The Nov. 27 article emphasizes the very real cost of rental housing to tenants, but does not balance rent increases with the increased cost of owning and operating an apartment house, thus creating an impression of "rent gouging" on the part of the owners. I just sold a "typical" six-one bedroom apartment house in Hollywood.
At the time I purchased the poorly maintained property in 1970 for $40,000, the annual rent was $6,000. ($80-$85 per month per unit). The purchase price was 6.7 times the annual gross income. In the first few years I spent $60,000 over and above regular maintenance costs in restoring and upgrading the building and grounds. When the property was sold this year for $300,000, the annual rent was $28,000. ($206-$550 per month per apartment, $389 average). The purchase price was 10.7 times the annual gross income, a reflection of high land costs. My annual net income, after loan payments ($30,000 loan), maintenance, taxes and insurance was $10,500, a return of 3.9% on my investment.
Ahh, you say, but look at the profit he made in selling the property! The Los Angeles-Long Beach Consumer Price Index indicates that the 1988 dollar is worth about one-third of a 1970 dollar. So in "constant dollars," I came out about even, before being subject to a 28% capital gains tax. True, I did receive some tax shelter, but I could have made more money by buying certificates of deposit. My point is that an apartment house owner is also a "victim" of high costs--particularly land costs.