Rents Blog: Landlords say costs drive increases
Rents Blog: Landlords say costs drive increases
Don Lindsey began investing in Alameda half a century ago, after falling in love with the community and deciding he wanted to live and buy property here. Investing in property allowed him to be more hands-on than putting money in the stock market would have, he said. But it also carries risks.
“Owners have had years where the apartment next door becomes vacant, and if you don’t lower your rent, the tenant moves next door. It was really a struggle to keep these buildings filled up,” Lindsey said. “We’ve had years where you just wouldn’t think about putting out (rent) increases.”
Property owners who The Alamedan has interviewed and others who have commented on prior stories in The Alamedan’s running series on rents have said the recent rise in rents is only part of the story of rental housing in the Bay Area. They said the free market cuts both ways, impacting both tenants and landlords.
The Alamedan is including anonymous comments from self-identified landlords in this story because only one of the landlords the site contacted to interview for the piece was willing to speak about the costs of operating rental housing, and The Alamedan believes the context is needed to more fully and accurately tell the story of rising rents on the Island.
Alameda has seen some dramatic increases in asking rents over the past several years, data for large apartment complexes that was examined in an earlier story show. And some tenants and their advocates believe that greed, and not cost, is driving landlords who are handing tenants big rent increases.
But for the decade before these price spikes, rents on the Island were essentially flat – even though landlords’ costs continued to rise, some said. And they said the tight market has given them the opportunity to raise rates in order to cover those costs.
“First let me say the landlord property taxes increases by 2 percent a year regardless if rents are increased or not,” one person who identified themselves as an East Bay landlord on a prior story said, adding that utilities and other costs had gone up as well.
Taxes, utilities, insurance, maintenance, building management and depreciation make up half the cost of operating a rental unit, another landlord who commented on an earlier rents post said. That landlord said taxes have risen sharply over the past decade, which has seen Alameda voters okay a pair of parcel taxes and two bonds to support Alameda’s schools.
Items that cost $1 to buy in 2000 would cost $1.37 to purchase today, according to an online inflation calculator using federal Consumer Price Index data.
Landlords said they want good tenants to stay and that turnover costs them money, too. But when a tenant leaves, some said they would raise their rents at that point to whatever the market would support in order to recoup their costs.
“I have long term tenants, and I have raised the rent modestly (a two hundred dollar per month increase this summer) which was the first rent increase in 8 years. I want them to stay,” a commenter who identified themselves as Family Landlord wrote. “If they had to move out of the house for any reason, I would instantly double the rent for the next tenants, because that is what the market will support.”
Lindsey said he’s seen some of Alameda’s most populous addresses fall into foreclosure because their owners weren’t able to generate enough cash to cover their loans, taxes, insurance and other bills.
“We bought units in the mid-80s and we were selective in the buildings we bought,” he said. “Other people (who) bought in the same time period – they paid too much, didn’t manage them right, and they went back to the lender. They lost them.”
Alameda has a range of property owners, from local mom-and-pops who bought a few rental properties for retirement income to local investors and out-of-town giants with hundreds of apartments under management. Larger owners can balance costs among their properties and realize volume savings for costs like maintenance, Lindsey said. But their total costs are also greater than those facing mom-and-pop owners.
Longtime owners typically see lower costs thanks to lower purchase costs and the Proposition 13 tax cap. More often than not, landlords said, they pass those savings on to tenants in the form of below-market rents.
But when those longtime owners – or their heirs – sell a property to a new owner at current market rates, that owner has higher costs to recoup.
When an Oakland real estate agent who drew fire from City Council and community members for imposing steep rent increases on tenants living in a Benton Street fourplex purchased the building in 2012 from a family that had owned it for 50 years, its value jumped sixfold, from $105,798 to $652,000. Taxes on the property jumped from $4,630.46 to $10,930.04, records show.
Meanwhile, their rate of return may be lower than what rental properties offered here even a few years ago, according to one local real estate agent familiar with the multifamily market. The agent said the capitalization rate on some of the buildings he has looked at here – the return on a property owners’ investment in the purchase – is hovering at two to three percent.
In addition to managing increasing costs, landlords said they invest in upgrades like marble countertops and hardwood floors in an effort to attract good tenants. That investment also means higher rents.
“The landlord has no motivation to spend money on a tenant that has been in a unit for 10, 20 years with small increases,” the East Bay landlord wrote.
When San Francisco’s Carmel Partners bought Marina View Towers in 2013, the new owners got a $15,000 per year break on their taxes, records from the Alameda County Assessor’s Office show. But the company invested in a major seismic retrofit and upgrades to the 84 apartments in the 37-year-old building, now called Panomar.
Former tenants said the rents the company was asking on Craigslist were up to $1,000 higher than what the previous owner was charging. At one point, three bedroom apartments in the building were being listed for a rent of $3,300 per month.
Lindsey, who like other landlords, has voiced opposition to city-sponsored rent control, has advocated smaller and steadier increases; he’s spoken out against landlords who impose big increases on tenants. He’s advocating for better linkages between property owners and renters, which could help renters who find themselves in crisis.
“The reason we invested here in part was, it was free market. And you could go with the ups and downs – I think we’ve seen six recessions since we’ve started,” he said.
Lindsey said he thinks the market will shift again, as tens of thousands of new units being built across the Bay Area become available. Carmel Partners, for example, is offering a break of up to $1,000 for “select” one-bedroom units at Palomar, its website shows.
“The market will adjust,” Lindsey said.