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What ballooning home values mean for one tenant and her landlord

Rising prices are reshaping Montana, ramping up pressure on both sides of the ownership divide

Sara Feilzer was feeling the heat of Montana's boiling-hot housing prices last year.

Her home, a quirky one-and-a-half-bedroom basement apartment she has rented in central Helena since 2018, was heading for the maelstrom of the open real estate market. Her then-landlord, a coworker, had watched home prices climb for years through the COVID-19 pandemic and determined they couldn't pass up the opportunity to sell.

As a result, she found herself in an unwelcome situation that's become familiar to many Montana renters. She had no way of knowing who would buy the property, whether they'd want to keep her and her upstairs neighbor as tenants, whether they'd tolerate her dogs, or whether her relatively affordable rent was destined for an overwhelming increase.

"It was a couple months of uncertaintly there," she said.

Feilzer, now 32, is one of the people who helps keep Helena's civic life in motion. Originally from Missoula, she works as the education director for ExplorationWorks, a kid-focused science center where she runs summer camps, after-school programs and community outreach events.

That basement apartment, which was then renting for $850 a month, including $50 in monthly pet rent, lets her maintain a reasonably comfortable lifestyle in Helena on a nonprofit wage. She lives alone with her two dogs - Hallie, a 30-pound corgi, and Macklin, a 95-pound chocolate lab. She's still paying off student loans from her University of Montana biochemistry degree.

When her former landlord told Feilzer they planned to sell, they gave her the chance to make an offer on the place herself. But she didn't have a down payment saved up, she said, and even after talking to her parents, she wasn't able to pull a workable offer together.

With her living situation up in the air, Feilzer started to explore buying something else. But between Helena's tight housing market and her student loans, she couldn't find anything within her reach. The only options available, she said, were $20,000 mobile homes and houses with price tags of $300,000 or more.

"It was the worst time to be buying a house - there was nothing on the market that was even remotely in my price range," she said. "So really my only option is to rent."

She looked at other rentals, but found her options in that market, too, were "exorbinantly expensive," and limited by how few landlords were willing to accept large dogs.

She'd always paid her rent on time, she said, and made sure her dogs were well behaved. Even so, she found herself pondering the possibility that, in her early 30s, she could be forced to quit her job and move back in with her parents in Missoula.

"It was all out of my control," she said. "I had done everything right and had been the best tenant I could, yet there wasn't anything more I could do to say, 'Please let me stay here.'"

The specifics vary city by city and town by town, but rising home prices have become a near-universal fact of life across Montana in recent years. While state law keeps property sale prices private, making it hard to know precisely how unaffordable the state has gotten, real estate website Zillow estimates the typical Montana home value rose from about $270,000 to about $447,000 between the start of 2020 and last month. As the Montana Department of Revenue issued updated versions of the appraisals used to calculate property tax bills this year - numbers that theoretically represent each property's market value as of Jan. 1, 2022 - it said residential property values had increased a whopping 46% on median in two years.

That increase has generated tremendous wealth for Montanans who've been fortunate enough to own property through the upswing. It's also placed a historic squeeze on residents who aren't part of the landed class, those for whom maintaining their tenure in Montana relies on the existence of landlords able and willing to rent them shelter at a price within their means.

As the real estate gods rolled their dice over Feilzer's home last year, the odds turned in her favor - at least for the time being. The property was bought by a local couple, Pam Bucy and Mark Piskolich. As it turns out, they live just down the street.

Shortly after the house sold, Feilzer said, she was out in her front yard when the couple walked past and introduced themselves as her new landlords. They seemed nice, she remembers. And they didn't saddle her with a three-figure rent increase when they gave her a new lease, she said, bumping her payments up only $50 a month.

She's since found them responsive for minor repairs, Feilzer said, and happy to otherwise give their tenants space to "let us live our lives."

"They're not getting rich off of owning the place," Feilzer said. "I know that's not what they're doing and where they're going."

Both Bucy and Piskolich are prominent Helena residents. Bucy served as the state labor commissioner under Gov. Steve Bullock and currently runs the state bar's Office of Disciplinary Counsel, which handles misconduct complaints filed against attorneys. Piskolich, a former federal probation officer, is one of Lewis and Clark County's justices of the peace (he didn't want to be interviewed for this story because he routinely adjudicates landlord-tenant disputes).

Bucy said in interviews this summer that Feilzer's residence is one of three investment properties she and Piskolich own: one in Missoula, and two split-level homes in Helena. Both the Helena properties are on Eighth Avenue, the same street where they own their home.

