Change of rent when we build an ADU to replace a small rented garage storage

[Alberto Cioni]

Hello 

I own a duplex in Culver City, Los Angeles county. I am a small business landlord.

I am in the process of building and ADU in the backyard. ADU is a 2 bedroom / 2 bathrooms unit that the State of California approved to increase the house density in Los Angeles to be built in the backyard.

This ADU will replace a small garage storage that I rented to my front tenants. These tenants rented a two bedroom and one bathroom and as a bonus I gave them also this small garage storage (too small to fit a car).

Now when the ADU will be approved in few months I need to modify the rent. The tenants know about this ADU. I told them.

The rent now is $ 3000 per month. This is a very hot market close to Venice beach and Marina del Rey. 

I am proposing to drop the rent to $ 2750 guarantee for two years for the loss of the storage space and the noise for the construction of this ADU. In addition I will not raise the rent this year.

Do you think this is a good plan? 

Do you think they have some rights to oppose this ADU even if it is approved by the city?

Tks

Alberto Cioni - Landlord 

[Glen Wiley]

Good for you - exciting path for increased cash flow!

I do not think this is a good plan (the part about adjusting rent of current unit).

Why concede rents in a hot market? If your rent is competitive with others then don't be afraid to keep it competitive.

One thing where we often stumble is that small portfolio landlords tend to lag market rent significantly. Studies have shown that we are slow to increase rents, often due to the personal element in our business. It is nice but sub-optimal. If you drop the rent, it is much harder to increase it again to keep up with market rates. People can deal with a 5% increase (in this case 100-150), but a 10-20% increase is more likely to bump them out.

Also remember that you have to hedge against future markets in which you will not be able to increase rents.