large rent increase in non-rent controlled, hot market

7 Replies

My rental condo is located in a very competitive market just outside San Francisco. there is a great supply of quality tenants and I never have vacancy time of more than a few days when they need to move. The unit is 1200 sq feet, 3/3 in a four plex.

I have great tenants now for a year lease at $2950, but am concerned the fair market value is closer to 3500. I know they can afford the increase, and it is legal to raise it by this much at lease renewal, given 60 days notice.  My concern is that it feels unreasonable, almost like a "bait and switch", But I don't want to sustain a rental loss either.

Since I can easily find new tenants, and will have little vacant time, is raising it and letting them move if necessary a better tactic than doing a partial increase as consideration fir them as good tenants?

I am looking for feedback from those who have faced similar dilemmas

@Kim T. I am in the bay area and know the market here for rentals is great and rents have been going up a lot over the last few years.

You are lucky that you do not have rent control and can increase what you feel like. I personally am okay with getting about 5% less rent as long as the tenants are good and low maintenance. 

You are talking about 18% increase here.  So may be you can have open conversation with the tenant and explain to them what the current rates are with examples and tell them that since they are good tenants you will go a little less than market by 100 or 200 dollars. I would increase to 3300.

Another approach you can take is tell then you will do 6 months lease with 3250 and then increase the rent to 3500 after 6 months.

Even if you can get new tenants soon you still may have to small repairs and paint touchups and stuff when the current tenants move out.

Again this is just my 2Cents. 

Thank you, I appreciate your feedback

best

Hi @Kim T. I manage rentals in San Jose and Santa Clara.  As you know it is a seller's/landlord's market.  I'd suggest raising rent to maybe $100-$150 below market if you want to avoid the possible hassle (minor though it will be) of placing a new tenant.  If the tenants have an issue with you raising the rent closer to market price you can point out that they have saved thousands over the past year on below market rent and that rent is still slightly below market even with the increase.  

Tenants will ALWAYS complain about rent being raised no matter what reality is, so don't sweat it too much.  You're not in this business to lose money.  Right here and right now, they need you more than you need them as they would be lucky to find another property at market rent given the lack of vacancies.

Thanks Jeff... Finally, re lack of rental comps in my area-3 bed/3baths like mine are a white elephant in my area, mostly consisting of bungalows built after WWII. Do 2bed/2 bath units of the sane size as mine work as a baseline. 

Most of the sfhs are 2 bed/1bath but have yards and I have none. Do these make for comps in that, the yard evens out the fewer bedrooms/baths?

Kim,

Don't over think it. Yard or no yard, the tenant has their pick. If they wanted a yard, you couldn't keep them there if you wanted to. I had a great young couple who rented from me for 2.5 years. They adopted a small dog and moved out because they needed a yard for the dog. I had 1 week vacancy and re-rented the unit at $1,875/month. The previous tenant was paying $1,550/month.

If it were me, I'd raise the rent $150/month which is approximately 5%. Don't feel bad. I know you're a soft landlord so that makes two of us. Vacancy is not a bad thing if they move as you will get more rent and recoup it in a short amount of time. 

I had another great tenant for over three years. I only raised her rent twice at $50/month. She was paying $1,850/month. Due to a new job, she moved although she tried to hang onto the place. She just couldn't bear the 1-hour commute each way. She moved out on 8/15, and I had a new tenant started paying rent on 8/16 at $2,350/month.  No vacancy and a $500/month increase. Sometime, vacancy is a blessing in disguise. At the same time, don't try to squeeze every nickel out of your tenant. A $150/month raise is good IMO.  

Let me know if you need a copy of the notice of rent increase letter. 

Good luck.

Thanjs Minh, and especially for sharing some of your recent experiences by way of explanation.

yes, I am a "soft" landlord in some respects. From a personal philosophy I too am against trying to squeeze the last nickel from anyone, as the attitude towards money will come back to bite you in the end... 

I face a similar dilemma in the same market.  Have had no turnover in 20 years (!), which has been great on the one hand, but now I'm way under market.  Even with average annual increases of 3-4%, I'm about 25% below market rate.  Due to health concerns I'm considering retiring next year, and will need extra cash flow to pay for health insurance.  So I am planning to raise the rent by about $1000, which is a 35% increase.  I feel really bad about that, but at the same time don't want to get scr***d myself if laws change and rent control goes into effect for my building.  

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