In a past blog post we explored the benefits and disadvantages of keeping a tenant while trying to sell. As noted in that post, most know that a 60 day notice must be served when tenant has lived at the property for over a year (12 months), when not on a lease. If on lease, then the lease trumps all, except cash of course. This is another discussion, but a tenant can always agree to move if paid to do so – many know the phrase from the bank owned property days, “cash for keys.” This question was asked recently, “When a tenant is not on a lease, they’ve lived there for over a year, and I want to raise the rent… do I have to give them a 60 day notice? Or will a 30 day notice do?”
Answer: If the increase is less then 10% of the rent, then 30 day notice will suffice. If the increase is more than 10%, then a 60 days notice is needed.
Rents are going up in Sacramento and there is always a decision to be made between keeping up with rents vs. keeping a tenant. If you do not raise rents a little bit over time, the shock of a one time, big raise will certainly drive a tenant out. Other would argue that a good tenant is hard to find and is worth keeping, even if it means leaving their rents low. I find including a note with the rent increase stating how much you love them as tenant… how you want to keep up the maintenance, and how expenses have risen… this seems to take some of the sting away. I do believe in keeping good tenants, and surely the cost of re-renting, the cost of making the place ready to rent, and potential vacancy may not be worth the extra $30-50/mo.?
What’s your strategy and experience in raising rents?
Keith Klassen, Real Estate Broker
Klassen & Associates / 916.595.7900
A good portion of my business has trended toward investors and investment properties, I get this question/scenario posed to me often. If the question is not asked directly, I’m usually bringing up the issues revolving around selling with a tenant in the property. There are a lot reasons why the answer could go either way on this topic, but let’s explore some of the main concepts that will help you make a good decision based on your situation. (Qualification: This discussion mainly has to do with single family income properties, rather than multi-family units).
Many agents just don’t want to deal with the hassle of selling with a tenant. There are scheduling conflicts, posting of notices, and high emotions when treading on someone’s living situation – all potentially emotionally charged and exasperating situations. While these can be good reasons to sell vacant, they may not be the best. A good agent knows how to handle and deal with tenants in a caring and professional manner. It does, however, make the process a bit more grueling and cumbersome.
I find the main issue boils down to is loss of income. Most owners balk at asking tenants to leave, because they don’t want to lose the monthly rents. In most cases I’ve found that the loss in rent is less than the higher amount a home will fetch when vacant. Why?
- Home buyer’s (people who want and need to live in the home) will pay more than an investor (someone buying a property to rent for income purposes). The reasons for buying are different. An investor will want a deal to make money. A home buyer wants a place to live and call home.
- Many investors have cash for purchase or a loan that requires 25+% down payment. Home-owner loans (like FHA) require only 3.5% down payment. VA loans are virtually 100% financed! Less money out-of-pocket, less skin in the game for an owner occupied loan, which means the purchase price can go higher. Or another way to say it, money is cheaper for a home-buyer with an owner occupied loan.
- A typical home buyer’s loan (Conventional or FHA) requires the buyer to live in the home. If the tenant is on a lease, then tenant’s rights say that the lease must be honored and a home buyer cannot buy the property.
Call or write to discuss your situation in more depth.
Ketih Klassen, Real Estate Broker – 916.595.7900
Just like home values, market rents, in Sacramento CA, vary depending on the location, size, and quality (amenities) of the property. Currently, the inventory (supply) is up, there for prospective tenants have much to choose from, driving the rents down. Tenants can now be picky, as they hold most of the “cards.” There are a few areas that stay strong – East Sacramento and Midtown (as well as Curtis and Land Park when people can afford it) always have high demands to live there.
I have an owner client that was previously renting a 2 bedroom home for $1250. We’ve lowered the price to $1050 and are still not get very many showings. The people how do look, say, “Yeah, I have 4 more to look at and I’m in no hurry.” After showing the property yesterday, the couple said, “We love it and think it’s adorable, but we have one little questions… We cannot live without a dishwasher and noticed that this home does not have one. Would you be willing to install one?”
I found the owner to be very amicable to the idea and said, “If it will get them in, I will do it!” Kind of like, he just threw up his hands and said, “I’m tired of this game, let’s get it over with.” So I called the potential tenant back with the good news, ready to schedule an application date, etc., and they said, “Well, we have a few more we want to look at before we make a decision… but we do want to decide soon… we’ll let you know.” I guess we came off too desperate?!?! Par for the course. It’s a brutal time to be getting top dollar on a rental here in Sacramento.
What has been your experience?
Keith Klassen – Real Estate Broker
Ah, the tree-lined streets of old Sacramento. Shade and beauty! I love the canopy – it’s like a tunnel of trees.
Now I do not want to be a pessimist, but the trees also are somewhat of a ticking time bomb. Several of my friend have come out to their cars during the winter most or after a windy night, only to find a large tree branch has fallen and destroyed their car.
A neighbor of ours had a tree split his home in two! The pictures are too graphic and horrifying to post 🙂
Here’s our old neighborhood and a tree that feel last year!