I was just taking a look at a couple of properties in Zillow and found it interesting how big the real estate tax bite can be. I have 2 rental properties and the real estate tax cost is 15% and 12% of the rental income. At least for my area Zillow underestimate rent rates (the vacancy rate is very low and properties in general rent within days or weeks – at rates 10%+ higher than Zillow estimates on average -based on my very limited sample of just what I happen to notice).
I thought I would look at the real estate tax to property value estimate and rent estimate by Zillow in Various locations.
Arlington, Virginia – real estate taxes were 1% of estimated property value and 17.5% of rental estimate.
Chapel Hill, North Carolina – 1.5% of value and 41% of rental estimate.
Madison, Wisconsin – 2.4% of value and 39% of rental estimate.
Flagstaff, Arizona – .7% of value and 9.5% of rental estimate.
Grand Junction, Colorado – .4% of value and 6% of rental estimate.
This is just an anecdotal look, I didn’t try to get a basket of homes in each market I just looked at about 1-5 homes so there is plenty of room for misleading information. But this is just a quick look and was interesting to me so I thought I would share it. While the taxes are deductible (from the profit of the rental property) they are a fixed expense, whether the house is rented or not that expense must be paid.
A high tax rate to rental rate is a cash flow risk – you have to make that payment no matter what.
In my opinion one of the most important aspects of rental property is keeping the units rented. The vacancy rate for similar properties is an extremely important piece of data. Arlington, Virginia has an extremely low vacancy rate. I am not sure about the other locations.
I wanted to use Park Slope, Brooklyn, NYC but the data was confusing/limited… so I skipped it; the taxes seemed super low.
Related: USA Housing Rents Increased 5.4% in the Last Year (Sep 2012) – USA Apartment Market in 2011 – Top Markets in the USA for Buying Rental Property (2011) –
Home Values and Rental Rates
A recent report by Deloitte, The Hidden Costs of U.S. Health Care: Consumer Discretionary Health Care Spending provides some interesting data.
Between 2006 and 2010 USA health care expenditures increased by 19%. Government spending accounted for 40% of costs (remember that figure is lowered due to Deloitte’s including inputed value for care of relatives). Those 65 and older account for 61% of the inputed cost care that is provided.
Seniors and baby boomers account for 64% of health care costs, but comprise only 40% of the USA population. The imputed cost of supervisory care and hospital care are far higher proportions of health care expenditures of seniors (65 and older).
I find this imputed value largely not worth considering. There are problems with the way we count GDP and economic activity (that affect health care and lots of other things). It is fine to be aware that they think $492 billion of extra care is given by family members but using that figure in any sensible way (other than saying hey there is a huge cost in people’s time to dealing with our health care system and sick people that isn’t counted in economic data) is questionable.
It is useful in looking at the increasingly old population we will see in the future and judging their is a large need for supervisory care that is not captured in just looking at the costs included in economic data currently. Not only will our grandkids have to pay for our living beyond our means today they will have to do so while providing unpaid care to their parents and grandparents.
The burden of long term supervisor care (that which can be provided by a non-health care professional) is one reason a resurgence in multi-generation housing options make sense to me. There are other good reasons also (child care, socialization, financial support to the young…). There are some real advantages and real disadvantages to such options. But I think economic advantages are going to encourage more of this going forward.
Related: Personal Finance Basics: Long-term Care Insurance – Health Care in the USA Cost 17.9% of GDP, $2.6 Trillion, $8,402 per person in 2010 – Resources for Improving Health Care System Performance
The USA economy is still in very fragile ground. The continued problems created by policies focused on aiding too big too fail institutions and continued huge federal budge deficits are dangerous. And the continued problems in Europe and mounting problems in China are not helping. Still, rental prices continue to rise across the USA.
The graph above shows housing rents (as shown by the Zillow rent index) have increased 5.4% in the last year (through July) across the USA. In Boston the increase was 4.5%; Grand Junction, Colorado -4.9%; San Francisco up 8.8%; Washington DC up 7.3%; Raleigh, NC up 1.8% (though the last one couldn’t be added to the graph for some reason). I just picked some cities I found interesting – with some diversity.
Housing prices are up 1.2% in the same period, according to the Zillow price index.
When looking at data on rental prices and home prices you will notice different sources give different readings. Judging these changes across the nation is very difficult and requires making judgements. Even at the local level the measures are imprecise so the figures you see will vary. Taking a look at several different measures, from reputable sources, is often wise.
