Keep Rents at Market Level

Keeping rents at market level is critical to maintaining the value of your investment. The rent collected in a multi-residential income property largely determines the value of the property. When the time comes to sell your income property, prospective buyers are going to assess the purchase price against its income and operating expenses.

As a real estate agent, I can show prospective buyers data regarding the potential rental income, but nothing speaks louder than the actual rental income being collected. Having tenants that are paying market level rents are a valuable asset when selling a residential income property.

A landlord who allows his rent to slip substantially below market is allowing his property to deteriorate just as surely as one who lets the roof deteriorate or the floors rot.  This implies that raising the rent as needed to market levels is as important a part of maintenance as fixing roof leaks or unplugging toilets. 

I highly recommended that you renew leases, or at least rent rates, annually and adjust your rents accordingly to maintain tenants that are paying market level rents.  Advise new tenants that you review rents once a year and adjust according to market levels. This obviates huge increases due to years of neglect. While tenants hate rent increases, small increases that come on the yearly anniversary of their tenancy are more tolerable.

By tying rent increases to the anniversary of their tenancy you also tend avoid raising the rents to all your tenants at the same time, risking multiple vacancies or multiple upset tenants. You also avoid the perception that the rent increase is somehow linked to some maintenance or repairs that you are doing for the tenant or the overall property.  

If you have been neglecting your rents and need to make substantial increases, think about giving them in installments.  In other words, if you need to increase the rent $200 on a given unit, consider raising it $100 in February and another $100 in May.  Notify the tenant of the second rent increase at the same time as the first increase so the tenant can plan accordingly.

Under California Law there is currently no maximum limit for rent increases. However there are regulations that must be followed.

1. If the tenants have leases, the leases carry over to your new ownership. The rent cannot be increased during the terms of the lease unless the lease provides for rent increases
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3. If the rent increase or cumulative rent increases are greater than 10% of the lowest rent during the past 12 months, you must give a minimum of a 60 day notice.
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5. If the rent increase or cumulative rent increases are 10% or less than the lowest rent during the past 12 months, you must give a minimum of a 30 day notice.

For specific details on advance notice requirements please refer to the California Landlord Tenant Guide which can be found on the California Department of Consumer Affairs web site at www.dca.ca.gov.

Local rent control ordinances may also limit rent increases, or impose additional requirements on landlords. If your investment property is in an area with rent control, check with your local rent control board to find out what additional restrictions apply.