Potential Vacancies Scared Many Landlords Afraid to Raise the Rent.
I’m constantly reminded of the many Property Management and Income Investment Seminars and Study Groups I took advantage of during the last 40 years of Residential Investment Real Estate Sales.
The reason why I’m reminded is more than one instructor advised those of us in attendance to “always have your rent at or near market”.
I see in reviewing sales in today’s market it appears many of the existing investors are getting out of the rental market business. I suspect because they aren’t making any money to cover the expenses of operation let alone give them an income after all the expenses are paid.
You Might Ask… Why don’t they have more income…?
The answer is simple. These small investors were reluctant to raise the rent because they were terrified of a vacancy and the costs associated with a potential turnover. Maintaining below market rents was not a big deal up until the implementation of State Rent Control.
With Rent Control a new investor will not be able to bring existing rents to “market rate” easily.
Here are a few reasons to always keep your rents at market
- Ability to build up a reserve
- A Healthy Reserve will give you peace of mind when a major problem comes up – ie, a Central Heat and Air unit decides it’s time to go “Kaput” in the middle of a Heat Wave.
- Raising the rents will bring out problems the tenant hasn’t told you about because of the fear “landlord will raise the rent”. This is good because in some cases a tenant not reporting a problem early may cost you a lot more.
- Enough income to effectively maintain the property in a “prudent investor” standard
- A well maintained rental will get higher rents and a better class of tenant.
- Tenants also have “pride” where they live so give them some value for the higher rent.
- When it comes time to sell a well maintained property will always sell for top dollar no matter the market conditions.
Right now it’s a Seller’s Market for Duplexes as we know. Below here is an example of what I’m talking about.
Click Here for Information on a Rancho Cordova Duplex that came on the Market today.
Now Click Here for the “proforma cash flow” analysis I’ve prepared.
Below you’ll see a couple of pictures of the property. The 1st picture is back in 2012 and since that picture was taken the property’s curb appeal has deteriorated. The scheduled income has not gone up much since 2012. Back then the rents were $995 and $825. Today Scheduled rents show $1,025 and $975.
Amazingly however, the listing agent likes to point out that while the Rents are “below market” there’s a “potential” to greatly increase them to $1,650 and $1,400.
Remember… We now have Rent Control and it’s not possible to raise the rents to the current market with a simple notice to the existing tenants.
There are two ways to make this better for the Landlord/Investor in the short term.
- Sell the property at a much higher price point because you can in this environment
- Pray one of your tenants gives notice they are moving – because once it’s been made vacant you can then get in there, do the turnover work and get your rent to market.
By the way check out the pictures from 2012 to today. The Landlord/Owner didn’t maintain the exterior landscape front or back or do anything extra which I think is sad.
However, in this market it doesn’t make much difference.
If you are thinking of Selling a Duplex or Four-plex or any other Residential Investment Real Estate, please call me, Ed Favinger, Broker at 916.203.1260
In the Mean Time…?
Make it a Great Day…!