Tips to raise rent when you inherit tenets on m2m lease

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Tips to raise rent when you inherit tenets on m2m lease

Ron Singh
CA 路 Member since 2014 路 244 posts 路 47 votes

Wondering what worked for you guys in raising rent when you inherit low rent tanent on m2m lease

I know cash for key might be one way but might not work for all situations.

another different scenario :

- what about if mf property is on rent control, and current tenants are on way too low rent as compared to market.

- what if you want to move to str rental model and current inherited tanent are on ltr yearly lease. assuming have to honor the lease period and give advance notice to vacate? (intent to no lease renewal )

location : San Francisco city and south bay,

mf res properties 2-4 units

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Lawrence LeungBusiness Member
Property Manager 路 San Francisco, CA 路 Member since 2018 路 97 posts 路 80 votes
3y

@Ron Singh You are on the right track because @Nathan Gesner hit the nail on the head and called out the rent control that exists in San Francisco.  He calls it crazy haha and I call it job security.  All joking aside, the best thing you can do is to negotiate a buyout using an experienced landlord attorney familiar with this process. Don't try to go it alone as there are reporting requirements with the SF Rent Board who tracks buyout data across the City AND you don't want to be at a disadvantage as most Renters will lawyer up.@Nathan Gesner

Even if you were to pursue a buyout, STR would not be possible due to the constraints that San Francisco imposes on short term vacation rentals. You could certainly submit an application with the office of short term rentals and be able to list on Airbnb, VRBO and equivalent sites, but only up until they deny your application because it is not an owner occupied unit.

The alternative is you could try for an ILO (Intermediate Length Occupancy defined as more than 30 days but less than a year), but that also comes with strict restrictions as the City has all but made this illegal for most property types/classes starting in 2020.

What you can certainly do is take advantage of what the SF Rent Board does allow so you don't leave any money on the table.  These include the allowable annual rent increases, bond measure  passthroughs, water revenue passthroughs, capital improvement passthroughs, rent board fees, banked rent, etc.

The other thought is that if you inherited this property in the most "vanilla" situation, you may want to consider selling it because 1) your NOI is going to see a big impact once the assessed value is reset after Prop 19 and 2) you have little to no capital gains as the property's cost basis should have jumped up to current market value.

Just my two cents...

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  • Chris G.
    Member since 2021 路 132 posts 路 37 votes
    3y

    @Ron Singh

    Had a similar situation where the tenant was paying way less then market value. Since they we're going m-m I gave them a call and explained the situation and then sent them an official notice that the rent would be increasing to X amount on X date. If they couldn't afford it or didn't want to pay that amount they needed to give me notice to vacate. Not sure about your area but here we can terminate a m-m lease for no particular reason and they have to leave within 30-60 days. 

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    3y
    Quote from @Ron Singh:

    If it's under rent control, your hands are tied. If they are on a term lease, you have to fulfill that lease or try to negotiate something with them. I would be careful renting in a market like this because it can be difficult for you, particularly if you are a beginning investor. 

    Try networking with other local investors to learn the ropes. Go to NETWORK at the top of your screen and you can search for other investors and investment groups in your area. You can also check meetup.com or search facebook for real estate investment groups, clubs, or meetings in your area.

    The DIY Landlord Book4.7247 Reviews
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  • Jason Maguire
    Investor 路 Troy, NY 路 Member since 2020 路 120 posts 路 93 votes
    3y

    .

    0Reply
  • Eliott Elias
    Investor 路 Austin, TX 路 Member since 2021 路 9k+ posts 路 5k+ votes
    3y

    Give them all 30 day notice, and accounut for vacancy accordingly. If you don't want empty units for a few weeks then raise it in small pieces at a time. If you raise all to market expect vacancies  

    0Reply
  • Chad HalePro Member
    Property Manager / Investor 路 San Jose, CA 路 Member since 2013 路 780 posts 路 301 votes
    3y

    @Ron Singh  @Nathan Gesnerhas it right if under rent control.  San Jose rent control even says if you substantially renovate a unit,  you have to offer it to the original tenants at the same rate if you moved them out for "Landlord decisions" IE not a just cause due to tenant action(s).

