Rent Rates Decreasing - Los Angeles

13 Replies

Hi All, 

I was driving around my neighborhood and I noticed a lot of for rent signs.  I have a tenant who's lease is coming up in a triplex I own in the area, and they requested a $200 reduction in rent of of their current rent of $2,200.  This is for a completely upgraded (a few years ago - granite counters, open concept, chef's kitchen, great entertaining space, new bathroom) 1 bed 1 bath in an excellent neighborhood.  I looked for comps online and I see that my pricing at $2,200 is about right for the area and quality of my unit.  Please note that by reducing the rent, I will be locked into that rate for the next year, but also likely will not be able to increase the rent the year after by more than 3% as the unit is rent controlled.  On the plus side, the tenant is a business school student, and probably will not stay in the unit long term so rents will reset when this tenant moves out.  


Additionally, a friend of mine who is renting just told me that she was moving because rental rates decreased and she can now get a 3 bedroom place for about 10-15% less than it would have been pre-covid (from about $4,200 to $3,600).  She was looking to buy a place, but there was no inventory and prices were still sky high and going higher!

I was curious if other people invested in the area or in other urban areas were noticing a drop in rental rates. Is this a blip, or a long term trend?  Is this actually an overall trend - in urban areas, or is this just what is happening in my small neighborhood in West Los Angeles?  

First off, if you decide to offer a lower rate, do not do it as a standard lease. Why lock yourself in at a lower rate with rent control. Write the lease at $2200 with a renewal incentive of a $200 monthly discount for every month the rent is paid on time, with clear notation that the monthly rent is $2200 and the incentive is only applicable to this lease term.

I can't say that rents are falling. I'm also seeing places become available and then go off the market after a few days. Also looks like a lot of people are selling their rental condos and getting out of the business. That's only going to bode well for increasing rents.

Personally, I'd call the tenants bluff. Let's assume he can find a place for $200 less. Is he going to move for $2400 a year? Possibly, but probably not. And if you're correct on your assessment of the marketplace, you'll have another tenant in there in days.

@David Mayman I own a quad in NELA and have been renovating a unit that will be ready mid May and keeping an eye on the rental rates as well. I have been renovating this place as I go so I have had one unit up 4 months before covid, a second unit come online 3 months into Covid and now this unit now. What Im seeing is that rental rates are still strong on great units. If you have a nice clean modern unit with everything a renter is looking for, you can get market rate. The luxury units that are going 10-15% above market are the ones taking a hit along with the deferred maintenance units that are asking brand new unit rates.

For context,  I have a 1/1 that I get $1700 and a 3/2 for $2900. I intentionally set my rates 50-100 below market to attract great renters and thus far it has worked. 

I agree with @Greg M. call his bluff and see what he says.There are a lot of units available  but the sheer inconvenience of moving deters many people.

Thank you @Greg M.  Great idea to write the lease for $2,200 per month with a per month incentive reduction for the year.  That will automatically build in an increase back to $2,200 when the year is over and if Rent Control will allow, I can increase the rent as permitted based on $2,200/month.  BTW these are fantastic tenants, they keep the place clean, and keep everything in good working order, and they pay in advance always.  

Thank you @Jonathan Taylor   - This unit would qualify as a "luxury unit" and we definitely saw rates go down as Covid progressed.  The unit was previously rented for $2,280 and when covid started the previous tenants decided to move back to their home town (NYC).  We rented it last June as Covid was in mid swing and that's how we get to now where the new tenants are asking for a rent reduction on a lease renewal.

Also, we just came to an agreement at $2,100 per month - I don't think they were going to leave if I called their bluff and maintained rent at $2,200 per month, because it would cost them more than that to move, but I also realized that it would probably cost me $1,200 to get the unit back rent ready if we have to fix any cracks and paint touch ups etc.  There's always something to do; and unfortunately, I still have not mastered the tenant move out/tenant move in process to a place where I don't lose at least a couple of weeks, or even a month.  

David, there's definitely some price softness, but I think you did the right thing. My experience is that in the C class areas (where we focus) prices have held up well, but in better neighborhoods, you've seen more price drops. The Hollywood area, and a bit south of there, for example, seems to be getting flooded with 1 bed rentals in the $1550 to $1800 range. Yet, you go to many of the areas in eastern LA County, or even south LA, and rents have held up much better. 

Originally posted by @Carl Mathis :

This $200 incentive idea sounds like something a judge would not like - not even a little bit.

I would be very sure to talk with my attorney before doing this. The argument could quite easily be made, "You just built an illegal 10% increase after 1 year into the lease" - telling you the whole 'pre-pay discount' is a dishonest workaround.

