Rent increase/tenant has been for two years with same rent amount

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Rent increase/tenant has been for two years with same rent amount

Maria De La Vega
New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes

Hi all,

I have two tenants in my 3B/3B property. One of the tenant has been there for 2 years with the same rent amount since he moved in we have a month to month lease. When is recomendé to increase the rent and how much is it fair?

TIA

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y

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

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  • Henry T.
    Member since 2022 · 1k+ posts · 1k+ votes
    3y

    I don't know your market. ....try looking at some other rentals that are similar to yours. Charge the same as those. If you really like your tenants, reduce by 5 or 10 percent. If you don't know the law, or how to do a legal increase, pay a real estate attorney to send the notices for you. It's easy and they shouldn't charge too much.

    0Reply
  • Logan M.
    Investor · Provo, UT · Member since 2016 · 759 posts · 626 votes
    3y

    So many great responses here. I will add one suggestion. 

    Each year at renewal always increase rent even if it is $2. This is for a couple of reasons and is not my original idea. The tenants anticipate a rent increase each year and it helps you avoid the common problem of not raising rent for 10 years and then increasing rent by 50%.\

    My bonus tip is to sell everything in California and buy elsewhere. Unless you get a big government grant money from your buddy Newsom the laws are too tenant friendly and another event like COIVD could ruin you, too much risk for a low cap rate state

    I am from California so I am not a complete hater but I would never buy in California unless I was receiving subsidizes from the government. It is not by chance that a huge amount of units in the Midwest are owned by investors from California.

    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    I believe $50 is fair. My property is in a very central and popular area in San Diego, close to freeways, 5 minutes from the airport, walkable to nice restaurants, grocery stores, hospitals and parks.

    Thank you.

    1Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y
    Quote from @Maria De La Vega:

    I believe $50 is fair. My property is in a very central and popular area in San Diego, close to freeways, 5 minutes from the airport, walkable to nice restaurants, grocery stores, hospitals and parks.

    Also, did you use an attorney to draft the raise rent letter, or you draft it yourself?

    Thank you.


    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y
    Quote from @Logan M.:

    So many great responses here. I will add one suggestion. 

    Each year at renewal always increase rent even if it is $2. This is for a couple of reasons and is not my original idea. The tenants anticipate a rent increase each year and it helps you avoid the common problem of not raising rent for 10 years and then increasing rent by 50%.\

    My bonus tip is to sell everything in California and buy elsewhere. Unless you get a big government grant money from your buddy Newsom the laws are too tenant friendly and another event like COIVD could ruin you, too much risk for a low cap rate state

    I am from California so I am not a complete hater but I would never buy in California unless I was receiving subsidizes from the government. It is not by chance that a huge amount of units in the Midwest are owned by investors from California.


    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    3y
    Quote from @Adam Bartomeo:

    $50!?!?!? I would love to rent from you. We are very fair with our tenants but we also need to be fair to our owners. Over the past 2 years we have seen market rent increase by about 50%, not $50. We just raised a tenant in a 2/2 by $250 which put them under market rent by $150. 

    You are going to have to check market rents BEFORE you decide on an amount to raise. Once you know that you can decided what a fair amount for you and them should be.

    Your second paragraph is absolutely true and really the end of it...remember she is renting a shared room in a 2 bed (I think) which is a slightly different animal. And she seems to be in the market range already for a room in San Diego according to a 2 minute search on craigslist (so its gotta be right!), unless she is in a luxury building in the gaslight or something. 
    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    Hi Logan,

    I agree, California is not Landlord friendly. I am currently looking for REI in Houston, Texas. Unfortunately, everything is hard for the people that works hard and easy for the lazy ones!!!

    1Reply
  • Mackaylee BeachPro Member
    Real Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes
    3y

    Do your research and check on your current market rates. Depending on the lease you currently have in place, I would increase the rent at the time of renewal - with at least a 30-day notice to the tenants.

    [email protected]
    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    Hi,

    It's a month to month to lease. I just need to give him 30 days notice right?

    0Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    3y
    Quote from @Maria De La Vega:

    Hi all,

    I have two tenants in my 3B/3B property. One of the tenant has been there for 2 years with the same rent amount since he moved in we have a month to month lease. When is recomendé to increase the rent and how much is it fair?

    TIA


     I hate to say it, but there is no prize for being "fair," ie- "nice" in landlording. 

    Always keep your rents at market rates. Think about it- at some point, either you will get the rents up to market, at which point you will be an evil landlord....OR, you will sell the property, for whatever reason, and the new owners will get the rents up to market, at which point you will be an evil landlord. 

    As long as your lease and local laws allow, get your rents up to market. It's way more important to do this than to worry about vacancy. Besides, if you offer a good product and service at market rates, you won't have vacancy anyhow. 

    Best of luck. 

    2Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Maria De La Vega:

    Hi,

    It's a month to month to lease. I just need to give him 30 days notice right?


     In CA you need to give 60 days notice for tenants over 1 year. 

