When a landlord raises the rent, he is often accused of profiteering—making an “excessive” or “unfair” profit. Those making such claims seldom present any evidence, other than pointing out that some corporate landlords generate billions in revenue. However, revenue is only one factor in determining profitability. Expenses—insurance, maintenance, mortgage payments, and property taxes—must also be considered.
Over the past four years, property values have increased significantly. This has resulted in higher expenses for landlords. And the biggest culprit, from my experience, is property taxes.
Higher property values mean higher tax appraisal values, which translates to higher property taxes. The taxes on my rental properties have nearly doubled, increasing more than $100 per month per property. At the same time, my insurance costs have gone up an average of $40 per month per property due to the higher valuations. Further, repair and maintenance costs have increased 20 percent to 30 percent. All told, my monthly expenses for each property have increased about $250. To maintain my profit level, I have needed to increase rents by almost $250 over the past four years. To a casual observer, a $250 increase in rent might seem like profiteering.
For me, higher valuations are driving the increases in rents. Higher rents are not winding up in my pocket. Instead, the additional money is going to the tax collector, the insurance company, and various contractors.
If anyone is guilty of profiteering it is the tax collector, i.e., the government. The government has done nothing to facilitate the increase in property valuations. Yet, it is reaping the “benefits” of higher revenues.
It’s easy to blame greedy landlords for soaring housing costs. But if we want to evaluate the issue effectively and objectively, then we must look at the full context. Landlords are acting as the middleman for the tax collector.