Would you give your tenants a discount during construction? How?

Question

Hi Everyone,I'm a new real estate investor, currently doing my first house hack. It's a 4 bedroom 3 bath house in LA that I am renting by the room. Wanting to take advantage of California's new ADU laws + housing shortage in LA, I bought the property with the intention of building an accessory dwelling unit in the back part of the lot. I would like to hear how more experienced landlords would handle notifying the tenants of this. How would you notify them? Would you offer a discount off of rent? If so, how much?I want to be fair, but I also don't want to cut my income more than necessary, especially given that I'm already bearing the cost of the ADU construction and Los Angeles is not an easy market when it comes to cash flow to begin with. The ADU will be a detached two-story unit. The leases the tenants sign have a clause stating the landlord reserves the right to make improvements on the property and the construction will be during normal business hours. Our neighbor is currently building an ADU as well and, while there have been a handful of days that have been annoyingly loud, most days (90% of the time) it's barely noticeable. So I feel like if a discount is warranted at all, it would only be warranted on those "loud days." Is there a way to define and agree upon "loud days" so that the discount applies only when the work is an actual disturbance? Is this too complicated? Other potentially relevant facts: rooms rent for $1050, $1250, and $1300; I'm living in the house with the tenants but they know me as the property manager - they do not know I'm the landlord (I know there's generally mixed opinions about this, but please reserve your judgment); construction will last approximately 5 months; the unit being constructed is a separate, detached building - no construction is being done on the SFR the tenants are actually living in.Thanks in advance for your input!

Mindy Jensen · Answer

@Sydney Sherman, I would give them notice of the planned construction, offer to release them from their lease if they choose, and make strict start/stop times with the construction crew so the tenants know they can expect quiet times.Offering to release them from their lease negates the need to offer a discount.

Matthew Forrest · Answer

@Sydney ShermanI really like @Mindy @Mindy Jensen's answer from a business standpoint. You get to be very clear up front and it relieves you of all liability. However, I think the way you communicate it in a house hack situations in important because the relationship you have with your tenants is likely more friendly than strict business. I renovated a bathroom in a 3/1 house hack with tenants. The project went long and the bathroom situation was rough for a while, but I was always very transparent about what was going on. We talked about the progress every once in a while and let them contribute to some design decisions so they felt included. At the end, as hard as the process was I asked if there was anything I could do to compensate them and they said not to worry about it. If you chose the right tenants for your house hack, you probably won't have any issued with construction.

Wesley W. · Answer

I agree with @John Underwood. I mean, if an adjacent lot was constructing a building (i.e. of similar distance to your home), would that owner give your tenants a discount? I'm assuming the construction would take place during reasonable hours, and if that's the case - life happens. It's so sad that our consciousness immediately has to go to this quid pro quo model. Not every inconvenience in one's life merits a compensation from someone else.

John Underwood · Answer

I personally would not offer a discount. The construction is not on the house they live in. Like you said the noise is not that noticeable from next door.Give them a heads up and tell them the noisy construction will only be during the day.

James Hamling · Answer

@Sydney Sherman while I understand the underlying thought and care process' people have when they go to solving something via some form of payment, but on the psychology level it's just money which is such a nothing item, I mean it's not personal in any way, it dosn't convey care or consideration, it's just money, and often people are impacted in that way. Try giving them something of monetary value that speaks to things. If we were in a normal world I'd say maybe some paid meal vouchers at a local really popular restaurant/brewery, all the way up to some weekend trip or day thing somewhere. It depends on the demographic of the area and the tenant. Often these things have big emotional impact, a few hundred dollar value theme park day pass/thing for a small family and they will think you Mother Theressa and tell everyone what there landlord did for them, a few hundred bucks and they will say "hey, thanks". Try it out, even on a test-mini scale if wanted before going all out. Here in MN I do $20 Caribou Coffee gift cards and you'd think I just gave them a months free rent, it really has a disproportionate impact.

Leeron Regev · Answer

Hey! A friend of mine was in a similar situation in the past but instead of an ADU, construction was done in the same unit. The construction did make a lot of noise and basically made the entire commons space unusable. There was no rent concession offered to the other tenant, however it was made very clear to him that there would be construction/noise for the allotted time (which ended up being more than originally mentioned). I believe the construction was meant to take a week and ended up taking 4. Long story short, I think that if you communicate well with your tenants, they should be understanding of the situation and no rent concessions should be necessary. Hope this helps!

Sydney Sherman · Answer

@John Underwood @Wesley W. Thank you both! I very much appreciate your input and tend to agree rationally but a small part of me feels bad about springing it on them. But it's true there are all kinds of inconveniences that can arise that don't warrant compensation. It's sometimes difficult as a new landlord to remember that this is a business relationship :)