Rising Cost of Rent

Rising Cost of Rent? Why?

Over the past few years, Rent has nearly doubled in many areas of the United States. Obviously the first to be blamed is the landlord as the word landlord in today’s English language has become synonymous with target. While many things determine the cost of rent and effect it in the market, we live it is rarely if ever the landlord just wanting more money that drives it higher and higher at such a quick pace. Several factors affect the cost of rent. One being the initial cost of the house plus repairs to make it livable. Another is the cost of maintenance, insurance and taxes on these properties, and another is compensating for bad renters.

As stated above, overall cost of the initial house directly effects the cost of rent. Most landlords adhere to the rule of 1%. This states that to be safe in a property you need to be able to rent the property for 1% of the total purchase price. Immediate repairs would also need to be factored into this as well to cover yourself. For example: A house that initially cost $100,000 would need to rent for $1000 per month based on this rule. I personally do not totally concur with this rule, and I believe after years of investing that you really need to be bit more aggressive in repaying your initial investment to be safe but for the purpose of this article the rule of 1% will suffice. This being as it is, obviously the past few years have seen a drastic increase in the cost of housing. Rising prices in housing directly equals rising prices in rent. Very simple and straightforward connection.

Maintenance, insurance and taxes are yet another culprit that directly affect the cost of rent. This cost may be even more damning that the initial purchase when it comes to the final tally on a rent contract. With a house increasing so much in cost and value, insurance is naturally going to increase to keep up with the insurer’s risk. I can also assure you that your best buddies in the city government will not miss a great opportunity like a robust economy and booming housing market to raise your property taxes. Again, direct connection to rent cost. Also factored in is always general maintenance which also increases in cost every year. Both parts and labor to keep your house running as it should increase in cost therefore rent must go up as well to supply the demand of the necessities.

There is also a third factor that isn’t always talk in textbook rental property but in fact a real factor into the cost of rent. Bad tenants! Yes, we may want to avoid them but if you have been in the rental business for any number of years you have come across some of these and they can be quite expensive.  Bad tenants rent houses or apartments without an intention of staying long. They travel from landlord to landlord and prey on people who do not do their due diligence when performing the tenant selection process. It is important that you preform tenant screening to try to miss out on some of these guys. Many times, when these types of people weasel their way into your home they end up doing significant damages to your house before finally being forced to vacate the property. In a retail store environment this would be called shrink. Manufacturing facilities would call it waste but regardless of its name it is a real business cost and must be factored into the overall cost of the product. In this case, rent. Bad tenants have a direct effect on rent cost without a doubt.

As you can see there are numerous factors affecting the cost of rent in todays environment. Though it may be easy to blame the landlord or the property manager it is highly likely it is very much out of their control. Hopefully you found this article helpful and would like to be a part of our online community of landlords. Be sure to visit us at http://www.undergroundlandlord.com and refer a few other landlords as well.

 

Written by: David, The official and original Underground Landlord.