WHY are rents so high?

[Kohinoor]

It struck me tonight - we can be so "spinned" by the media, etc.

Earlier tonight, I replied to a thread re "How rents are spiralling upward" - and, yeah, the poster is right - they are!! Why? Because of Supply and Demand - end of story!!

WHY has this come about? Well, let's look at it from a Landlord's perspective :-
1. 3 years back, mortgage Interest was ~ 6%
2. Today, mortgage Interest is near 9.5%

Umm, is that a 3.5% increase? That's what the media would say - but, hold on..... let's take an example..... let's say I am a Landlord and have a property that cost $350,000 with a mortgage of $300,000.

The Interest on that mortgage 3 years ago was $18,000 per year
Today, the Interest would be nearer $28,500 per year.

Hmm - now is that a 3.5% increase? Nup - it's a 58% increase !!!

At that rate, if you paid $250 a week in rent 3 years ago, then today it would be $395 per week !!! Is that YOU?? If it is, at least now you might have some idea WHY these rent rises occur.

I mean, if Landlords DIDN'T raise rents, then they cannot afford to KEEP the property - so you would then have to find "somewhere else" - and bid against 20 other eager renters who want to "bid up" the rent, just to find a place to live.

Of course, you could always choose to "get on the train" (from my quote in Drexyl's diary - "Get on the train - you can always change carriages later") but can you afford it? At the moment, renting is STILL cheaper than buying - but the cycle is moving on..... and rents are increasing....

Koh

PS It's all cyclic - play the cycles, and you can do well for yourself and your family !!

[CMM]

Ah Koh...

Hear hear, another landlord here that has the same argument for family and friends, but they still don't like me saying it.

Generally the words 'capitalist' and a type of animal come out somewhere during the conversation....

We've even had our BIL ring and plead on behalf of a tenant not to raise the rent - when she was paying $100 a week below market value when we bought.... hmmmm.... odd.

[Kohinoor]

Hi CMM,

Yep, it's a funny old world for sure !!

Hear hear, another landlord here that has the same argument for family and friends, but they still don't like me saying it.

What, didn't they live through the days (years) when the Landlord would come by and say "The rent is going up" - and they paid it? All of a sudden it is different if it is YOU who is the Landlord? WHY????

Generally the words 'capitalist' and a type of animal come out somewhere during the conversation....

Umm - could that be otter ? Yep - that's it - capitalist otter - happy little furry thing - and SO cute

We've even had our BIL ring and plead on behalf of a tenant not to raise the rent - when she was paying $100 a week below market value when we bought.... hmmmm.... odd.

I wonder why your BIL thinks you should subsidise others into their housing needs. Have you asked him? Has he asked you to subsidise HIM too (you capitalist otter you )

CMM, as you well know MOST people appreciate that they must pay "market rent" until they make the break and purchase their own home. Happened to me, I'm sure it happened to you too. It's life the way it is, yeah? And most accept that. Now and then though, FAMILIARITY (or family) steps in - and then is when you are branded as a "capitalist otter".

I wonder why the family doesn't think the same way when the butcher puts up prices, or the local supermarket, fruitshop, etc. Umm - it's OK for them, but not for you ???? Even though YOUR costs have gone up 58% ????

As with ANY business - if you crank prices too high, the competition cuts you down - right? So, you set your price to be competitive with others offering the same. It's a bloody business.... (Isn't it?)

Maybe just remind them of year 2000 when Landlords had to DROP rents by over $100 a week (often giving 3 months free rent) just to get tenants. As always, it's a cycle, as I posted earlier - and it is changing - soon it will likely be cheaper to BUY than to rent - wonder what "family" will say then, when you (and me) need to drop rents? Are we then "getting our come-uppances" ???

Thanks for your post, CMM - always good to know we are not alone (whether that be weight-loss, or business)

Koh

[CMM]

Koh, couldn't agree more, the reason my family doesn't understand is because they have:
1) NEVER rented (with the exception of a couple of years in a caravan when I was born, and
2) NEVER invested.

BIL - well, I said a few choice things for hubby to pass on but he didn't (probably lucky) , but the upshot of it was that the tenant has her OWN rental property, she just stays in ours because it is in a great location, close to beach, etc., and she was more than understanding. I mean, it doesn't make business sense to 'give' someone subsidised housing. And she is paying it, as she said, thanks for the notice, it gives her time to look at her budget (and most likely increase her own rent income as well).

yes, very nice to see/hear from someone with a similar pov.

