San Francisco, CA · Member since 2015 · 60 posts · 12 votes
I just acquired a fourplex in average condition with existing tenants on a month to month basis. The tenants live there for several years and only had one rent increase from $750 to $775 6 months ago. In order to get this property into a cash flow positive territory, I would need to increase rent to about $1100-$1200 level, which is a market rate in this area of Sacramento (which doesn't have rent control)
I was thinking of giving tenants a 60 day notice about a rent increase with the option to stay or vacate. Does it make sense? I don't mind if they vacate, in which case I'll do some upgrades. Rent demand is huge here and I don't expect the units to stay open on the market for more than a few weeks. Thoughts?
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y
@Lenny B. Since your property is in Sacramento and not SF, there is no rent control to be concerned about. You just have to give the tenants 60 days notice if the increase is great than 10%.
It sounds like the existing rents are way under market, so I'd definitely look into increasing them. Whether or not you increase all the way to market rate really depends on how much you want to keep the existing tenants and whether or not you're prepared to deal with them all vacating.
One idea you might try is to speak with the current tenants, point out what the market rate is for their unit, and ask what type of rent increase they could afford. That way, they feel like they have some say in the process and you might get close to the increase you're looking for without a vacancy or need to upgrade all the units right away.
Anyway, you have lots of options. Good luck with your new property.
Investor · San Francisco, CA · Member since 2017 · 303 posts · 327 votes
8y
A 60-day notice for your intended increase sounds right. Like everything in our state, there are nuances. Here is a concise guide:
http://www.dca.ca.gov/publications/legal_guides/lt-2.shtml
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 184 posts · 223 votes
8y
@Lenny B. : Are you in a position to absorb 100% vacancy in these units? If so, your plan sounds fine. If not, then space them out.
Have a plan ahead of time of what rehabbing you plan to do (scope of work), who will do it, the projected timelines, and who will manage it.
It sounds like you're in-line with the legal requirements. The tougher part will be the project management to maximize cash-flow during the rehab period (if that is indeed your goal.)
Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
8y
Get a good local San Francisco real estate attorney to look at your plan and determine whether it is legal to do so in that particular area.Be careful of rent control laws that may apply.
Rental Property Investor · San Diego, CA · Member since 2015 · 107 posts · 37 votes
8y
@Lenny B. The process is not so simple as giving notice of a rent increase as the city of San Francisco has many laws that protect tenants from rent increases. There are complexities such as the age of construction, length of time your tenant has been there, age of your tenants and other factors. There are also maximum allowable annual rent increases that are regulated by the rent control board.
A great resource for this is the San Francisco Tenants Union Website.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y
@Lenny B. Since your property is in Sacramento and not SF, there is no rent control to be concerned about. You just have to give the tenants 60 days notice if the increase is great than 10%.
It sounds like the existing rents are way under market, so I'd definitely look into increasing them. Whether or not you increase all the way to market rate really depends on how much you want to keep the existing tenants and whether or not you're prepared to deal with them all vacating.
One idea you might try is to speak with the current tenants, point out what the market rate is for their unit, and ask what type of rent increase they could afford. That way, they feel like they have some say in the process and you might get close to the increase you're looking for without a vacancy or need to upgrade all the units right away.
Anyway, you have lots of options. Good luck with your new property.
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
8y
@Lenny B. - Couple things to consider, but I think the short answer to your question is "yes".
I've found that starting renovations BEFORE asking for rent increases greatly ups your chances of a win. I took this nugget directly from @Gino Barbaro's book and it works like a champ. Also helpful is to email all your tenants with the "renovation plan" beforehand so they know whats going on.
I also offer them a longer lock on price, as well as capped rent increases as an incentive. people dislike uncertainty, and are willing to pay for it most of the time.
Also - ask yourself, if you had a magic wand, do you want to keep or replace the current tenants? Your reasons can be your own, and obviously should be within the bounds of the law, but sometimes a short-term vacancy hit for a longer-term tenant can be a good play.
Plus, if the numbers work in your market for rents, then you are in the right, you just need to finesse the delivery.
Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes
8y
I would give the 60 day notice of your planned rent increase and let it play out. You'll have no problem replacing those tenants if they decide to vacate. You're running a business and there's no harm in treating it as such.
Investor · Hereford, TX · Member since 2016 · 53 posts · 42 votes
8y
I am doing something similar in Texas. I bought 12 units (4 triplexes). Rents were underpriced at $400. I thought that as the units turned over I would remodel them and raise the rent to $600. The problem is that nobody wants to leave if the rent is such a bargain. I raised rent to $450 and nobody left. All of the tenants are month to month so I am now asking tenants to move out, so that I can renovate. I am giving at least 45 days, laws says 30. I have finished 4 units so far.
The property cash flowed from day one, but I can’t afford a mass exodus either.
One other thing to consider, can you fill 4 units with great tenants all in the same month. I would suggest you plan it out such that the units are ready to rent in a good month for your area. For example, up north people don’t want to relocate in winter, and not many good tenants are looking to relocate around the holidays in November and December. Just my 2 cents, good luck and congratulations!
One funny note: One tenant called me a ‘greedy landlord’ for raising the rent $50. Then 4 months later when I asked her to move out she said that she couldn’t afford anything else, ‘all the other rentals were too expensive’.
Worcester, MA · Member since 2017 · 10 posts · 2 votes
8y
You didn't mention a lease but assuming that they are tenants at will I would give them the 30-60 day notice and get some new people in there. The relationship with the current tenants will be a negative one from that point on so prepare for possible eviction costs along with the cost for the upgrades.
My opinion is even if they stay you won't want them to because they will feel like you are taking advantage of them (even though you are only trying to get the rents to a fair market rate) and give you hell on everything you do. Hey, since you're not cash flow positive anyway, what do you have to lose? As long as you can afford to be without rent and incur the costs for improvements and possible legal fees, you will be doing good in the end.