Oakland, CA · Member since 2015 · 246 posts · 127 votes
Hey Oakland Property Owners!
I have a few quick questions about rent increases. I just bought a duplex and the current tenants have been in the building for 5 years paying $2,000 (on month-to-month). They've had no increases since they moved in. I know that I am allowed to bank rent, but I am also in the process of installing a new roof and incurring capex costs. I'd like to bank rent and pass through capex if possible. I'd like to sign the tenants up for another 1-year lease, but with updated rent, so here are my questions.
- Can I bank rent AND pass through CapEx costs to the tenant? I was informed that it's one or the other, but not both. Either would require a 30 day notice.
- Should the new lease just include the banking amount and capex amount, or does it need to be address separately?
- If I incur additional capex costs later, can I pass them through within the same year, or is it just 1 increase a year.
Yes, you can bank rent and pass through the CapEx at the same time. You can only do 1 rent increase a year, so if you do a banked rent increase, you wouldn't be able to do the CapEx charge until a year later.
Make sure you get the work started (permits pulled) by Feb. 1 or else the new CapEx rules will mean the cost will be spread out over the useful life of the improvement, further watering down what you can charge back to the tenants.
There is a max you can increase the rent by (I don't know off the top of my head) so you may have to still bank some of the increases until the next year.
Knowing Oakland, these could be tenants entrenched for a long time. You will need to track when the CapEx portion ends so that the increase can be reduced once their portion is paid off.
If you incur CapEx expenses later on, there will be new rules that will almost negate any kind of increase for the tenant. Try to get your job started before January is over.
EBRHA - http://www.ebrha.com/ may be able to help you out with some specific information.
I wouldn't suggest having anyone sign a new lease if they are below market. You want to cross your fingers and hope they move at any point so you can get closer to market rent for the place.
Totally understand about keeping tenants monthly, but I'll need them on the a lease for various reasons.
So to clarify, I want them on a new lease by 1/1. I'll be doing the roof this month. Can I add the banked rents and the capex on the 1/1 new lease? What if the rent increase is above 10% (max increase in Oakland)? Do I just pass through the max capex and bank the rest later?
I think that you should be able to setup the lease with these terms with the new rent that has the banked increase and also a section spelling out the Capex portion of the rent increase, but I am not certain on that. You will need to send the separate rent increase notice for the capital expenses and whatever banked increase you are able to take. I believe that is a 60 day notice.
Look over the information here about passing through the CapEx and probably be good to give EBRHA a call. (number listed on the website below)
Make sure you are doing that correctly.. rent board challenges aren't fun. The tenants may challenge anyway, even if you do everything correctly.