Cindy

[louise41]

All very true - and that doesnt take into account when your tenant trashes your property and skips town leaving you to contend with both the damage bills and usually the unpaid rent as well! I think people think that landlords are rich when the truth is that usually they are the standard aussie battler just trying to get ahead and going without to do so.
Louise

[Kohinoor]

Hi Louise,

I think people think that landlords are rich when the truth is that usually they are the standard aussie battler just trying to get ahead and going without to do so.

Right on there, Louise !! About 9 years back it hit me that I didn't want to TRY to exist on a pension when I turned 65 (I had 13 years to "turn it around"). I think I might've done it - not quite sure yet, but it's looking far better than 9 years ago.... And yeah, we've "done without" to get here (still are to some extent - but the light is getting brighter)

Fortunately, back then, I read some good books, met some great people, and learned a few important facts - many that stick with me today:-

1. If you think education is expensive, try ignorance !! (I decided to spend a bit to learn HOW to do what I needed to do !!)

2. You can't change direction in a parked car !! (so I had to get the car moving - by "doing" - and have changed direction a couple of times since)

3. Don't ask a barber "Do I need a haircut" (there are many out there who have their own barrow to push - to really learn, ask those who have done what you are wanting to do, and are just happy to share).

4. Learn from history - I've heard from EVERYBODY "I wish I'd bought TWO houses back when they were cheap - think early 1960's, when a NEW home cost $5000. Of course, this was from a weekly wage of maybe $20 - so it was HARD, even back then !!! Which is why not many even get to try ..... it's hard, but not impossible (a bit like Cohens eh?) ....

And one of my hot buttons:-

5. Two things will have the most marked effect on your life - the people you meet, and the books you read.... I've found that to be SO true !!!


Oh, and one other thing I wanted to acknowledge refers to my "58% increase" comment. Of course, that also applies to those buying their own home (which is why there is so much pain around at the moment !!! I'd made the comment in replying to the "rents going up" post. But it is equally valid for others too - and yep, it's been pretty hard recently for all. Just remember though that "hanging in there" IS worthwhile.....

The cycle is moving on - and it will all be better "tomorrow" - so hang in there if you can. (That almost sounds like a Cohens mantra too, doesn't it?)

Koh

[Kohinoor]

Hi CMM,

I wanted to come back to THIS comment of yours :-

the upshot of it was that the tenant has her OWN rental property, she just stays in ours because it is in a great location, close to beach, etc., and she was more than understanding.

I worked out for myself that it is actually CHEAPER to rent AND own a renter (because of the Tax benefits) than it is to BUY your own home !!

I don't personally do that, as our home is a pre-1985 purchase (no CGT on sale). It has helped to grow our little business by providing deposits for renters so we keep it - and anyway, we like it. (and since we'd paid it off, any loans against it are for investment purposes - thus Tax deductible anyway)

But, if starting again, I'd be pushing to RENT while we bought our first Investment properties.....

Sounds like this lady has that sussed too - as such, she WOULD be understanding.... She's doing pretty good, I'm sure - no need to subsidise her eh, no matter what BIL says?

Koh

[FotoHijinx]

I'd just like to put my capitalist hand up!!!!

I have a rental property - totally agree with everything you've said Koh (such a clever puppy, *pat pat*)

I also have a mortgage and I was much better off renting, but I'm glad I bit the dust and bought as I have made over $100,000 in a little over a year since buying it - gotta be happy with that (well, if I sell it - that its).

Cheers
Irene

[Kohinoor]

Hi Irene,

I also have a mortgage and I was much better off renting, but I'm glad I bit the dust

You COULDN'T have !!! Must've bit the bullet, I reckon

and bought as I have made over $100,000 in a little over a year since buying it - gotta be happy with that (well, if I sell it - that its).

Woohoo - sounds like you bought well, or in the right area ..... Noice !!! I'd say you should be happy, I would.... but, no, you don't have to sell it to get the benefit - depending on your future plans of course - it's an old myth about "can't sell a bedroom when you own a house". Well, they're right - but you CAN borrow against extra equity (or, at least, you COULD - with the current dramas, who knows how long THAT will last eh?)

Anyway, good on you for "getting on the train" (twice) !!!

Koh

[louise41]

It may be more cost effective to rent yourself and rent out your own property, but might I say as a "nester" whose favorite pastime is to garden and improve my house I just love living my own own house and having the fliibility to do whatever I wish to it- plus I do things that add to the value of the property so I guess its a win/win as I add equity.

[Kohinoor]

Hi Louise,

I just re-visited this thread and saw your comment

It may be more cost effective to rent yourself and rent out your own property, but might I say as a "nester" whose favorite pastime is to garden and improve my house I just love living my own own house and having the fliibility to do whatever I wish to it- plus I do things that add to the value of the property so I guess its a win/win as I add equity.