All three rentals are owned through a limited liability corporation, Emergent Properties, LLC. That's a common arrangement for small-time landlords that shields primary homes and personal assets from financial calamaties stemming from the investment properties.

Their tenants include their children, two of them in college at the University of Montana and another who lives with his own family in half of one of the Helena duplexes.

For Bucy, Montana's rising home prices have created investment opportunities. They're also a source of worry, especially as she thinks about what they'll mean for her children as they try to build lives in the state.

"We mostly bought property so we knew for a fact our kids would have places to live once our property values started to skyrocket," she said.

When one of their properties had a vacancy last summer, Bucy said, she posted a rental listing that drew more than 100 responses - some highly emotional - in a matter of minutes. She was so overwhelmed, she said, that she resolved to limit herself to finding tenants through friends and family in the future. She ended up renting to a neighbor, a woman in her seventies who had been forced from her longtime home a few blocks away when the woman's prior landlord put it up for sale.

The house where Feilzer and an upstairs tenant live is the couple's latest purchase. When it came on the market last year, they had recently sold a local commercial property and, Bucy said, needed to find a new property where they could reinvest the proceeds in order to avoid a tax hit. (The federal tax code normally assesses capital gains taxes on money made from the sale of investment properties, but allows sellers to defer those taxes when they put the money back into similar investments.)

She initially learned the property was available while on a jaunt around the neighborhood, Bucy recalled, literally walking by just as a realtor was hanging a for-sale sign. She had an offer in within 48 hours.

"We really do like to have the rentals close to our house to keep an eye on them," she said.

While two-bedroom rentals in Helena now routinely list for $1,000 to $1,500 a month on Craigslist, Bucy said she and Piskolich have deliberately chosen not to push their rents as high as the market will bear. She knows how much of a burden rent is for her children and their other tenants, she said. She also thinks lower rents encourage tenants to stick around, saving her the hassle of re-leasing her units.

"We really do try to pay the costs and maybe $100 or $200 extra a month to make sure we have money if things break," Bucy said.

That does, of course, limit how much money they make off their properties.

"Our accountant tells us that every single year," she said.

Even as rising rents squeeze renters, property owners face their own pressures in Montana's current economy - among them higher costs for maintenance materials and labor, not to mention rising property tax bills. Landlords typically say they have little choice but to pass those costs on to tenants, even if doing so creates financial hardship.

John Sinrud, president of the Montana Landlords Association, said in an interview last month that many of his members are mom-and-pop-scale operations that feel the brunt of expenses like higher property taxes.

"They understand that everybody's in a pinch - but they're also in a pinch," Sinrud said.

Both Feilzer and Bucy acknowledge that rising costs put a squeeze on their arrangement. This year's property tax reappraisal cycle, which has produced angst for taxpayers across the state, has been a particular source of pressure.

Bucy and Piskolich had been planning to install a new furnace for the house Feilzer lives in, in part so the downstairs tenant will no longer be at the mercy of the upstairs tenant's thermostat. That was likely going to mean a rent increase anyway, Bucy said - but then reappraisal notices from the revenue department, one for each of her three Helena properties, arrived in her mailbox.

She'd heard that the notices were coming, she said, but was nonetheless startled as she read the letters at her dining room table.

The split-level house Feilzer lives in had its appraised value raised from $220,800 to $303,700, a 38% increase. Bucy's other Eighth Avenue duplex was up the same amount. Bucy and Piskolich's home is now estimated at $612,600, up 68% over the revenue department's last appraisal.

The department's official explanation for that increase on all three Helena properties? "Market Appreciation." Estimated tax amounts included by the department on the notices indicated Bucy's taxes would be rising proportionately for the three properties, to a combined $13,300 a year.

"I was opening them and looking and I was like, holy cow - this is not going to be good for us at all," Bucy said. "No wonder people were freaking out."

Most analyses of the property tax situation (including from Montana Free Press) have concluded that the estimated tax figures presented by the revenue department on the reappraisal notices are flawed, employing calculations that probably overestimate how much most property owners will owe once their official tax bills arrive this fall.

Regardless, Bucy was by no means alone in her consternation, with the notices fueling widespread debate in recent months on the typically back-burner topic of tax policy.

The state's political leaders have swamped social media and newspaper op-ed pages with commentary, with Democrats blaming the Republican-controlled Legislature for alleged inaction on rising property taxes and Republicans pointing their fingers at local government spending as the root cause. Anti-tax activists have rallied behind a constitutional ballot initiative, currently mired in litigation, that would place a hard cap on how much the tax system can make property owners pay - and, according to an analysis by the governor's budget office, potentially cut the tax revenues that fund police departments and schools by 88%.

