Quote from @Maria De La Vega:
Quote from @Dan H.:
I see a lot of replies from people not in San Diego and with questionable knowledge of the market.
For tenants more than 12 months, you need to provide 60 day notice of rent increase
State wide rent control (AB1482) does not apply for rent by room or SFR. However city of San Diego (I am unsure you are city of San Diego and county or other cities do not have local rent control laws) has more extreme rent control (something named like tenant protection act). I suspect it does apply (because it covered virtually everything), but am not positive. You can Google either AB1482 or San Diego tenant protection act (went into affect late J.
The rent control increase amount Is 5% + CPI capped at 10%. Currently the 10% cap is in effect (meaning CPI was at least 5%).
The average 3 BR SFH rent increased $600/month last year in San Diego. This implies your $50 increase is too low. You should raise at least $100 and consider raising rent 10%. Because you have not raised rent in 2 years, even 10% increase will have your rent below market rent.
As others have indicated, it is better to raise rent annually than to wait and have a bigger increase.
good luck
Lots of great information in these responses. Obviously you’ll need to pick and choose what advice fits best with your overall strategic goals and approach. I’d like to hopefully contribute with a similar personal example and how we approached it.
I’m was in a similar situation up here on the central coast when we bought our first duplex. Rents were at about 60% of market rate. Luckily, one of the units turned over on its own and we were able to get it to market value quickly. We have been increasing the other units rent to the max % allowed annually to get it to current value. Obviously follow all state regulations on percentage increases and notice times but what we found very helpful was to add humanity (marketing) to the dynamic since we self manage. At the end of the day this is an evaluation of value for the tenant. Are they getting value for their money even with the increase? If they are under market value they probably know it, and if they don’t you can’t help them to see that value. No one likes to feel like they’re backed in a corner and as a landlord, I don’t want to worry about bitter tenants. A perception of a win-win is possible without sacrificing business objectives.
What this looks like practically for us:
Protect yourself
- #1 (especially in California) make sure to insulate yourself, if things go south. Invest the effort upfront to ensure your lease is comprehensive, and that you understand and comply with regulations.
Relationship building
- We ensure that we operating a “on thebusiness by maintaining the property and being responsive to issues that arise (not going all out, but not doing the bare minimum either). I also make it a point to find a project on the property that I can do so that I am visible and present as a person not just an amorphous landlord.
Tactics
- Giving an above average notice (120 days). I increase rents annually in March to stay in compliance with regulations, but I send my notices out in early December. In fact, they’re automated at this point. This gives plenty of time for tenants to research their options and get some reality on current market values if they were to move.
- providing a forum to be heard. Anecdotally our tenant called me after the second increase notice asking if this would be an annual thing. conversation in a business sense really helped. “we love having you as tenants and don’t want to lose you, but the unit is way under market value and unsustainable for us as a business.” Was is this the truth? Yes and no. If they stay, I’m on my way to getting rent to market value. If they leave (and you can fill the vacancy), rent goes to market value in one fell swoop. Long-term tenants are great as long as the returns make sense and are in line with your overall strategy. At the end of the day you are laying out your value proposition and the tenants have the freedom to make a decision that is best for them.
The hardest part for me was bridging my emotions (humanity) with my business plan and taking action. Happy to say that three years down the road both units are at market rates, we’ve maintained our tenants with zero vacancy. We have a better relationship now that everyone’s perceptions better match their expectations.