It's a workaround, but not a dishonest workaround and it's not a pre-pay discount. The rent is $2200 and that is not changing. Offering an incentive for renewal is perfectly legal and not uncommon. The incentive may be to repaint the unit, replace the stove, one month free rent, extra parking spot, allow a pet, etc. There is no law that says you must continue to offer an incentive each renewal. The landlord could just as easily offer free last month rent if all prior months were paid on time.

Originally posted by @David Mayman :

Hi All, 

I was driving around my neighborhood and I noticed a lot of for rent signs.  I have a tenant who's lease is coming up in a triplex I own in the area, and they requested a $200 reduction in rent of of their current rent of $2,200.  This is for a completely upgraded (a few years ago - granite counters, open concept, chef's kitchen, great entertaining space, new bathroom) 1 bed 1 bath in an excellent neighborhood.  I looked for comps online and I see that my pricing at $2,200 is about right for the area and quality of my unit.  Please note that by reducing the rent, I will be locked into that rate for the next year, but also likely will not be able to increase the rent the year after by more than 3% as the unit is rent controlled.  On the plus side, the tenant is a business school student, and probably will not stay in the unit long term so rents will reset when this tenant moves out.  


Additionally, a friend of mine who is renting just told me that she was moving because rental rates decreased and she can now get a 3 bedroom place for about 10-15% less than it would have been pre-covid (from about $4,200 to $3,600).  She was looking to buy a place, but there was no inventory and prices were still sky high and going higher!

I was curious if other people invested in the area or in other urban areas were noticing a drop in rental rates. Is this a blip, or a long term trend?  Is this actually an overall trend - in urban areas, or is this just what is happening in my small neighborhood in West Los Angeles?  

Hi David, so maybe I can shed some light on this. I'm an agent and PM in Bozeman, MT. We have had a huge influx of southern Californians into our market in the past 2 years or so, even before Covid. They sometimes buy sight unseen. What I am hearing from a good portion of them, is that they are liquidating assets in CA (and other west coast states) to buy real estate in Bozeman and surrounding areas. It's not just rental properties either, but also business assets in some cases, stocks, 401k's, etc. I think this has to do with our more favorable landlord/tenant laws, very low unemployment, and strength of our market. It has dramatically increased our market's pricing, and there is currently a huge turnover with many locals selling off and leaving, or just getting priced out, to put it bluntly. 

So if we are not the only market like this in the country, I would assume that is having a big impact on the S. CA markets, and other markets along the coasts. Obviously this is a very complicated issue with many facets, but essentially, I think it does in fact boil down to a few key things: rental laws, under appreciated markets, and unemployment/remote working.

Good luck! 

Thank you @Shiva Bhaskar .  That makes a lot of sense as the A areas and units are seeing more people with a greater ability to move to a new location either out of Los Angeles completely, or out to a house in a more suburban setting.  They seem to have jobs that they can work remotely more easily.  The C class units are more often rented by workers that cannot work remotely and therefore cannot just pick up and leave or move to the suburbs.  

Thank you for the insight!

Rents are still increasing in most place. If you’re stuck with his deal, and I’m not saying it s a bad deal. Imagine if it take a month to get a new tenant in and you have zero make ready. Well, you lose $2200 for that month instead of $2400 with the discount. 

  What I would do is keep the rent the same with the 12th month free if the tenant is current on rent. You’re giving the tennant 90% of the discount they’re asking for ($2200 instead of $2400) while not lowering rent or risking anything if they move out early or stop paying. 

@Carl Mathis - I don't think that it would be dishonest to have a lease agreement with a discount for early payment as long as that is known to both parties. The tenant in my situation is in fact asking for a reduction in rent so it's not crazy for me to want it to only last one year.  

However, I did see a some cases in San Francisco where a landlord gave 12 coupons each that could be used with each month's rent for the first year of the lease.  The judge found that the coupons as used made the lease in effect less than was stated in the lease document  (by the amount of each coupon) and that the way the lease was written and the coupons used was designed to avoid rent control and therefore the rent rate should in fact be the reduced rate...  So basically - you're right - CA judges are probably not going to be ok with a lease written the way previously described.

@David Mayman yes that is correct...I was going to tell you (but you beat me to it) to look up previous cases where the “temporary rent discount” was challenged, as I knew it failed in SF. Curious, did you see any other similar cases in other CA rent controlled jurisdictions?

@Amit M. - I didn't find any other cases in other jurisdictions, but I would expect Los Angeles and other rent controlled markets to follow the precedent set by San Francisco... If anyone has other experience with this, I'd love to hear about it.