Rent control, rent management and GRM
In San Francisco, limits on rent increases are mandatory and administered by the Rent Board with a few exceptions:
1. New Construction: Required by state law, all buildings constructed after June 1979 are exempt.
2. Subsidized housing: like HUD housing projects.
3. Dormitories, monasteries and convents
4. Residential hotels: if you have less than 28 days of continuous lease.
How does it work
Base Rent – A landlord can increase the tenant’s base rent by an allowable annual increase. This year its 2.2%. So if a tenant’s rent was $ 1000, the most it can increase in 2009 is $ 22. Next year, the rent board will declare the maximum increase allowed for 2010. There are other types of rent increases, such as improvements. capital, higher operating and maintenance expenses and utility costs, but need approval from the rent board.
Managing Decreasing Rents and GRM The trick now is to adhere to the trend, keep the unit occupied, and preserve equity. Here’s the problem: You have a vacancy or a recent tenant wants a rent reduction and the unit rents for $ 1,500. But similar units now cost $ 1,400. It’s bad enough to have to give up $ 100 a month, but if you reduce your base rent, you may be paying as long after the market has recovered, maybe even 10 or 20 years.
Here’s why: Let’s say your base rent was $ 1,500, and it’s clear that you have to lower it by $ 100. At $ 1,400 (assuming this year’s maximum annual increase of 2.2%), it could take three years to get back to $ 1,500. A negative year affects your entire future income stream if you use a lower base rent to accommodate new market realities.
Preserving GRM Maintain Higher Base Income in Tough Times
1. Attractive gifts: Keep the rent at $ 1500, but offer gift certificates or other amenities. A rent reduction to $ 1,400 is an annual loss of $ 1,200. Perhaps a sale on a new Dell notebook ($ 350) is attractive enough. If this had worked, you would have kept your base rent at $ 1,500 and saved $ 850 this year. In the next few years, the rent table increases would be based on $ 1,500 and not $ 1,400.
2. Skip a month: Offer one month free rent. Tenants are open to this and it allows you to keep your base rent of $ 1500. Never do it the first month’s rent, as you may find yourself with a tenant who also does not pay in the second month and now has a squatter.
3. Improvements: A great idea is to offer amenities that increase the value of the unit. Consider the conveniences that tenants cannot bring with them, such as: stackable washers / dryers, microwaves, or dishwashers. Renters really like the added convenience and it adds value to the unit. A good option in which everyone wins.
Four. Increase Market Depth: Consider pets. You can reduce the risk by requesting a pet deposit in addition to the security deposit. Make sure you do not exceed the rules of 2 x rent for unfurnished rooms or 3 x rent for furnished rooms for San Francisco.
5. Section 8: Applicants for Section 8 are screened by the US government and HUD provides a partial rent. The bottom line is that you can broaden your pool of potential tenants by considering Section 8 programs.
6. Announce: Maximize your marketing presence by using Craigs List and an Internet-listed company.
7. Hire a property management company: If it saved you just one month, due to your leasing expertise or visibility, you’d be ahead of the game.
** A note to home buyers: Maintaining the base rent for future rent increases also skews the GRM. It is important to compare the rental listing with the actual rental income reported when purchasing or representing buyers.
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