The following question was posted by “Newbie” in yesterday’s thread:
I have been reading here for the past couple of months, my purpose being to understand if it is worth buying a house/townhome in seattle.
Now, landlord just increased my rent by 15%. This is pushing me towards seriously considering buying. What do you suggest?
A 15% increase sounds pretty excessive (unless the previous rent was extremely low), but I suppose it would be possible if the landlord believed for some reason that they could actually get that price. Leaving aside judgments about the veracity of the question, I’m sure there is a lot of advice out there for Newbie on how to find a good deal on a rental, and plenty of opinions about buying a townhome.
It is worth pointing out that if Newbie is a resident of Seattle proper, the law requires that your landlord provide a 60 day written notice of any rent increases larger than 10% (p. 3). For more information about renter’s legal rights with respect to rent increases in Washington State, refer to Tenants Union of Washington State.
What kind of constructive input would you have for someone in Newbie’s situation?
15% of what?
My landlord also raised rents by double-digit percentages. Guess what? Even at the higher rate, my rent is nowhere near what it would cost me to “own” the same space.
Sure, it sucks to have your rent increase — but unless you’re paying $2k or more per month in rent, you’re not going to come out ahead by buying at this point in the game….
Just an FYI, the Seattle law which limits rental increases to 10% applies to *housing* only.
This is why landlords like to maintain a separate rental agreement for any parking/storage. They may be limited to an increase of 10% on the dwelling, but they can increase the associated parking/storage costs by arbitrary amounts.
As far as trends in rental costs goes:
Now that people are beginning to recognize that interest rates are up and appreciation is poor, rental is becoming attractive again. There will be upward price pressure.
On the other hand, many landlords bought investment properties with questionable mortgages and unrealistic expectations of appreciation. Small-time landlords may be willing to compete aggressively to get someone to cover their mortgage payment, and we may see some downward price pressure on rentals as well.
The first thing that ‘newbie’ should do is shop around. If they spend an afternoon on the web looking up other rentals in the area, they will get a good idea whether their rent is in line or excessive.
If it is truly an excessive rent, then be willing to move. Before you move however, check back in with your landlord and explain you have found comparable homes for less. Explain you are ready to move, but it is a better deal for both parties if you remain. The landlord may see the light and realize that a tenant who pays on time with a 6% increase may be preferable to an unknown tenant. This is especially true if they miss even 1 month of rent.
Quick math…100%/8 = 12.5%. Therefore, a 15% increase with one lost month only gains the landlord a net increase of 2.5% for the year. Obviously, this approach does not work when occupancy is tight and you live in a desirable location.
My advice is to shop around. There are a lot of rentals on the market right now. At worse, you could stay in an extended stay hotel for around $1400/month. Summer is the hot rental period and prices are higher right now. If you can wait a few months then rent prices should drop.
Looking around my neighborhood (QA south slope), I’m seeing For Rent signs that are staying out longer than usual. I expect those landlords are asking too much.
We just had a big rent increase, but there doesn’t seem to have been any turnover – the prices are still within reason.
If you live like a minimalist and don’t own a bunch of “stuff” then it’s easy to bounce out.
If you own a garage full of crap that does little more than collect dust then first ask yourself “Why did I buy all this?” then ask yourself “Do I REALLY need to keep it?” Then…order up a dumpster and get rid of it.
I myself don’t even keep a “clutter drawer”. My brother on the other hand has 6 different sizes of coolers and insists that he needs them all. What a dope.
Research rentals. Negotiate hard and be sure to remind your LL of Rose Colored Coolaids’ point that one lost month negates most of the gains.
This is probably the only country where many people can only fit one car in a two car garage…if even that.
Alan, re your statement:
Summer is the hot rental period and prices are higher right now. If you can wait a few months then rent prices should drop.
Why is that? Do you know what months are traditionally lower for rents? It seems like summer rents would go down because everyone is out of school, and in fall they’d go back up because of student demand for housing.
