Rent Rates Decreasing - Los Angeles

[David Mayman]

Hi All, 

I was driving around my neighborhood and I noticed a lot of for rent signs.  I have a tenant who's lease is coming up in a triplex I own in the area, and they requested a $200 reduction in rent of of their current rent of $2,200.  This is for a completely upgraded (a few years ago - granite counters, open concept, chef's kitchen, great entertaining space, new bathroom) 1 bed 1 bath in an excellent neighborhood.  I looked for comps online and I see that my pricing at $2,200 is about right for the area and quality of my unit.  Please note that by reducing the rent, I will be locked into that rate for the next year, but also likely will not be able to increase the rent the year after by more than 3% as the unit is rent controlled.  On the plus side, the tenant is a business school student, and probably will not stay in the unit long term so rents will reset when this tenant moves out.  

Additionally, a friend of mine who is renting just told me that she was moving because rental rates decreased and she can now get a 3 bedroom place for about 10-15% less than it would have been pre-covid (from about $4,200 to $3,600).  She was looking to buy a place, but there was no inventory and prices were still sky high and going higher!

I was curious if other people invested in the area or in other urban areas were noticing a drop in rental rates. Is this a blip, or a long term trend?  Is this actually an overall trend - in urban areas, or is this just what is happening in my small neighborhood in West Los Angeles?  

[Greg M.]

First off, if you decide to offer a lower rate, do not do it as a standard lease. Why lock yourself in at a lower rate with rent control. Write the lease at $2200 with a renewal incentive of a $200 monthly discount for every month the rent is paid on time, with clear notation that the monthly rent is $2200 and the incentive is only applicable to this lease term.

I can't say that rents are falling. I'm also seeing places become available and then go off the market after a few days. Also looks like a lot of people are selling their rental condos and getting out of the business. That's only going to bode well for increasing rents.

Personally, I'd call the tenants bluff. Let's assume he can find a place for $200 less. Is he going to move for $2400 a year? Possibly, but probably not. And if you're correct on your assessment of the marketplace, you'll have another tenant in there in days.