment home will remain a rental for a LONG time and while the rent will likely go up it will still be constrained by a competitive market. There have been situations where rental buildings have been converted to condominiums and tenants had to buy or move out but they usually got special pricing and plenty of notice to move or buy. Being a tenant certainly protects folks from a bill for a roof/replacement or other major expense that owners have to be prepared for.

[ORMojo]

Originally Posted by ripvanrando

If I could do it, I would give him a gift to make a downpayment on a house but that would be a taxable income to him and house prices are also nuts.

Generally, a parent gifting cash to a child does not result in the child owing tax on the gift. The parent(s) may owe tax, but it is unlikely until the gift(s) reach large amounts. First, each parent may gift $15,000 per year, for a total of $30k for both parents, with absolutely no tax or need to report the gifts. Second, when an annual gift from one parent exceeds $15k that parent must declare the gift on form 709, but then the lifetime exclusion kicks in. The lifetime exclusion currently excludes the first ~$11.7 million per parent from being taxed. In other words you would report a gift of, say, $50k on form 709, calculate the tax due on that gift after deducting the annual gift exclusion of $15k, and then claim part of your lifetime exclusion, in effect "paying down" your lifetime exclusion by $35k, and owe zero tax on the $50k gift.

Disclaimer: I am not a professional tax preparer.

[bigbill]

Originally Posted by Likes2ridefar

Perhaps it is your area but section 8 seems almost nonexistent in Scottsdale. Rents have skyrocketed here, some of the highest in the country now, and where I live they increased it by 20% roughly since Covid became a thing….not saying that is why but that is when the increases began, about a year in. If they raise ours that much next year we are screwed and basically have nowhere to move in the area and will be forced to leave the state.

Yours is likely the result of the number of people relocating to the PHX area. Phoenix metro is a top five growth area for the country, you're likely dealing with supply/demand and what people are willing to pay.

In Kingman, housing prices are up because of the influx of Californians and snowbirds. A large home with an acre lot and three car garage can still be had for <$500k. A person can sell their home in California and pay cash for a house here. Builders are capitalizing on it. I paid $245K last year for 1800, 3/2, half acre, and three car garage. Smaller houses on smaller lots are selling for $330K+.

[benb]

Originally Posted by ORMojo

Generally, a parent gifting cash to a child does not result in the child owing tax on the gift. The parent(s) may owe tax, but it is unlikely until the gift(s) reach large amounts. First, each parent may gift $15,000 per year, for a total of $30k for both parents, with absolutely no tax or need to report the gifts. Second, when an annual gift from one parent exceeds $15k that parent must declare the gift on form 709, but then the lifetime exclusion kicks in. The lifetime exclusion currently excludes the first ~$11.7 million per parent from being taxed. In other words you would report a gift of, say, $50k on form 709, calculate the tax due on that gift after deducting the annual gift exclusion of $15k, and then claim part of your lifetime exclusion, in effect "paying down" your lifetime exclusion by $35k, and owe zero tax on the $50k gift.

Disclaimer: I am not a professional tax preparer.

I bet it takes a good retirement/real estate lawyer about 5 minutes to find a trust setup to bust those limits down.

[ORMojo]

Originally Posted by benb

I bet it takes a good retirement/real estate lawyer about 5 minutes to find a trust setup to bust those limits down.

Doesn't even require a lawyer . . . I've done it, and I'm not an attorney.

[prototoast]

Originally Posted by benb

I bet it takes a good retirement/real estate lawyer about 5 minutes to find a trust setup to bust those limits down.

https://www.bloomberg.com/features/h...tax-free-2021/