be patient on rent increases within fast home value appreciation markets

[clarkfan1979]

With the housing market doing relatively well over the past few years, I am starting to see more posts along the lines of, "I have to sell my rental because it has appreciated too much" I think this can be a mistake, so I am trying to offer guidance. From my experience, rent increases will follow home value market appreciation, but you might have to wait 6-18 months.

On was on MMM in 2014, talking about one of my rentals in Fort Collins, CO. The rent at the time was $1450/month. Market rent was probably closer to $1600/month at the time, but the current tenants had re-signed for another year and I didn't raise the rent. In 2014 to 2015, home values started to increase. I don't remember the specifics, but you can probably look it up. I had some dead equity in the rental and low cash flow in 2014. I got blasted pretty hard by the forum and was told that I needed to sell asap.

I got new tenants in 2015 and raised the rent from $1450 to $1900, then $1950 in 2016, $2200 in 2017, $2250 in 2018 and finally $2500/month in 2019. From my experience, home values would increase and then rents would increase about 6-12 months later.

Don't force yourself to sell because you have had, "too much" appreciation. I would be thankful and wait a year to see what rents do.

Anyone skilled in this area that can put numbers in support or against this argument?

 

[Jon Bon]

With the housing market doing relatively well over the past few years, I am starting to see more posts along the lines of, "I have to sell my rental because it has appreciated too much" I think this can be a mistake, so I am trying to offer guidance. From my experience, rent increases will follow home value market appreciation, but you might have to wait 6-18 months.

On was on MMM in 2014, talking about one of my rentals in Fort Collins, CO. The rent at the time was $1450/month. Market rent was probably closer to $1600/month at the time, but the current tenants had re-signed for another year and I didn't raise the rent. In 2014 to 2015, home values started to increase. I don't remember the specifics, but you can probably look it up. I had some dead equity in the rental and low cash flow in 2014. I got blasted pretty hard by the forum and was told that I needed to sell asap.

I got new tenants in 2015 and raised the rent from $1450 to $1900, then $1950 in 2016, $2200 in 2017, $2250 in 2018 and finally $2500/month in 2019. From my experience, home values would increase and then rents would increase about 6-12 months later.

Don't force yourself to sell because you have had, "too much" appreciation. I would be thankful and wait a year to see what rents do.

Anyone skilled in this area that can put numbers in support or against this argument?

Weeeellll......
Rents are sticky
Home appreciation is tied to interest rates, rental rates are tied to incomes.
Opportunity cost: if its worth 250k in 2014, why wait 5 years for rents to catch up?

[Mr. Green]

That's a pretty shocking rate of appreciation, and I'm assuming an exception to the rule, because if rents rose like that everywhere there'd be tens of millions of homeless people within a decade.