Current rent is $1700 below market each month, what to do?

Question

Hi, I am new to bigger pockets. I caught the bug two weeks ago and have watched about 50 videos lol.  I have a rental condo worth about 550 payment is 1000 per month HOA dues are 150 per month currently rented at 2000 per month just did comps through the bigger pockets tools and it is showing 3700 as a good comp for rent.  3 bed 2 bath with 2 car garage.  The tenant is always on time with rent, but there are now four adults living in the condo with a kid on the way. I don’t have a lawyer or know what the laws are regarding rent, raising asking them to leave remodeling and getting a new tenant. I only have one of them on the lease which is actually expired. They are basically month-to-month..  was thinking of letting them know I leg rent more than a certain amount here in California unless that person decided to move out and one of their other not on the contract tenants signed a new lease at the higher rate?  Just a reminder I am new to this.

John Seitz · Answer

Nobody has addressed this part yet - The tenant is always on time with rent, but there are now four adults living in the condo with a kid on the way

So you have a good tenant in some regards. Four lives will be affected. And they're in a possibly precarious spot with a kid on the way. Whatever you do be a good human being. First of all, a tenant who pays on time is a blessing and an asset. That has to count for something. Hopefully, they can get close to what the true rent value is. If not, make sure you give them plenty of time to find a new spot and a good reference (I'm assuming they're good tenants all around). Life is not all about numbers.

Colleen F. · Answer

@Bruce Cook first find out what the law is, if you are under rent control you need to thoroughly understand the law and raise rent probably to the maximum you can (if rent conrolled). If not rent controlled and  you can give notice you might want to give notice if you have a lot of people moving in and out.  Second you don't let anyone move in except who is on the lease so  you need to enforce the lease and qualify anyone who is on it. California is tricky so make sure you understand if you have both state and local requirements.  Hopefully someone local can give you some insight.

Nick Maugeri · Answer

Thanks for the notice.

Exemption Conditions for Single-Family Homes and Condominiums

Single-family homes and condominiums are only exempt from AB 1482 if BOTH of the following conditions apply:

• The property is not owned by one of the following: a real estate trust, a corporation, or an LLC with at least one corporate member. AND
• 
• The landlord notified the tenant in writing that the tenancy is not subject to the “just cause” and rent increase limitations as specifically described in Civil Code Sections 1946.2(e)(8)(B)(i) and 1947.12(d)(5)(B)(i). More information about this requirement, including mandatory language, is provided in the Notice section of this webpage.

The limited exemption for single-family homes does not apply where there is more than one dwelling unit on the same lot, or any second residential unit in the building that cannot be sold separately from the subject unit (such as an in-law unit).

Alison Brenner · Answer

I have a "keep me out trouble" deposit with an eviction attorney. Relying on my eviction attorney for occasional guidance is somewhat helpful but not ideal. I think a better resource for your purposes is the Fair Housing Council of OC. Ask for Denise Cato. She is an invaluable plethora of knowledge.

If you do find a great landlord-tenant attorney willing to guide landlords, please share the contact info. I've been searching for two years, and the only ones willing to assume the liability of advising me on daily operations didn't pass the smell test. My solution is to use my eviction attorney for tenancy-related questions and my real estate attorney for anything involving written contracts. They are both amazing but Denise is untouchable when it comes to Fair Housing related questions.

Alison Brenner · Answer

Hi Bruce,

1) Check to see if your property is exempt from AB 1482. It very likely is exempt. You must send a formal notice informing the tenants that AB 1482 does not apply before sending out a rent increase notice. Use a template because the wording must be precise.

2) Check City and County rent control protections. If you are in OC (not Santa Ana), you probably don't have to worry about rent control unless the law changes at a later date.

3) Check your lease agreement for wording about rent increases and comply with the terms.

4) Make sure Newsom hasn't declared a state of emergency...which often trigger rent freezes.

5) Once you confirmed that your condo is exempt and no local protections apply, send a rent increase notice for any amount. The notice must be sent at least 90 day in advance for increases over 10%. Remember to inform your tenants that the property is AB 1482 exempt before sending any rent increase notices. Be mindful of proper service requirements. For example, rent increase notices must be posted and mailed.

Nick Maugeri · Answer

A little difficult to make it through the end of the post with typos, not sure I understand it entirely but I'll answer what I could grasp. The rent cap and rate adjustment law in CA is not allowed to exceed 10% annually. You are charging $2,000 per month and you need to send a notice tomorrow that their rent is increasing to $2,200 in 30 days and have them sign it.

They are violating the lease agreement by having others live there who aren't on the lease, this is a real liability concern with your insurance so that should be addressed.

Getting the bug is great, but being a sound asset manager is imperative to REI. It's well worth your time and money to hire an attorney on Monday.

Bruce Cook · Answer

John,

I totally agree. And that is actually why I put that part in the post because that plays into my decision here.  I'm thinking if the comps say 3700 then maybe I give them 2 or 300 off What the rent is around the area to take care of them.  Just like they've been taking care of me by being on time with the rent every month.  They have slowly added more and more family members to the property, which means more wear and tear. And as pointed out elsewhere is illegal and breach of the lease agreement which is why I do not feel bad at all for raising the rent. But I do feel that this could be a win-win situation. Contacting an attorney is definitely going to be my next step on monday or Tuesday. I'm hoping to get a referral from the BP community.  Thanks everyone!

Nathan Gesner · Answer

You should hire a professional property manager before you make a real mistake that costs you tens of thousands in losses. Let the manager deal with removing the tenants, giving you advice on fixing the place up, coordinating with contractors, and getting this place rented at market rates.

A property manager will cost you around $4000 a year. The extra rent they bring you will be 3x that, and they will do all the work while keeping you out of legal hot water.

Allan C. · Answer

@Bruce Cook please do consult legal services, but also do some diligence on your end. There are lots of resources available online to give you some base education so you can ask more informed questions to your lawyers.

Do some research on AB 1482 - you’ll see that most SFH and condos are exempt. There are regulations you’ll need to follow, but you also have more flexibility than with multi-unit properties. Also review best practices on property management so you can have better leases and enforcement of them. Good luck!

Bruce Cook · Answer

Ugh, I hit send before I corrected voice to text typos!  Sorry.

Current rent is $1700 below market each month, what to do?

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