12 Oct Gold in Them Thar Hills | Owner Update
Getting Up from a Down Market
A most amazing event has transpired right under our very noses since COVID restrictions. Rental property dynamics for increased rent have changed under CA State Rent Control laws. Yes, after years of no rent increases, finally, increases can be installed. The fact is that the only way to accelerate rent increases to market value may be to have tenants move out so the new move-in tenant can be charged fair current rent. Due to CA State rent control, lower-income tenants with COVID years of no increases will experience only modest gains. By way of example, this year, CA State law allowed 5% rent increases plus CPI, which was 5% for most areas yielding a total +10% increase potential. This might seem like good news, but it is bad if the starting rent is very low. Ten percent increases off a low rent is a low increase!
Rents
Actual rents collected on existing apartments have remained steady. There has been little opportunity for across-the-board rent increases due to the trade-off of lost tenants and the expense of apartment cleaning and refurbishing. In short, existing tenants get a ‘hold’ ticket at the dance for the next several months.
However, new tenants moving into newly vacant and renovated rental units have had almost universal rent increases from CRESTWAVE Property Management. In almost every case, rents have been increased between vacancies in the past six months to the financial benefit of our Owners. By taking rents up in this fashion, CRESTWAVE is able to build the case for higher rents to existing tenants by the fact of higher rents with the new tenants. And the new tenants are shopping for their housing based on a market comparison, including the newly increased rents. The new tenant does not know about the current tenant’s rent and probably never will until long after he/she has moved in. And even at that point, if tenants compare rents, the new (higher rent) tenant can accept her/his higher rent based on their apartment search.
Eventually, after careful assessment of the trade-off between lost tenants and higher income, existing tenants will receive a series of annual rent increases to eventually bring them into line with the current market rental levels. Again, a mad rush to increase everybody can be a guarantee of vacancies, costing the Owner much more in move-out costs than will ever be seen in raised rents. This is due to the responsibility of the Owner to pay for ‘normal wear and tear.” This means a long-term tenant that moves out due to a rent increase can leave some rental usage without paying for restoration to move-in conditions.
Household Formation
Generally, most people want a place of their own. In hard economic times, people move in together to save money. This can take the form of children moving in with parents and unrelated persons.
becoming roommates. When economic times improve, these artificially dense households will spread out again to form different households.