How to increase rent on long-term tenant in CA renting ~35% below
Member since 2022 · 12 posts · 3 votes
How to increase rent on long-term tenant in CA renting ~35% below
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesQuote from @Kezia Edmonson:
Long story short, had a very long term lease (5yrs) on single fam home with a small (8%) increase built in already (pre-defined in original contract) in years 5-7 year. In 6 months we're at the end of year 7, tenant wants to renew lease again BUT we are now VERY below market rate...like 35% below just the avg... How do I increase the rent significantly while navigating a long term very good tenant?
Also, I don't think the CA rent increase rules apply since this is a single family home (it was previously my primary but moved for military), it's our only one there, and we're in San Diego county. Tenant wants to stay, I want them to stay, but they are at least $12-1500 under market now at $3450, & avg $4700-4900 in 1mi radius.
1) Does anyone have links to actual law on rent increase for my situation
2) How would you navigate this increase? THANK YOU!
You are correct that your SFR is not rent controlled. You can search for AB1482 to see statewide rent control which applies to MF over 15 years old.
I would caution that a unit that has had a tenant in it 7 years is not a comp to the newly rented places. You would likely need to paint, replace any carpets, possibly replace some fixtures to be a comp.
Next is how good a tenant are they. I try to never get a tenant more than 10% under market, yet somehow I have 2 that are more than that. Both received around 10% rate increases the last couple/few years and still fell further below market. One of the two is not rent controlled so I can raise is as much as I desire, but 10% seems to be the most that I desire (maybe I am too nice). I keep thinking rents cannot continue to go up like they have been which will provide the chance to narrow the gap (so far that has not worked). if they are a good tenant, a $400/month increase would be a large increase and likely result in them happily paying it. if you went with an $800/month increase, they would still be far below market, but could they afford to stay in your unit? If you did $1200/month increase the tenant likely will find a fresh unit, you will get the expense to refresh but post refresh you can get market rent with a new tenant (with the associated risks of a new tenant).
I would likely go with the $400 increase. I recognize that it results in rents below market but when I let rents go below market, I do not try to catch it up all at once.
Good luck
4 Replies
- 3yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Kezia Edmonson:
Long story short, had a very long term lease (5yrs) on single fam home with a small (8%) increase built in already (pre-defined in original contract) in years 5-7 year. In 6 months we're at the end of year 7, tenant wants to renew lease again BUT we are now VERY below market rate...like 35% below just the avg... How do I increase the rent significantly while navigating a long term very good tenant?
Also, I don't think the CA rent increase rules apply since this is a single family home (it was previously my primary but moved for military), it's our only one there, and we're in San Diego county. Tenant wants to stay, I want them to stay, but they are at least $12-1500 under market now at $3450, & avg $4700-4900 in 1mi radius.
1) Does anyone have links to actual law on rent increase for my situation
2) How would you navigate this increase? THANK YOU!
You are correct that your SFR is not rent controlled. You can search for AB1482 to see statewide rent control which applies to MF over 15 years old.
I would caution that a unit that has had a tenant in it 7 years is not a comp to the newly rented places. You would likely need to paint, replace any carpets, possibly replace some fixtures to be a comp.
Next is how good a tenant are they. I try to never get a tenant more than 10% under market, yet somehow I have 2 that are more than that. Both received around 10% rate increases the last couple/few years and still fell further below market. One of the two is not rent controlled so I can raise is as much as I desire, but 10% seems to be the most that I desire (maybe I am too nice). I keep thinking rents cannot continue to go up like they have been which will provide the chance to narrow the gap (so far that has not worked). if they are a good tenant, a $400/month increase would be a large increase and likely result in them happily paying it. if you went with an $800/month increase, they would still be far below market, but could they afford to stay in your unit? If you did $1200/month increase the tenant likely will find a fresh unit, you will get the expense to refresh but post refresh you can get market rent with a new tenant (with the associated risks of a new tenant).
I would likely go with the $400 increase. I recognize that it results in rents below market but when I let rents go below market, I do not try to catch it up all at once.
Good luck
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Kezia Edmonson:
You are losing over $12,000 a year. That's half the cost of a new roof. The cost of a new furnace.
There are many, many renters in the world that are very, very good people willing to pay market rate for a nice house and a nice Landlord. Why would you supplement this Tenant's lifestyle just to keep them?
I would show this Tenant some comparable rentals and that you are over 30% below market. I would tell them they need to increase to $4,500 per month and agree to small increases every year. That will still save them thousands every year and the cost of moving. In the future, I recommend only one-year leases with a mandatory increase every year to prevent you from getting so far behind. You should never let your rent get more than 10% below market. There may come a day when rent control hits your market and you don't want to be caught with your pants down.
The DIY Landlord Book4.7247 Reviews - Member since 2022 · 12 posts · 3 votes3y
Thank you both. The original lease was set that way due to an extended overseas assignment and wanting security not to have to deal with new tenants in the middle of that. It may have been a mistake but it did offer the security needed. I’m positive they know they’re well below, and this is a very nice, upgraded place it’s just a matter of broaching the subject the right way as we start discussions for possible renewal. I think we may go with 20% this year, followed by 15% and we might be near market after that just wasn’t sure if others had dealt with significant increases.
- Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes3y
@Kezia Edmonson in addition to the comments above if you really like the tenant I would give them some pretty advanced warning and communicate the goal is to raise rents in a fair manner to the tenant. You might see an ok reaction versus just a rent increase showing up at their property.
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