My landlord raised the rent on my rental in California by 15% and this provided me with the motivation to leave California and buy in Seattle. Yes, my mortgage plus tax plus insurance is a little less than twice my old rent but I now own a place several times nicer than my rental in a great neighborhood. Also, I don’t fork over 8.2% of my income in state taxes. Couldn’t be happier. My landlords greed was good for me.
Let’s say you rent was $1500/month. +15% is only $1725, which works out to a mortgage payment of around $1200/month, or a unit costing around $220K w/ 20% down.
If you are really paying $1725/month for an older 1 bedroom condo (what you can get for $220K), something is wrong.
Rising rents are often a phenomena of that final topping process in a real-estate bubble and could actually signal an impending fall in real-estate prices over all.
Many other markets in the US (e.g. San Diego, Miami, Las Vegas) saw rents start to rise significantly a year or two ago as a lot of rental inventory was taken off the market in the condo conversion mania. However, once all the newly minted condos (converted and otherwise) started working their way onto the market inventory became flooded once again as struggling flippers were forced to rent out their properties since no one was willing to buy (at the high prices they needed to cover their debts).
In other words, rising rents might actually presage an upcoming crash in housing prices.
$1725 a month is equivalent of a mortgage payment of ~$2250/month after the tax shield. I think you applied it the wrong way. Assuming the payment is mostly interest and taxes, equivalent mortgage = rent x (1+marginal tax rate)
Don’t forget to include property taxes in your calculations — those will add on a sizable chunk of change to your ownership cost in Seattle, and they’re rolled into your rent.
Mister B –
you’re right. I should’ve said PITI.
However, Let me be the first to say that I don’t want to restart the rent vs. buy calculator discussion…
I don’t want to restart the rent vs. buy calculator discussion…
I can understand that, but it seems like the Newbie’s question is just another incarnation of rent vs. buy. Y’all know which side of the issue I’m on….
Thaxter,
I’m not certain why there is more demand in the summer, but it is what I hear from everyone. I’ve also seen rents go up on Craigslist as we moved from spring to summer.
I have some theories:
1. College graduation happens in the spring and all the new graduates move here for jobs.
2. Families with children like to move during the summer so that they don’t interupt the school year.
Real estate sales in general seem to be more active during the summer. You can see that in the graphs that Tim posts.
There are probably other reasons for the increase, but I don’t know what they are.
rents are cheaper during the winter because the weather blows (for most people, I happen to like it)
btw, I wonder what seattle eric is doing now? possibly day trading stocks and waiting to buy into the latest IPO’s
It depends on the place and the landlord if you should pay the increase. As far as I’m concerned the rent issue is one of the reasons to buy with fixed rate mortgage.
What I did in a very hot Real Estate market of the later 1980s was buy a house that had a very tacky addition stuck onto the back. The addition had a full bath and laundry area. I converted that three hundred square feet into a little apartment, walled it off to make a place for myself and rented out the house.
Over the course of time I took over the house and rented the apartment, eventually remodeling the apartment into an office.
The thing is that the mortgage payment of eight hundred dollars a month I was paying when I bought the house looks pretty cheap today. My thinking is that even at the rents there are today people end up living in shared spaces. For me, I would rather be in control of my space.
There is no doubt there is very cheap rent to be had today. 15% isn’t really that much. There are situation where the owner has had the house or apartment building for a long time and can afford to keep the rent low. The fact is thougjh I have several client s today who are leaving properties vacant while they decide if they want to sell.
The same conditions you guys talk about all the time are the same conditions property owners think about. I have sold three houses in three years. They were cheap rent. Why would I keep them? Why would I have a renter in my house if the appreciation of the house is going down rather than up?
You see incresed rents before the bubble burst from people who don’t care if they keep the renter. Many of the people I know are deciding to sell, bank the money, and buy again as prices retreat.
Seattle Eric’s last listing still says pending as of April Fool’s Day ‘07 even though it sold on April 19. He does not appear to be carrying any more listings. His Mukilteo house (paid $380k in 12/05) sold for $537k, down from a list of $600k. His West Seattle house (paid $450k in 6/06) sold for $587k, down from original list price of $649k.