Property owners like Bucy and Piskolich won't know for sure how their taxes are changing this year until their first post-appraisal tax bills come from county treasurers in October or November. Even so, Bucy said, after talking her notices over with a tax attorney friend, she believes she'll end up paying between $1,200 and $1,300 more a year on Feilzer's house alone.

"It's a lot," Bucy said. "We would feel it to eat that at all four of those places."

For Feilzer, in her basement apartment that may soon have its own thermostat, that means paying an extra $75 a month, bringing her total rent to $975. A new year-long lease with the higher rate took effect at the beginning of August.

She's diplomatic about the increase - and relieved she's not on the hook for more.

Even so, Feilzer said, paying that additional rent will sting, especially since it comes as she resumes student loan payments this fall that were frozen for her during the pandemic.

"Is it going to mean I'm not going to eat? No. But it will mean I'm going to have to cut back on some other things," Feilzer said.

This year's Republican-controlled state Legislature, working with a historic budget surplus, sought to tackle public concern about housing prices and other cost-of-living pain points by directing nearly $900 million to rebates designed to offer taxpayers short-term relief.

Homeowners and renters alike have received state rebates of up to $1,250 per person on their 2021 income taxes. Resident homeowners will also qualify for up to $675 a year in rebates on their 2022 and 2023 property taxes. (Income tax rebates were automatically sent to most taxpayers earlier this summer; an application window for the 2022 property tax rebates opened Aug. 15).

To the dismay of minority-party Democrats, however, the Legislature excluded renters from the tax rebates. About a third of Montana households rent their homes, while two-thirds live in residences they own.

"Renters also face the consequences of rising property taxes," Rep. Jonathan Karlen, D-Missoula, argued on the House floor Feb. 1 while making an unsuccessful effort to amend renter rebates into the Legislature's main property tax rebate bill.

Republicans countered that renters had benefited from Emergency Rental Assistance money available from federal COVID relief funds.

"There's little to no need for us to do this," Rep. Terry Moore, R-Billings, said during the debate on Karlen's amendment. "We have provided assistance to renters over the past couple years."

Unlike the income and property tax rebates, which are being sent to Montana taxpayers on a need-blind basis, Emergency Rental Assistance recipients were required to demonstrate financial hardship attributable to the pandemic. According to the Montana Department of Commerce, $122 million in rental assistance was provided to 13,291 Montana households.

While that was a significant amount of financial support for participants - averaging $9,152 per household - the emergency rental assistance program reached a relatively small fraction of Montana renters. The state has about 137,000 renter households, according to U.S. census data, meaning emergency rental assistance money made it to roughly 1 in 10 of them.

Feilzer and her dogs weren't among that group, she said, noting that her employer had been able to avoid pandemic layoffs. She did, however, receive an income tax rebate. She said she used that money to help pay to attend a Taylor Swift concert in Seattle (a trip, she added, she would have taken regardless).

Her rebate, Feilzer said, wasn't enough to change her financial situation. As she thought about it, though, she reflected that the amount would have been enough to cover her rent increase for the next year - "If I had been financially savvy enough to save it."

Bucy, for her part, said she's not sure how long she and Piskolich will be able to hold the line on keeping their rents low. She expects to invest her tax rebates in their properties, she said, but also isn't sure whether that will change much in the long-run.

On the one hand, she said, she has a personal relationship with the faces behind her rent checks. That makes it harder to think about investment properties purely in terms of dollars and cents.

"When you are like us and you know the people, it is a lot harder to raise the rents $1,000," Bucy said. "We don't have the stomach for it, honestly."

In addition to her children, Bucy said, her renters are, like Feilzer, modest-income people. One is a teacher, another a student friend of her kids in Missoula, a third the formerly displaced neighbor who is living on Social Security.

"None of them are making enough money to live in Montana, really," she said.

Bucy also said they've been fortunate so far to have tenants who pay their rent on time and take care of the properties. She's had landlord friends, she said, who haven't been so lucky, ending up in situations where they've had to pursue eviction claims after tenants fall behind on rent.

On the other hand, though, Bucy acknowledged she's feeling the squeeze from taxes and other expenses. To take one example, she said, the technician working on the new heater for Feilzer's apartment told her the cost of furnace units has nearly doubled in the last two years. She worries that the bill for an unexpected major repair at one of their properties could force their hand.

Bucy, 54, is also thinking ahead toward retirement. At that point, she said, she and Piskolich plan to lean harder on their investment properties, which represent a major share of their retirement savings. When they get there, she said, she expects they'll be compelled to push up their rents.

"We're not relying on that income," she said. "At some point we will be, and it will be different, honestly."

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