Just like any other business, the rate or cost you end up paying depends on the cost of doing business.
All of the following seriously affect rental rates. Some are easier to address than others.
- Taxes.
- Insurance.
- City costs.
- Eviction costs.
- Legal expenses.
- Lost rents.
- Maintenance and repairs.
- Property values.
- Laws protecting bad tenants and rent controls.
Now lets address each one of these areas.
- Taxes are higher on rental properties as they do not qualify for the homestead tax credit and used for business. Yes uncle sam wants a piece of your rent to.
- Insurance is higher on rental units because they pose a much higher risk of vandalism from a tenant. Better laws to protect landlords from bad tenants could ease this somewhat.
- City costs. Many cities come up with inspection fees that can be ridiculous at times. Once again uncle sam wanting another cut.
- Eviction costs. Court fees and the time it takes to get out a deadbeat tenant working the system can take months and even longer in some areas. Most landlords who has a mortgage is working with no more than a 10% profit margin. One bad tenant will undoubtedly put him in debt for years to come.
- Legal expenses. These can range from helping with an eviction to putting together a lease. And are not cheap.
- Lost rents. Any experienced landlord knows the odds of collecting on owed rent after an eviction is less than 10%. Kind of addressed this already in #4. But if the rent was say a thousand dollars a month? And a landlord made 10%. (100 dollars) and it took 6 months plus say a thousand dollars in legal expenses and more than likely 3 to 5 thousand in damages because they’re mad they’re being evicted. The landlord is now out 10k or more getting rid of this person. (And yet some wonder why landlords won’t rent to someone with an eviction on their record) that’s 100 months to break even to where they were before.
- Maintenance. Some tenants are just outright rough on a unit and always need something done. It gets expensive.
- Property values. This has a huge impact on rent. Why would any investor spend thousands more for less income? They would simply invest in something else. Meaning less rental units available.
- And finally laws protecting bad tenants and rent controls.
This is a huge sore spot for me. On one hand government wants to control rents all while making expenses high for landlords. This makes about as much sense as putting gasoline in a car with no engine. Let me give you some examples.
A. Put rent controls in place that limit and sometimes even freeze rents. All while telling the landlord yes you need to pay your mortgage and other bills but you can’t charge more than this. They have to cut corners somewhere. Why do you think all rent controlled areas are very run down or on there way there?
B. The moratorium. They made it where landlords couldn’t evict ANYONE for not paying their rent. Regardless of ability to do so. They did also make it where they couldn’t be foreclosed on as well at the time. But that really didn’t help at all in the end. Because at the end of the moratoriums. Tenants were now 10s of thousands of dollars in debt and couldn’t pay or even catch up. But now landlords were facing double jeopardy. On the tenants side they were now facing the costs to evict them. On the banks side they were being told hey the moratorium is over. You owe us thousands of dollars in back payments. Can you come in tomorrow and bring your account current? Does anyone find this to be fair?
C. Bad laws. There are many bad laws on the books against landlords. To many to list here. But each and every one of them ends up costing him money. Or should i say costing YOU MONEY. Because the end user has to pay it. No business can survive by taking in less than it pays out.
Now tell me where you think we could cut costs to help tenants out?
It can’t be done by instituting laws that protect those who would abuse the system or by restricting business practices. If a business is not profitable? One of two things is definitely going to happen.
- They charge more and more until it is profitable.
- They invest in something else.