Hey, good on you, Louise - you are right, in that if it's right for you, it's right for you. And, yes, you will be the winner down the track too.

For me, I was looking at accelerating the growth - and home ownership is slower, yet you still can (and will) be successful down the track. One of the great positives of home ownership is that you take a mortgage of $xyz,000, and hang on tooth and nail while the world turns. Then, some time down the track, (say 10 years) the value of the property has doubled BUT THE MORTGAGE HASN'T !!! Isn't that exciting????

Now, what if you could afford to buy ONE more? And wait 10 years?



The really good thing about the second one is that:-
1. A tenant helps to pay some of the mortgage
2. The Taxman also helps
3. Insurance can help with those "tenants from hell"
4. If you "move on", 10 years later, anything you move into will be similarly priced - BUT, your rental and it's mortgage will still be in place, and WAY cheaper and paying you for being "forward looking"
5. You help to "continue the cycle - if I couldn't have rented "way back when" I might still be living with Mum. So, in a sense you are providing a service, and being rewarded for so doing.

I think it was Robert Kiyosaki ("Rich Dad, Poor Dad") who said "We pay quite a premium for wanting to live in our own home". By all means pay that premium, if that suits - but consider improving your lot by looking outside your current "norm" - who knows, you might like it,

Koh

[louise41]

Too late Koh - already have, years ago- when I was just a youngster

[Kohinoor]

Hi Louise,

So are you another capitalist otter too?

Koh

[louise41]

Proudly so Koh! I have worked for all I have - no handouts

[katiefrank70]

Hey all

I just seen this thread. WOW. I wish my hubby thought like all you lot. I'm pushing to buy a investment property in my home town. But for some reason he just won't budge on it. Since he is the major bread winner in our family I can't just go out and get the mortgage on my own (wait till I'm an RN then see). That's exactly how I see it. Large sum down, let the renters pay the bills on it, and in 10 years 100,000 + on it. Makes a great little retirement fund. Who wants to retire on the pension and dig cans out of the bins to suppliment it NOT ME!!!

Katie

[louise41]

Good on you katie, you go for it!

[Kohinoor]

Hi Katie,

I'm with Louise... i.e. you go for it - if hubby won't "get in behind", you do it for you. Might take a year or three, but hey, it took me QUITE a while to even LEARN of this as an option...

I'm pushing to buy a investment property in my home town. But for some reason he just won't budge on it.

OK, I don't know your "home town" so can't comment on the viability. Suffice to say, many are doing what I am doing, and many are the beneficiaries. Will it work in your area? I dunno. Even if you told me where you are, I still dunno. Unless you are in Brisbane - then, I might have a clue

But, for your hubby, let me quote something from one of my "early learning books":-

An interesting thing may happen around Shirley's 50th birthday - even though she becomes motivated to start saving her way to retirement, she vows she will never mortgage their family home to provide security to buy investments......... This is one decision that will ensure their poverty

That was from Bruce Davis's book "How to Build Riches" (p243) and it sure sang to me.

We DID borrow against our own home, as the only major asset we held. Of course, this should not be done lightly, but only after some diligence.

One other quote that speaks to me is
"The biggest risk in life is to take no risk at all"

Now and then, we need to chance our arm - Katie, you sound like you're ready - just be sure you are "a full bottle" before taking "risky" moves. For me, I find property is a most forgiving investment.

Good luck with either convincing hubby, or going it alone !!

Koh

[louise41]

I agree with koh, I have been buying and selling property since I was 20. When I first started I had many who thought I had rocks in my head. In time it was those who had scoffed at me who came back and said they wished they had followed my lead. Good luck Katie, there is a saying I heard recently. "The best time to buy property was yesterday, but today will always be better than tomorrow"

[katiefrank70]

Hi

Back again. This subject just sings to me. I was a builder / renovator in another life once I think.

I live in Broken Hill Koh. And definitely this isn't the town I am looking at. It is too reliant on mines and has severe down times along with the high up times. Unfortunately down times last longer than up times. Where I am talking is in SA somewhere along the coast. I think cities would be a better investment in the long term re risks etc. Got to weigh one against the other ie cities vs small towns.

Louise, I really admire that you started this when young. I used to think why didn't I start then, but obviously I wasn't ready. Kind of like Cohen's. The way I am going, I will be ready to start my multi-million dollar investment industry in about 5 years. Have got the nest egg started and will be in a much stronger place by then.

I have loads of books on investments. And property always seems to be the most reliant. Look at the share market right now. I have a few shares (not a lot) and will just have to sit still to get through this right now. But people always need a place to live

Have a happy sunday guys

Katie

[louise41]

Good luck Katie, sounds like your on the right track, you just have to get the ball rolling with the first property