ADU Rental in OC/LA - Rent Too Low?

Question

Hello All,

This is my first post. I found BP after I purchased my first home on the border of LA and OC county. I'm currently house hacking and have been able to save enough money to turn my detached garage into a 440 sq ft apartment. Everything is brand new and modern inside. I live on a corner lot and because of that, we have 2 entrances. I'm able to section off the back portion of the lot with a fence so the apartment has its own private driveway and backyard. I'd say the lot is around 1500 sq ft and it's all theirs to enjoy. I have put the apartment up for rent on several websites and found surprisingly large interest in it. I now have a handful of good potential tenants, but I think I may be pricing it too low.

Is it unethical or illegal to allow the tenants to bid on the apartment? How would I go about this?

What's the best way I can talk to potential tenants about increasing the rent right now?

Should I just keep rent as is and increase it in a year?

Thanks for your help!

- Jimmy

Jimmy Chu · Answer

Thanks for your input. I did do market research, but it was hard to compare as most of the apartments were much larger in living space, had a tiny backyard/patio, and did not have a personal driveway with a security gate. I did not ask any of the potential tenants to bid, but I did mention the high volume of interest for the unit and one of the potential tenants actually offered more. Once I had a good idea of who I wanted to move forward with, I then had them spend money for the background/credit/eviction check. Prior to showing the unit, I had the potential tenants apply on avail, which was free. I had lots of interest, but by asking them to apply on avail, I was able to weed through the random people that were not serious. Good tip on taking down the listing and then reposting. Also, good info on rent ranges. I think I was definitely on the lower end, but because of that extra bump that the tenant was willing to offer, we're both happy.

Matthew Forrest · Answer

@Jimmy Chu I expect that you've already rented in by now (congratulations!), but I'm surprised that no one responded to this. It sounds like you have a perfect lot layout for an ADU which will make it even more desirable.

I don't know about the legality of allowing tenants to bid on the apartment, but it's definitely not the norm. I like the idea of variable pricing for items that are in high demand, but I think you know should know your market and know what your property should rent for. It's always a range, so I would figure out what that number is and decide where in that range you want to be (higher end with max rents and higher vacancy with tenants leaving for better deals, lower end rents that's sticky for tenants or somewhere in the middle). Personally, I keep rents just under market to minimize vacancy, but if your interest from qualified (important that you distinguish qualified applicants from random people responding with a click to your post) renters is more than three in the first week, your price is probably too low and you should just raise it and check if the applicants are okay with it.

Bruce Woodruff · Answer

Maybe too late but I would have removed it from the market for a week or so, then put it back up for rent with a higher rent price...

Hanna DiTolla · Answer

Raising the rent a little bit every year for tenants who renew their lease is common in OC, but more so for multifamily buildings and apartment complexes...

However, there could be other ways to increase income (if you haven't already) like using the RUBS Program, late fees, pet fees, storage fees (if you have extra room for storing larger items that might be hard for them to store in a 440 sq ft apartment), etc.

You could also legalize your garage conversion (if you haven't already) to increase the value of your home-- if you choose to sell in the future you can advertise/list it as a residential income property!

ADU Rental in OC/LA - Rent Too Low?

ADU Rental in OC/LA - Rent Too Low?

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