The Expert Podcast

Just when you thought that renting might be a viable option in the face of huge bidding wars on home buyers, you're going to find that the same thing is starting to happen with renting. You may think, "Well, isn't this old news? Isn't there a recession? Isn't there a pullback?" Well, this is the end of June, almost July of 2022, and according to the Wall Street Journal, bidding wars are now starting for renters. Competition among renters means that many tenants feel compelled to pay more than what the landlord is asking.

There's a lot of properties that are desirable that come on the market for a certain price. There's more than one potential tenant applying for that property, even without the management company or landlord asking. One of the tenants wants to jump to the top of the list, so they offer more. According to the article, many tenants who have been shut out of their existing property or had trouble finding a home to buy are now resorting to offering higher rent for properties that are advertised. Are you seeing this in your market? Are you a renter that had your rent go up and are having difficulty finding a replacement property?

According to the article, they interviewed Donna Jones and her husband. They were looking to rent a home in Virginia and were rejected because somebody else offered to pay more. And according to the person we interviewed, they didn't even know you could do that. Bidding wars have long been a staple of housing markets on buyers, but an increasing number of white-collar professionals are reluctant to buy because of perceived high housing prices. But they're now doing the same thing to rents. Is this a good idea? Is it a bad idea? What you're going to find is a rent increase is temporary.

For example, if you know you're going to buy in the next couple of years, you might be willing to raise your rent a couple of hundred to get that property you know you need. Think about it: a couple hundred dollars a month is maybe $2,500 a year, $5,000 over the course of two years to get the right property. Some people are willing to pay that extra money, especially since it's spread out. Now the question is going to be, is the purchase market going to be any better in two years? That remains to be seen. A lot of indicators say it's not. Even though there will be fewer homes for sale and fewer homes sold in a lower volume, the prices may not come down. They may not go up much more, but waiting might not save you that much in a purchase price.

So, what do you do if you're a renter? Some renters are starting to look at their raised rent factor from their landlord or their current property as maybe not being that bad after all. I talked to a tenant a couple of weeks ago whose rent was $3,200. The landlord raised it up to $4,500, and they were indignant that it was too much. It was too much of an increase, and they put in their notice to leave. But when they went out into the market to find properties to rent, they found that everything else like theirs was $5,000. So, their $4,500 wasn't such a bad deal after all. Sure, it was more than what they were paying, but it was less than what the rest of the market was.

So, they arranged to work with their landlord. Fortunately, their landlord hadn't rented it to somebody else, and they were able to negotiate something because it was good for the landlord too. They don't have to have a gap in between where there's no rent and have to get a new tenant, which would involve expenses. I believe they found a way to have a little bit less transition cost, plus they don't have to move and pay the expenses for a security deposit, first and last, those kinds of things.

Tell us in the comments what's happening in your market. Are your rents being bid up by multiple tenants? Are the landlords pricing them too low, where people want to pay more money? Tell us what you think.