Related: USA Apartment Market in 2011 – Top USA Markets for Buying Rental Property – Apartment Vacancies Fall to Lowest in 3 Years in the USA (April 2011) – Apartment Rents Rise, Slightly, for First Time in 5 Quarters (April 2010)
The national occupancy climbed 110 basis points during the year, and effective rents jumped 4.7% according MPF Research.
Occupancy rates increased to 94.6% at the end of 2011, up from 93.5% a year ago and from 91.8% when the occupancy rates bottomed in late 2009.
MPF Research predicts occupancy rates to increase another 50 basis points, and rents to rise 4.5%.
Northern California’s apartment markets ranked as the nation’s rent growth leaders during calendar 2011, despite the fact that some weakness registered in the performances recorded in parts of the Pacific Northwest specifically during the fourth quarter. Year-over-year, effective rents for new leases jumped 14.6% in San Francisco, 12.3% in San Jose, and 9% in Oakland. With rents down 0.4%, Las Vegas was the nation’s only major apartment market that lost pricing power during calendar 2011.
Rent Growth Leaders in Calendar 2011
| Rank | Metro Area | Annual Rent Growth |
| 1 | San Francisco | 14.6% |
| 2 | San Jose | 12.3% |
| 3 | Oakland | 9.0% |
| 4 | Boston | 8.3% |
| 5 | New York | 7.3% |
| 6 | Austin | 7.2% |
Related: Apartment Vacancies Fall to Lowest in 3 Years in the USA (April 2011) – Top USA Markets for Buying Rental Property – Apartment Rents Rise, Slightly, for First Time in 5 Quarters – It’s Now a Renter’s Market
Chart showing loan delinquency rates from 2000-2011, shows seasonally adjusted data for all banks for consumer and real estate loans. The chart is available for use with attribution. Data from the Federal Reserve.
Residential real estate delinquency rates increased in the first half of 2011 in the USA. Other debt delinquency rates decreased. Credit card delinquency rates have actually reached a 17 year low.
While the job market remains poor and the serious long term problems created by governments spending beyond their means (for decades) and allowing too big to fail institutions to destroy economic wealth and create great risk for world economic stability the USA economy does exhibit positive signs. The economy continues to grow – slowly but still growing. And the reduction in delinquency rates is a good sign. Though the residential and business real estate rates are far far too high.
Related: Consumer and Real Estate Loan Delinquency Rates 2000-2010 – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Government Debt as Percent of GDP 1998-2010 for OECD
For the first time ever average 30 year fixed mortgage rates have fallen under 4%. My guess about interests rates have not been very good the last decade or so. I can’t believe people actually want to lend at these rates but obviously I have been wrong. The risks of lending at these rates over the long term just seem way too high to take a paltry 4%. But obviously I have been wrong.
So if you didn’t refinance when I suggested it (and refinance, myself), previously, you may want to look at doing so now. Or you may believe that listen to me about interest rates doesn’t seem very wise.
I have even read that banks are reducing fees in order to encourage refinancing. Seems crazy to me, but what do I know.
You do need to have a decent loan to value ratio (certainly no more than 90%, and probably 80% would be better). That can be difficult for those that have had large decreases in their homes value. Also you need a great credit rating and a stable job situation. But if you qualify refinancing at these rates should be a great financial move for many. I’m perfectly happen to have done so earlier, I didn’t quite pick the bottom but I still think over 30 years these rates (the current rates and earlier rates of 4 1/4% or 4 3/8%) will seem like a dream.
Related: Fixed Mortgage Rates Reach New Low (August 2010) – Lowest 30 Year Fixed Mortgage Rates in 37 Years (Dec 2008) – The Impact of Credit Scores and Jumbo Size on Mortgage Rates (Jan 2009)
There are many good economic reasons to have multi-generational (at least 3 generations) households. There are some good social reasons too. There can be interpersonal benefits but also annoyances (which I think is why they decreased – plus we could afford it, the USA was living extremely richly).
The Return of the Multi-Generational Family Household
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This represents a significant trend reversal. Starting right after World War II, the extended family household fell out of favor with the American public. In 1940, about a quarter of the population lived in one; by 1980, just 12% did. A range of demographic factors likely contributed to this decline, among them the rapid growth of the nuclear-family-centered suburbs; the decline in the share of immigrants in the population; and the sharp rise in the health and economic well-being of adults ages 65 and older.
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Another factor has been the big wave of immigration, dominated by Latin Americans and Asians, that began around 1970. Like their European counterparts from earlier centuries, these modern immigrants are far more inclined than native-born Americans to live in multi-generational family households.
