As a rental property owner in Los Angeles County, you know that smart rent increases are essential to maximizing your return on investment (ROI). But how do you determine the right amount to raise rents? If you’re subject to the statewide rent control laws in California, you’ll also have to be mindful of the limits and restrictions around rental increases.
It’s easy to become overwhelmed with the potential risks of raising the rent too much or not enough or outside of the law. Fortunately, by having a proactive plan and understanding the key factors that affect rent hikes in LA County, you can increase your rental rates without compromising tenant satisfaction.
Here are some of the most important ins-and-outs of smart rent increases in Los Angeles. At El Camino Property Management, we use these proactive strategies to develop an approach that ensures maximum ROI.
When to Increase the Rent in Los Angeles County
The only acceptable time to raise your rent is when the lease is renewing. You are bound to the lease that you’ve signed with your tenants, and you cannot increase the rent until that lease term comes to an end.
Get to know the rent control restrictions and whether they pertain to your property. If they do, there are limits to how high your rents can go at renewal time. If your property is exempt, you still want to be mindful of the Consumer Price Index (CPI) and the maximums that are in place for rent controlled properties. It’s important to remain competitive.
Check your lease so you can be prepared for the renewal date a few months in advance. You don’t want to spring a sudden rent increase on your tenants days before the current lease expires.
All Rent Increases Must be Market-Based
When you know that the lease will renew soon, start thinking about how much to increase the rent. The Los Angeles rental market can change quickly, but you should have an idea 60 days out about how much more you’ll want to charge. Take a look at data that reflects your property type and your neighborhood. What are other properties renting for? Decide how much a reasonable increase will be, and think about the timing of your lease renewal offer.
You’ll need to think about maximizing your ROI when you propose a rental increase, but remember – retaining tenants also has a positive impact on ROI. Often it’s even more impactful than an extra $50 or $100 in rent every month.
Generally, we recommend that you prioritize retention. It’s always more cost-effective than paying the expensive turnover costs that come with the vacancy after a tenant moves out. When your tenants have a record of paying rent on time, taking care of the property, and being easy to work with, you’ll certainly want to retain them. Keeping good tenants allows you to earn more money and enjoy a pleasant rental experience.
Set the rent at an amount that gives both you and your tenants an advantage. Tenants are going to do their research just like you will. They’ll know what the market demands, and they won’t be willing to pay more than they have to.
The best way to handle a rental increase is to go ahead and raise the rent, but to keep the new amount just a bit below what the market demands. If your data says you could charge $2,800 per month, for example, why not charge $2,750? Here’s why this works for both you and your tenants:
- Your tenants will immediately understand that you value them and want to keep them in place.
- You’re still getting more rent every month.
- You’ll avoid an expensive turnover and vacancy period.
- Your tenants will feel comfortable that they’re still getting value by renewing the lease agreement.
Rental rates have been on the rise across Los Angeles and the rest of the country. While they are generally peaking and may not climb too much higher, you’re still likely to charge more rent than you did when your tenants initially moved in. Balance those extra earnings against the needs of your tenant and the competition on the market.
Well qualified tenants will not stay in a place that they believe is overpriced.
Be sure to document everything related to the rent increase and the renewal of the lease. Put the rent increase in writing so that both you and your tenants have a clear understanding of the new rent amount. Make sure to update the lease agreement to reflect the new terms and have both parties sign the updated lease.
Then, give your tenants a specific amount of time to respond. You’ll want to know as soon as possible if you’re renewing the lease or preparing for a turnover.
Consider Offering Incentives as You’re Raising Rent
Providing value to your tenants will make it easier for them to accept a rental increase. Retaining them then leads to more ROI for you. As you’re looking for ways to keep your tenants in place, think about the incentives you might provide to earn that lease renewal. Some of the things residents appreciate include:
- Fresh paint.
- Carpet cleaning.
- A new appliance.
- Upgraded cable or internet.
Most tenants are willing to pay more if they feel that they’re getting something in return. When you’re proposing a rental increase of $120 more per month, they may initially bristle. But, if they’re also getting a free carpet cleaning or a new microwave or an introductory gym membership for a month, they will feel like it’s a reasonable trade-off.
If you have a good relationship in place with your residents already, this will not be a terribly difficult situation to navigate. You want to be willing to negotiate. This doesn’t mean you have to come down on the price you have quoted in the lease renewal, but you do want to provide an alternative to leaving if they cannot afford the rent. Maybe you can settle on a different lease term – shorter or longer to fit their needs. Maybe they’re hoping for tile floors in the living area instead of carpet. Or, they’d like fresh paint or a backsplash in the kitchen. Maybe they want a pet. You can negotiate the rental increase and its terms during renewal time.
ROI Increases with Retention as Well as Rent
Be as flexible as you can without giving everything up. If they say they’re moving out and they prepare their notice, consider negotiating to a smaller rent increase for the first few months, while they adjust. Or, you can discuss other options such as singing a longer lease term in exchange for less of a rent increase. Can they refer a tenant for one of your other properties?
When you’re working with tenants who are good renters and have a good rental history, it makes sense to collaborate with them to find a mutually beneficial solution. Turning the property over will cost you money. Keeping your residents will increase ROI.
It’s impossible not to think about the current economic realities. Everything is more expensive these days, for you and your tenants. As you think about raising your rent, you need to make sure you’re not out of touch with the existing economy and the squeeze of inflation.
When NOT to Raise the Rent in Los Angeles County
Don’t raise the rent if you’ve already done so in the last 12 months.
Don’t raise the rent if you’re in the middle of an eviction and you know your tenants won’t be sticking around anyway.
There are a few other scenarios that would require you to leave the rent where it is. We briefly mentioned the rent control requirements earlier in the blog. Make sure you understand where you and your rental property fall on this spectrum.
Be aware of what you can and cannot do. For example, if you’re renting a property to a tenant who has government assistance through a Section 8 program or something similar, there are likely to be additional steps that you need to take before you increase the rental amount.
You also cannot increase the rent as a discriminatory or retaliatory measure. The Federal Fair Housing Act doesn’t allow landlords to discriminate based on a person’s:
- Gender
- Age
- Race
- Religion
- Familial status
- Nationality/origin
- Disability
The California fair housing laws are even stricter. If you raise the rent on one tenant but not another, there may be a good reason for it. Just make sure it’s a documented reason. Otherwise, it may look like you’re discriminating against the tenant who is getting an increase in rent.
As for retaliation, landlords can’t increase the rent as a retaliatory measure for a tenant’s action, such as organizing a union or filing a complaint.
Provide enough notice. According to California law, if the rent increase is less than 10%, landlords must provide notice 30 days before the increase can take effect. If the rent increase is more than 10%, the landlord must provide notice 90 days before it can take effect.
This can be confusing for a lot of rental property owners in Los Angeles. If you’d like some help effectively raising your rent while maximizing your ROI, contact us at El Camino Property Management. We know how to do this, and we’ll share our approach with you.
Please note this information is deemed reliable, but not guaranteed. Please consult appropriate professionals for specific situations.
