What is the maximum rent increase for a Single Family home in California?

Question

I rented my first home to a relative 6 years ago. We never increase for the first 5 years but then I saw somewhere that you can't rent your home to a relative for way below market price. I also read somewhere that the maximum increase is 10%. So I increased rent last year by 200. Does this apply to all rentals including single family or just to the apartments?

I am only collecting $2600 because before I rent my home 6 years ago, 2 property managers told us that they can rent it between $2,400 to $2,600 so we rented it for $2,200 because we decided to just do it ourselves when a relative offered to rent the place. When I look at rent now, the similar model home in my area is now renting for $3,600 to $4,000. Our rent is currently at $2,400 and even if I increase it again today by 10% it will only be $2,640 which is still way below market value.

Dan H. · Answer

City of San Diego has a tenant protection act that is more excessive than the state wide AB1482.  Fortunately, if the tenancy was prior to 2024, nothing is necessary to exempt SFR from rent control.  However, by ordinance tenancies that start after 2024 must have text in the lease that indicates it is not under rent control (exact text to use is provided in the law).  However I question the legality of this requirement seeing that I believe statewide those single family homes cannot be rent controlled.  So a local ordinance is trying to supersede the statewide law which is not allowed but unless you have the money to take on a fight with the city, it is best to include the text.

To @Bill Brandt point, being a property manager requires effort including staying aware of the various laws.  If you are not going to put forth the necessary effort, you would be best served by hiring a professional PM.  Self managing has cost you tens of thousands of dollars.  A professional PM would have been much smarter financial decision.  In addition, the wrong tenant could have cost you even more.

Good luck

Nate Meeker · Answer

There is no bright line 80% rule.

There are plenty of cases where people had to pay back taxes, penalties, and interest for rental deductions claimed on family members who were charged below FMV.

Generally, a taxpayer may not deduct expenses (other than expenses, such as interest and taxes, that are allowable without regard to their connection to a trade or business or an income-producing activity) with respect to a dwelling unit that the taxpayer uses as a residence during the taxable year. See sec. 280A(a) and (b). A dwelling unit is used as a residence if the taxpayer uses it for "personal purposes" for more than the greater of 14 days or 10% of the number of days during the taxable year that the unit is rented at a fair rental value. Sec. 280A(d)(1)(A) and (B). If a family member, as defined in section 267(c)(4), uses the dwelling unit as a principal residence, a "personal purpose" is attributed to the taxpayer unless the property is leased for a fair rental value for use as the family member's principal residence. Sec. 280A(d)(2)(A), (3)(A). Section 267(c)(4) defines a family members.

Other cases and findings include: sec. 280A(d)(2)(C); Osborne v. Commissioner, T.C. Memo. 1987-553; see also Barranti v. Commissioner, T.C. Memo. 1998-427; McDonald v. Commissioner, T.C. Memo. 1991-242.

Ned J. · Answer

Another reason to NOT rent to relatives or friends...... you left a LOT of $$ on the table by not increasing rent for 5 years in CA.

As stated you are exempt from the 10% cap...give them 90 days and increase it as much as you want

So what do you think their response is going to be when you increase it to market rent? Have fun with that.....

Carlos Ptriawan · Answer

SFR is not included

including if it is OO househack

Bill B. · Answer

Even after it cost you over $70,000 in lost rent to not use a property manager you still don’t want to hire one? Why? You are paying to be a property manager. You’re eventually going to run in to a desperate or professional tenant that hires a legal advocate or is given one for free.then you’ll really be up a tree.

Julien Jeannot · Answer

@Chris Ghemm

If its anything like the Seattle Market. I suggest looking at the state, county, and city ordinances.

Matt Devincenzo · Answer

To me the question you need to ask is do you want to rent to family and help them, or is this a true investment rental? There's nothing wrong with choosing to rent at a rate they can afford in order to help them if that is your primary objective. But if you do that, then just do that.

Matt Devincenzo · Answer

I'll ask a seemingly obvious question, but one that has been missing in the discussion. You say this discussion is because "you can't rent your home to a relative for under market rent"...says who?

There is no rent police that prevents you from doing this...there may be tax implications, but that's not to say you can't do it.

What is the maximum rent increase for a Single Family home in California?

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