Is It Getting More Expensive to Be a Landlord?
I was recently going over some numbers, and it hit me—being a landlord in California is starting to feel like an expensive hobby. But is it really more expensive than it used to be? And if so, what can you do about it?
First off, yes, it’s definitely more expensive. Repairs, renovations, insurance—you name it, it costs more today than it did just a few years ago. The numbers don’t lie, and I’ve got some real examples to back it up.
The Good Old Days (A.K.A. 2013)
I pulled up an estimate from 2013 for a pretty basic interior paint job: two-tone, whole house, decent quality—$2,600. Fast forward to today, and you’re looking at double that, easy. That’s $4,500 to $5,000 for the same job, on the same house. How about window coverings? What once cost $550 for a whole house will now set you back around $1500. And don't get me started on smoke detectors! They used to be $75 for a few—now, one costs $40-$50 alone.
It’s not just us feeling it. The whole industry has seen these increases. Construction inflation has shot through the roof, and it’s not slowing down. If you haven’t had to do any major repairs in the last few years, you need to be prepared for the increased costs when it does happen.
But Wait, What About Rent?
Here’s where things get tricky. Rent is definitely up since 2013, but it has stabilized in the last few years. In fact, in some areas like Upland, rents are actually a little lower this year compared to last year. Even though tenants might say their rent feels sky-high, the data shows it’s not rising fast enough to match the cost of owning property.
So while your expenses are going up, rent isn’t increasing at the same rate. That’s a tough spot to be in as a landlord.
The Good News (Yes, There Is Some)
Let me reassure you, there is a silver lining to this situation. First off, property values in California continue to appreciate. Even if rent has not kept up in the last few years, the value of your home likely has.
Most of our owners also benefited from the low-interest rate era during COVID. If you refinanced during that time, you likely secured a very low mortgage rate, which is a huge win. Plus, thanks to Prop 13, your property taxes are capped, meaning they can’t increase more than 2% per year.
And don’t underestimate the value of good weather. In California, we avoid a lot of the extreme weather events that landlords in other parts of the country deal with. No floods, tornadoes, or snowstorms wreaking havoc on your property.
So, Is It Still Worth It?
After all this, you might be asking, “Is it still worth being a landlord in California?” The answer is yes, but you need to adapt to the current landscape. Let’s talk strategy.
1. Prepare for Fewer Rent Increases
8-10% rent increases per year are a thing of the past. Right now, the market doesn’t support significant increases. In fact, for many 2023 leases being renewed in 2024, we’re not recommending any increases at all. We do a market analysis for each property, and the numbers just don’t justify a rent bump in a lot of cases. So, adjust your expectations for the next few years.
2. Budget for Turnovers
If you’ve had the same tenant for a while, you might be in for a shock when they move out. Turnover costs have gone way up, so make sure you’re saving. Don’t drain all of your rental income on disposable expenses. You need a cushion for when those inevitable repair costs hit. A $10,000 - $15,000 turnover isn’t out of the question anymore, especially if your property hasn’t been updated in years.
3. Take the Long View
When the bills pile up, it’s easy to feel overwhelmed. But don’t get too focused on the short-term pain. Zoom out and look at your property’s performance over the last few years. Appreciation has likely been strong, and that’s something to be grateful for. Homes age, repairs happen, but in the grand scheme of things, real estate remains one of the best long-term investments.
Wrapping It Up: Plan for Success
Yes, costs are going up. But with the right strategy, you can still be a successful landlord in California. Keep your focus on the long-term picture, prepare for fewer rent increases, and budget for those rising repair costs. And remember, you’ve got some good things working in your favor—low mortgage rates, capped property taxes, and a weather advantage that landlords in other states wish they had.
If you want help navigating these challenges or need advice on how to manage your properties effectively in this new landscape, we’re here at Mesa Properties to support you. Reach out to us anytime.