Oh, I’m on the same side of that one. I just don’t find the what goes where on a spreadsheet discussion to be interesting or even all that relevant :^)
There is another major reason to account for the rise of rents right at the peak of a real-estate market, before the plunge (other than the fact that inventory decreases due to condo conversions and the general mania for landlords to cash-in and sell). At real-estate peaks a growing number of potential buyers decide to stay out of the market instead of purchasing outrageously priced products.
However, it doesn’t take too long for rents to come back down again as the for-sale inventory keeps rising and more and more struggling owners turn to renting to stop the bleeding.
Just another reason to view rising rents as an ominous sign to real-estate in general.
Call the landlord’s bluff. Every month his house is empty is ~8% of a year’s lease, so just two months of vacancy eats up that entire increase–add in painting/cleaning/marketing costs and he’d be lucky to come out even after just one month’s vacancy.
Make sure you are really ready to move before you challenge him. I’d at least have several inquiries in to other places before you do.
Make sure, Make sure, Make sure you have somewhere to go even if it means sleeping on someones sofa after putting your stuff in storage. But what ever you do make sure you can still get a good reference from your LL. Do Not Get Into a Fight. Leave on good terms.
P.S. Best way to find a new place is to get on your bike and go through your nieghborhood street by street. The cheepest apt. are usually rented by small time LL’s who post a sign in the window.
It’s interesting to hear the viewpoint on this from a property owner’s POV. I have been a potiential first-time buyer for a long, long, time, and for me, the numbers, circumstances beyond my control, not having the advantage of a dual income to leverage, and my level of savings has never given me the chance, even though I have a high FICO–outside of a subprime (mis)stated income loan. I sometimes feel penalized for being responsible now, but I get over it quickly, especially with what is starting to unravel now.
I have been looking for another place to rent for the past two months, since my building was sold to a specuvestor with a long history, due to an immenent notice of conversion I expect to recieve any time, My experience as a renter in Seattle for 17 years has netted a few anecdotes:
The last time I moved, in 2000, due to gentrification (insane increases), of the rent, the vacancy rate was below 5 percent, the supposed magic number where neither landlord or tenant have market leverage. It took three months to find my current place with a vacancy rate of 4% THEN.
The rate is under 3% now, and landloards are milking it for all it’s worth. They are also demanding 12 month leases, and many of those leases containg very severe traps. There are more students electing to stay here over the summer, and the number of them who leave don’t appear to me to have as large of impact on vacancies now, if they ever really did. Few like to move from November through March, so any vacancies that happen at that time keep most rent increases in check by fewer people wanting to move.
With the number of in-city condo conversions, and the lack of apartment buildings being built, the numbers of people displaced have risen dramatically. I encounter them all the time in my current searches. Some of them are just using that as a sympathy ploy, but there are still a good number of them that are valid.
There are also people still moving here, thinking this area is still the relative “paradise” it was in early-mid 90’s. I won’t go into that.
The number of in-city apartments available in reasonably decent areas has been decimated by condo conversions in the past two years. Few that live in those soon converted apts want to continue living in an apartment with the responsibilites of a condo, even if they could somehow afford what becomes a POS condo that they try to pass off as “affordable.”
There are even fewer vacancies, and the vast majority are way-overpriced POS, and the landlords know it, hence they want to lock you into a minimum one-year unbelievably restrictive lease. Run fast if you ever see the NWMLS cookie cutter house/apartment one! They have taken apartment rentals to the boarding house level restrictions.
Things like partial utilities, e.g. Water, Sewer, Garbage, parking, and the newest trick, “pet rent” are what you have to deal with, if you are allowed pets of any kind at all. If you have guests that smoke, (outside on your deck of course), want to BBQ on your deck, or like to burn candles or occasional incense, is now often ANYWHERE on the grounds, using the WA State law regarding smoking as justification.
This is what you have to take into consideration now.
Opps, important clarification to the above:
If you have guests that smoke, (outside on your deck of course), want to BBQ on your deck, or like to burn candles or occasional incense, is now often BANNED ANYWHERE on the grounds, using the WA State law regarding smoking as justification.
The competition for rare, reasonably priced one and two bedrooms is INTENSE.