    If in San Jose (assuming so since you said south bay), have a look here:

    https://www.sanjoseca.gov/your...

    1Reply
  • Wendy Man
    Member since 2019 路 104 posts 路 35 votes
    3y
    You said "location : San Francisco city and south bay"

    Not sure what you mean by "south bay," but SF has rent control that you need to be careful of.  That may also be why it is under market.  The history of the rental may tell you more.

    Some info Google pulled up about SF rent control.  YMMV!
    https://sfrb.org/
    https://sftu.org/rent-control/
    0Reply
  • Ron Singh
    OP
    CA 路 Member since 2014 路 244 posts 路 47 votes
    3y

    @Wendy Man

    thanks for sharing the details.

    yes one multi fm in SF city, and one 4plex in San Jose.

    two cases to deal with :

    1. rent control : seems like nothing much possible here

    2. m2m lease low rent: try to increase slowly or give tenets notice to vacate / not renewing m2m

    please suggest if any one tried any other creative way 馃檹

    0Reply
  • Wendy Man
    Member since 2019 路 104 posts 路 35 votes
    3y

    @Ron Singh Sorry I don't have any specific suggestions - just wanted to make sure you were aware of the potential rent control issues.

    0Reply
  • Chad HalePro Member
    Property Manager / Investor 路 San Jose, CA 路 Member since 2013 路 780 posts 路 301 votes
    3y
    @ron Singh
    San Jose rent control limits increases to 5%/year.   If a tenant voluntarily moves out you can go to market rents.
    1Reply
  • Lawrence LeungBusiness Member
    Property Manager 路 San Francisco, CA 路 Member since 2018 路 97 posts 路 80 votes
    3y

    @Ron Singh You are on the right track because @Nathan Gesner hit the nail on the head and called out the rent control that exists in San Francisco.  He calls it crazy haha and I call it job security.  All joking aside, the best thing you can do is to negotiate a buyout using an experienced landlord attorney familiar with this process. Don't try to go it alone as there are reporting requirements with the SF Rent Board who tracks buyout data across the City AND you don't want to be at a disadvantage as most Renters will lawyer up.@Nathan Gesner

    Even if you were to pursue a buyout, STR would not be possible due to the constraints that San Francisco imposes on short term vacation rentals. You could certainly submit an application with the office of short term rentals and be able to list on Airbnb, VRBO and equivalent sites, but only up until they deny your application because it is not an owner occupied unit.

    The alternative is you could try for an ILO (Intermediate Length Occupancy defined as more than 30 days but less than a year), but that also comes with strict restrictions as the City has all but made this illegal for most property types/classes starting in 2020.

    What you can certainly do is take advantage of what the SF Rent Board does allow so you don't leave any money on the table.  These include the allowable annual rent increases, bond measure  passthroughs, water revenue passthroughs, capital improvement passthroughs, rent board fees, banked rent, etc.

    The other thought is that if you inherited this property in the most "vanilla" situation, you may want to consider selling it because 1) your NOI is going to see a big impact once the assessed value is reset after Prop 19 and 2) you have little to no capital gains as the property's cost basis should have jumped up to current market value.

    Just my two cents...

    KeyOpp Property Management4.6287 Reviews
    WebsiteView Page
    2Reply
  • Eliott Elias
    Investor 路 Austin, TX 路 Member since 2021 路 9k+ posts 路 5k+ votes
    3y

    Just give them 30 day notice for whatever you want to do, it's the beauty of m/m

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    3y
    Quote from @Eliott Elias:

    Just give them 30 day notice for whatever you want to do, it's the beauty of m/m


    California is not a normal state and 30-day Notice doesn't work there the way it works in other places.

    The DIY Landlord Book4.7247 Reviews
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    2Reply
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