Economics of Rental Housing

0

Tim HausermanIn last month’s Moonshine Ink, Nicole Reitter wrote an opinion piece about how she receives lots of guff from renters when she advertises her house for a long-term lease. She went on to explain the financial challenges of owning a home and renting it long-term, including, on occasion, taking financial hits caused by tenants. What was interesting to me were the comments on Facebook to the post. Some people chimed in with support saying that they understand how expensive it is to own a home and how those expenses keep going up, and then there were those who said she was just a horrible landlord profiting off renters. So I thought it would be a good idea to take a closer look at what it costs to own a rental home.

A homeowner’s fixed expenses include a mortgage, property taxes (including a big chunk for a long list of local bonds that provide support for local government services), property and fire insurance, liability insurance, water, sewer (which includes both the Tahoe-Truckee Sanitation Agency and local public utility district), and in some cases homeowners association dues.

Then there are costs that will certainly be faced by all owners but are hard to predict: house painting, roof repairs and replacement, tree removal and defensible space, appliance repairs, carpets and flooring. Oh, and that special Tahoe addition: bear-proof garbage containers and in some cases electric fencing.

Advertisement

There are unforeseen expenses as well. A water leak, a broken window, a bear intrusion or, for example, a full water line replacement, which was just required for many properties in Kings Beach by the North Tahoe Public Utility District, costing thousands of dollars. What about snow removal off the roof during a big winter? And after all that, there is also the possibility that a tenant will damage the property above and beyond the amount of their security deposit.

These costs add up to some big numbers and make it hard to determine what rent is needed to make ends meet. If rent is based solely on fixed expenses, the owner will be in a world of financial hurt after a winter like this last one. I co-own a small, two-bedroom rental house. Last winter it cost the equivalent of three months’ rent to shovel the roof. This summer it was another two months’ rent to have several dead trees removed. There are roof repairs that need to be made and a paint job looks to be in the offing as well. And, of course, we are crossing our fingers that we can still get affordable property insurance.

As we all know, the cost of everything is going up, especially anything that requires labor. We are all caught in the same inflationary spiral, which actually ties right back in with the shortage of housing. Employees can’t afford to live here or find a place to live, so employers have to dramatically raise wages to attract employees, which leads to an increase in cost of any work performed on a house to cover those rising labor costs. There is no free lunch.

When you start adding up the numbers, it is hard to understand how anyone could afford to rent out a house long-term unless they have owned it for a long time, have a small (or better yet, no) mortgage, and a low property tax bill. There is no way one can afford to buy a $1 million home (which could just be a two bedroom these days) and rent it out at anything less than an oh-my-god-you-cannot-be-serious rate. Just the mortgage on a house in that range would be over $3,000 a month, and that doesn’t include all those other expenses we talked about earlier.

There are a number of reasons there is a real shortage of long-term rentals around Tahoe — and just about every other recreational community in the country — but a biggie is that the pool of rental properties that would make financial sense is small (and getting smaller every time a long-term rental property sells, most likely to a second homeowner). And those who do still rent their homes long-term are regularly assessing whether this is the best return on their investment. Getting demonized for providing housing is probably not something they put on the positive side of the ledger.

So how do we increase the supply of properties on the long-term market? Here are a few essentials: Building a lot more affordable housing, which probably will require government assistance to truly make it affordable; incentivizing turning vacation rentals and second homes into long-term rentals (Truckee’s Placemate, formerly Landing Locals, program is a good example of a step in the right direction); lowering the cost of property ownership for those who rent their homes long-term, perhaps through some sort of reduction of property taxes or bond payments to a homeowner who rents to a local who works in the community. Lots of people have been trying to find ways to solve the problem, and unfortunately there are no simple solutions. Perhaps what is required is all of it.

There are many property owners who rent their homes out to locals long term because they think it is the right thing to do for the community. But as we have seen, based on costs, it can sometimes be a challenge. One important step that renters can take to make sure those homes stay in the rental inventory is to take good care of the property so the home will continue to be rented long term, instead of being sold.

~ Tim Hauserman’s latest book, Going it Alone: Ramblings and Reflections From The Trail, is a memoir about solo backpacking and laughing at yourself while pulling stupid Tim tricks. His other books include Monsters in the Woods: Backpacking with Children and Tahoe Rim Trail. He’s lived here since the 1960.

Author

  • Tim Hauserman

    Tim Hauserman latest book is “Going it Alone: Ramblings and Reflections from the trail” published in 2022. He also wrote the official guidebook to the Tahoe Rim Trail, the 4th edition of which was published in 2020. His other books include “Monsters in the Woods: Backpacking with Children” and "Gertrude's Tahoe Adventures in Time." Tim has lived in Tahoe City since he was a little tyke and continues to be amazed with the beauty of Lake Tahoe. His former English teachers, on the other hand, are probably amazed that he became a writer. Contact Tim at writeonrex@yahoo.com

Advertisement
Previous articleWe Want to Cover More Stories In-Depth, But We Need Help to Get There
Next articleThe Art of Being Present: Keeping New Year’s Resolutions All Year Round