    It is difficult to find PMs for rent by the room, but I recommend you consider hiring a PM. If you self manage, it is important that you know the rules of the game.  This is more true in tenant friendly jurisdictions (and they do not get much more tenant friendly than the city of San Diego).

    You seem very nice.  Nice is nice until you get some tenant that knows the LL laws better than you do and takes advantage of the situation. 

    I suspect the PM fees will pay for themselves as you will not have any 2 years without rent increases and rents will be kept close to market rent.  

    Good luck

    3Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    You should try to increase annually, even if only a small amount. 

    Otherwise, tenants start believing ANY increase EVER is unfair.

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  • Kenneth Donaghy
    Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes
    3y

    @Maria De La Vega 

    I think from all your responses, @Dan H. has given you great advice.

    Are you Househacking with the Rent By the Room strategy? Being in Central SD myself, your rent is already generous, and a $50 increase will further your generosity. I'm sure your expenses have increased by more the $50/room in the last two years. We all are handling inflation. Your tenants know this too. 

    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    Yes, thank you. San Diego is not a cheap place to live.

    I do not live in that property though.

    0Reply
  • Yigal Uriel
    Investor · CA · Member since 2023 · 7 posts · 6 votes
    3y
    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.

    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    Thank you for the input!

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    3y

    @Maria De La Vega Typically in San Diego its 60 day notice for rent increase but there are exceptions that would require a 90 day notice....section 8 tenant is an exception or if you increase rent by more than 10% in a dwelling that does not fall under TPA.

    Best of luck!

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  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    Ok, thank you.

    My property is not a section 8. I am planning to increase the 5%, should I give him 30 or 60 days notice?

    0Reply
  • Kenneth Donaghy
    Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes
    3y
    Quote from @Maria De La Vega:

    Ok, thank you.

    My property is not a section 8. I am planning to increase the 5%, should I give him 30 or 60 days notice?


     60 day notice is required, and fair, since I know being fair is important to you

    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y

    Ok, thank you. Fair but not get me broke lol!

    1Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y
    Quote from @Dan H.:
    Quote from @Maria De La Vega:

    Hi,

    It's a month to month to lease. I just need to give him 30 days notice right?


     In CA you need to give 60 days notice for tenants over 1 year. 

    It is difficult to find PMs for rent by the room, but I recommend you consider hiring a PM. If you self manage, it is important that you know the rules of the game.  This is more true in tenant friendly jurisdictions (and they do not get much more tenant friendly than the city of San Diego).

    You seem very nice.  Nice is nice until you get some tenant that knows the LL laws better than you do and takes advantage of the situation. 

    I suspect the PM fees will pay for themselves as you will not have any 2 years without rent increases and rents will be kept close to market rent.  

    Good luck


    0Reply
  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y
    Quote from @Maria De La Vega:
    Quote from @Dan H.:
    Quote from @Maria De La Vega:

    Hi,

    It's a month to month to lease. I just need to give him 30 days notice right?


     In CA you need to give 60 days notice for tenants over 1 year. 

    It is difficult to find PMs for rent by the room, but I recommend you consider hiring a PM. If you self manage, it is important that you know the rules of the game.  This is more true in tenant friendly jurisdictions (and they do not get much more tenant friendly than the city of San Diego).

    You seem very nice.  Nice is nice until you get some tenant that knows the LL laws better than you do and takes advantage of the situation. 

    I suspect the PM fees will pay for themselves as you will not have any 2 years without rent increases and rents will be kept close to market rent.  

    Good luck



     Thank you!

    0Reply
  • Matt Scinto
    Member since 2021 · 16 posts · 6 votes
    3y

    @Maria De La Vega considering you live anywhere in CA I'd assume a 50 dollar rent increase is a miracle compared to what happened in the past 2 years 😆

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

     I keep my tenants on one year leases and my lease clearly states that they can expect a small increase every year at renewal. At a minimum, I recommend tying your increase to the consumer price index (CPI). If the CPI goes up 5% that year, the rent increase should be 5%.

    I also recommend you study the market regularly to stay up on rent trends. Some areas have seen rent increases in the double digits over the last 2 years. Failing to implement a rent increase annually could easily put you 10 or 15% behind market rates within a couple years and cost you thousands in lost income.

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  • Maria De La Vega
    OP
    New to Real Estate · San Diego, CA · Member since 2023 · 56 posts · 11 votes
    3y
    Quote from @Nathan Gesner:

     I keep my tenants on one year leases and my lease clearly states that they can expect a small increase every year at renewal. At a minimum, I recommend tying your increase to the consumer price index (CPI). If the CPI goes up 5% that year, the rent increase should be 5%.

    I also recommend you study the market regularly to stay up on rent trends. Some areas have seen rent increases in the double digits over the last 2 years. Failing to implement a rent increase annually could easily put you 10 or 15% behind market rates within a couple years and cost you thousands in lost income.

    Thank you!
    1Reply
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