Ways to increase rent (multifamily, rent control)

Multi-Family and Apartment Investing
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Ways to increase rent (multifamily, rent control)

Yannes Chiang
Rental Property Investor · Pasadena, CA · Member since 2016 · 85 posts · 19 votes

Hi everyone. We just purchased a value add 6-unit in North Hollywood (CA). It is a rent control property. Currently the rents are way below the market rent and the existing tenants don't want to leave at all. We have done the following things to increase the cash flow - adding a laundry room, charging storage rent, installing energy-efficient lights and so on to cut the utility cost, renovating the unit in exchange of higher rent for the current resident.

What else could I do to increase the NOI? I am thinking about putting a covered parking space to charge parking rent? But I am not sure whether it is feasible to do so. I'd love to hear your thoughts. Thank you in advance!

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Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
7y

@Yannes Chiang

Depending on market rent vs current rent it can be worth the investment. Our average buyout is actually about double what you listed. However, consider the math. If a tenant is $1,000 per month under market you'll get an extra $12k a year in income. At a 15 GRM the value of the buyout is $180k. With that in mind 10k or 20k don't seem that bad. So it's a great value add, especially if you sell or refi and capture it. It also ups cash flow significantly.

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  • Robert ChuangPro Member
    Realtor · Arcadia, CA · Member since 2014 · 145 posts · 46 votes
    7y

    @Yannes Chiang

    As I dont own any rent controlled property, however I have look into their RSO. 

    Per - https://hcidla.lacity.org/RSO-Overview Website

    • Rent increases that do not require HCIDLA approval arrow_down

      • Rent may be increased to the market rate if tenant:
        • voluntarily moves out;
        • does not pay rent and is evicted;
        • violated the lease agreement and is evicted;
        • is evicted for failure to comply with a Tenant Habitability Plan; or
        • is evicted per a City Attorney order.
        • accepts a Tenant Buyout Agreement
      • Rent may be increased once every 12 months by the allowable rent increase percentage. Effective July 1, 2017, the annual allowable rent increase is 3%. This increase may be added to the rent and security deposit. The landlord can add an additional 1% per utility paid by the landlord (gas and/or electricity).
      • If an additional tenant moves into a rental unit: Landlords can increase rent within 60 days of learning about the additional tenant. There is no increase for the first minor dependent child added to the existing rental unit.
      • A $12.25 surcharge may be collected by the landlord as the tenant’s portion of the Registrationfee. Beginning in 2017, this fee will be eligible to be collected in the month of August.
      • A $3.61 monthly surcharge may be collected by the landlord for the Systematic Code Enforcement Program (SCEP) fee.
      • A $3.00 surcharge may be added to the rent for the installation and cost for a hard-wired smoke detector or a combination smoke/monoxide detector.

    Meaning, if you pay for utilties, you can add 1% of rent per year, I believe up to 5%. Any many other ways to add rent, not alot of people know this, however I would consult with a real estate attorney who is familiar with rent control.

    I honestly would say cash for keys are still the best way as many others mentioned, I have a friend started from $5k and increase from there. Also, sometime an official letter works better than a text or talk :D

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  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    7y

    @Robert Chuang is correct that you can raise up to 5% per year if you pay for gas and electric. 

    LA is very tenant friendly so of all the items on the list are not real options, even eviction is hard even when they are not paying. The most likely one to work is a tenant buyout agreement. @Enrique Huerta's range is about right, 18-25k per tenant plus 2 months of free rent. 

    Podcast Guest on Show #373
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  • Yannes Chiang
    OP
    Rental Property Investor · Pasadena, CA · Member since 2016 · 85 posts · 19 votes
    7y

    Thank you all! You really got me thinking about the cash-for-key even though it would be painful. 

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