All Forum Posts by: Billy Zhao

There's a big difference between managing 30 doors and 3 doors. When you are a small self-managed landlord, you know your tenants by first name basis and there are considerations that may yield economic benefits. For instance, I supply my tenants high-quality air filters for all HVAC units hoping that they will replace them monthly so that I don't have to replace those A/C units as often (and in the dead heat of August). The tenants do feel a bit of "pride of rentership" so they will let me know they did all the things I asked them to do hoping I won't raise their rent. So there's definitely psychology involved here.

Once the properties you own get over to a certain level (like 30+ doors), there's no way you can build that personal relationship, so I can see the need to make all these operationalized and as efficient as possible.

Am I wrong?

I like your approach. I am thinking to offer minor amenity upgrades in exchange for a small rent increase. Or, if tenant sign a 24-month contract, I can offer them a cashback bonus but the rent/mo goes up on paper. With all honesty, if they treat me well, I will treat them well, seems to be a good rule of thumb at least for small landlords... I could be wrong though. 

I don't disagree with you, however, there are a couple of factors that are more subjective than objective:

1- is it possible that your rent increase that caused more frequent vacancies?

2- is it possible that the rental market is stagnant or even declining (like New York City right now)?

3- what if your current rent level is already higher than most other places near you. There are many mom-and-pop real estate investors who choose not to raise rent for various reasons. You are competing against them and their low rent pull down the market. In my case, my rent is $1,450/mo and barely produce cashflow while there is another unit just came on the market for $1,300. I think the owner simply didn't know how much to charge as I can't imagine how he/she can make profit on $1,300 rent. 

Thanks for all the comments, I think I will summarize them and come up with a more automatic way of dealing with this. 

The next question is to determine the market rate which can be tricky. There are very few properties that are comparable for rent in the area. The range can be quite wide ($100-$300) as well. 

As a small landlord, each renegotiation is a bit personal since they know me well. This makes the decision-making process a bit harder. 

I wish this forum has a search function as I'm pretty sure this topic has been discussed in the past and there are probably plenty of opinions on the matter. Anyways, here we go:

I have two tenants that are up for renewal by the end of the year. I raised their rent consistently yearly for the last 3 years and they've been good tenants. With the current environment, I am hesitant to increase their rent but also seen my expenses continue to rise (property tax, utilities, maintenance cost all went up). 

Some youtube landlords like Graham Stephan advocated that if you have a long term renter that is low maintenance, don't raise their rent to push them out. On the other hand, people like Meet Kevin will say that you should always raise your rent annually no matter what.

I remembered that back in the days when I was a renter when I left college, the apartment complexes in Austin will always have a move-in special (like a month off) to give you a deal but upon renewal, they always jack up the rent by a hefty percentage no matter how good of a renter you are. So for apartment renters, the best way to save money is always threatening to leave and get the next "move-in special". (Apparently, this is also true for getting a raise at work. If you are loyal and quiet, you will almost never gonna get a promotion and raise, unless you jump ship or threatening to jump.) Apartment complexes seem to figure that out so they never actually rewarded loyalty and long term renters with low rate. SFH and small landlord might be a different story since turn over and vacancy eat into your bottom line tremendously.

What's your take on this?

 Carl, a lot of urban centers have expensive houses that approaching $1 million mark for home prices. Austin, TX, for instance has several zip codes that have average home value above $1 mil. So this is not merely a coastal problem, but more of an urban vs. rural issue. It's definitely not a rural and poorer areas of America subsidizing richer America as we know that these expensive markets offer much better jobs, and in turn contribute much bigger portion of GDP than poorer states/areas. After all, these markets are expensive because they are desirable and they are desirable because they have better jobs, right?

I am more or less economic libertarian and I agree that closing tax loopholes to fund yet another government program is not a good idea. Nonetheless, loopholes are loopholes. The law was passed for some other purpose, we just found a way to take advantage of it. On the other hand, the government is running out of money and it needs fresh revenue just to fund its existing obligations. You have only a few choices: 1- raise tax, 2- close loopholes, and 3- reduce expenses. I think #3 is probably the last thing any politician want to do, and yet it's probably a much needed step. Tax cut, which is just another form of spending, is not option #4.

Dude, Social Security and Medicare is the law of the land. Even if their trust funds run out, the law still stipulate certain amount to be paid out to qualified seniors of the society. Most western advanced society have something similar to this to ensure some level of social safety net for retired folks. You really should look into the history of 1930s and 40s before the onslaught of World War II to understand why programs like this literally saved America from becoming Nazi Germany or Soviet Union. 

In the end of the day, let's be real. Idiology is for idiots. We look at what we have, don't change too much of it, tweak it for the better, and move on. I wouldn't count on Social Security to be my main source of income after retirement, but I wouldn't count it off either. It's part of your whole life planning.  

Don't mean to kill your enthusiasm, but if Social Security loss its main source of revenue (payroll tax), we are in much bigger doodle than a bunch of renters can't pay their rent. The idea of payroll tax cut or permanently get rid of payroll tax has nothing to do with giving the little men a bit of boost in their ability to pay bills - but has everything to do with some people's dream of getting rid of social security for good.

No political judgement here, all I caution is that be aware of what you are wish for. Boomers generations are incredibly ill equipped in dealing with their retirement needs. A good portion of them depend on social security payment as their sole retirement income. By destroying social security or making it a 401k like program will cause a lot of unintended consequences.

And I doubt that 7.65% bump for an individual who is having a hard time paying his/her rent will somehow save them. On the other hand, the direct beneficiaries of this policy are the large companies with huge payrolls cause to them a 15% cash savings can be huge for their bottom line.  Again, no judgement, just the facts. I doubt that many of our biggerpockets readers care about company payrolls since hardly any of them are either evicting big companies from commercial real estate, or they expect to make a deal by buying a large company...

What's your take?

Question: even for new constructions, the low maintenance period will only last 5-10 years. After 5-10 years, repair cost will start creeping in. Things like A/C, roof, water heaters are all built with builder grade equipement, which don't seem to last very long (15 year seems to be the limit for a lot of these). Also, there might be underline issues like foundation that cannot be discovered during the warranty period. I've seen quite a bit of foundation repairs in North East Austin in new neighborhoods. 

Why not houses that are 10-20 year old? Some of these houses are likely already had its first round of large ticket maintenance items done with new HVAC, roof, etc, and their foundations are stable after all these years. If they are adjacent to the new development, their price will likely be depressed and not yet appreciated much because the new home price pressure. Once the entire area is built out, the appreciation will start accelerating.

Get rich quickly, get rich slowly, get rich at a steady but surely tempo - I prefer the 3rd option.