However, the trend reversal has also played out among native-born Americans. And for all groups, the move into multi-generational family households has accelerated during the Great Recession that began at the end of 2007.
The percentage of the population in such households now is 16%, still significantly below the high of 24.7% in 1940.
Related: Mortgage Rates Falling on Fed Housing Focus – Personal Finance Basics: Long-term Care Insurance – Bankruptcies Among Seniors Soaring (2008)
Buying investments when prices are low is often a good investment strategy. Sometimes the prices just get lower, so it doesn’t always work. But, most likely the USA housing market will turn around, at some point. Buying real estate before prices start to rise may well be a very profitable investment. And rental property can be a very good investment, even without price appreciation, if the rental income provides a nice cash flow. This is especially true with interest rates so low (so a decent cash flow is very attractive compared to other investments). Of course, real estate investing also has challenges.
The HomeVestors-Local Market Monitor Best Markets to Invest in Rental Property ranking forecasts the expected performance of rental real estate properties, specifically single-family homes maintained as rental properties. The rankings show the extra return, or risk-return premium, that an investor must demand from rental property in a local market. The risk-return premium can be added to the regular capitalization rate to produce a risk-adjusted cap rate at full occupancy for a local market. The ranking is calculated based on three-year forecasts of home prices (reflecting underlying home-price appreciation potential) and gross rents (as a proxy for potential investor cash flow). Of course, this is based on the creators expectation (and therefore hardly to be relied upon – they have no track record to measure against yet) but it is interesting.
The Top 10 markets in the new ranking are:
- Las Vegas, Nevada
- Detroit, Michigan
- Warren, Michigan
- Orlando, Florida
- Bakersfield, California
- Tampa-St. Petersburg, Florida
- Phoenix, Arizona
- Ft. Lauderdale, Florida
- Rochester, New York
- Stockton, California
Obviously their expectations favor cities that have seen drastic price declines. And that makes sense, as long as those cities rental markets are steady and housing prices stabilize.
An interesting piece of data: HomeVestors and Local Market Monitor estimate that approximately 14% of single-family homes in the USA are maintained as rental properties.
I do believe rental property investments in many markets in the USA may well be quite wise. Investing in rental properties is much more difficult than say stocks and has some high costs (if you chose to higher a property manager, for example). Real estate also requires a long term (5+ year commitments) to have reasonable expectations of successful investing results.
Related: Apartment Vacancies Fall to Lowest in 3 Years in the USA (April 2011) – Home Values and Rental Rates – Landlords See Increase in Apartment Rentals (June 2010)
I am renting my house in Arlington, Virginia. If you are interested here is a great house with a large yard in a wonderful, quiet neighborhood near the Washington DC metro, great restaurants, parks, shopping and more. See more pictures of the house and floorplans.
Related: backyard wildlife – Apartment Vacancies Fall to Lowest in 3 Years in the USA – Apartment Rents Rise, Slightly, for First Time in 5 Quarters (April 2010)
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Apartment Vacancies in U.S. Fall to Lowest in Almost Three Years
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Effective rents, or what tenants actually pay, increased in 75 of the 82 markets Reis tracks, to an average $991 a month from $967 a year earlier and $986 in the fourth quarter. Landlords’ asking rents also climbed, to $1,047 from $1,027 a year earlier and $1,043 in the previous quarter, according to the report.
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San Jose, California, had the most growth in effective rents during the past year, with 5.2 percent, followed by suburban Virginia and New York City, according to Reis. Effective rents declined 1.5 percent in Las Vegas during the year and grew the least in Orlando, Florida; and Colorado Springs, Colorado.
Rents have been slowly recovering the last year, after the economic shocks of the credit crisis. People, moved back into parents house and more people started sharing apartments and houses in the last few years as people where thrown out of jobs due to the after effects of the financial actions by large financial institutions. Slowly the economy has been recovering and jobs have been slowly growing and as a result the rental market has been strengthening .
Also the decline in construction the last few years has decreased the normal addition to supply. At the same time the population has continued growing. Some areas of the country seem to still have a large overcapacity in housing but areas that are adding jobs (such as Northern Virginia and New York City) are seeing increasing rents.
I have 2 properties for rent in Arlington, Virginia.
Related: Landlords See Increase in Apartment Rentals (July 2010) – USA Housing Inventory Puts Pressure on Prices (Sep 2010) – Apartment Rents Rise, Slightly, for First Time in 5 Quarters (Apr 2010) – It’s Now a Renter’s Market (Apr 2009) – Housing Rents Falling in the USA (Feb 2009)