Since 1919 Table of Contents Think Before You Act Page 2 What type of message are you sending when you increase your rents? Are You Thinking about Raising Your Rents? Page 4 Think carefully before you take action Vacancy Survey Information Page 5 See what is happening around the County Rent Adjustment Tips Page 7 What you should know before you make a rent adjustment Rent Adjustment Check-Off List Page 8 Knowing your community and the surrounding area Sample Resident Survey Page 10 Listening to your residents Rent Adjustment Letters Page 12 Month-to-month With a lease agreement What Does It REALLY Cost To Move? Page 14 A guide to calculating your moving costs Note: This informational kit is part of an ongoing effort by the San Diego County Apartment Association to develop tools that will assist property owners and managers in effectively operating their rental communities. Rent Adjustment Kit December 2018 Page 1
Think Before You Act We would like to thank you for taking the time to review this Rent Adjustment Kit. We hope that it will provide you with some new ideas, and perhaps a different perspective on how to go about adjusting rents. The Recovery After stagnant rental rates throughout much of the 1990s, we have seen relief in recent years. Many rental owners are now able to balance operating expenses and debt service with income. We acknowledge the changes that have occurred in the market, but we urge caution in how you approach rent adjustments. The Reactions You Can Expect Rent adjustments tend to affect the resident s sense of security. With this in mind, it s not surprising that the first reaction to a rent increase is often frustration. This frustration will give way to understanding if they are presented the facts, and have a chance to review their rental rate in relation to rents in other comparable rental communities. Consider that your residents may have forgotten that rental housing is a business. They may take the cost of rent for granted as a constant in their budgets. Your residents may not understand that your operating costs are increasing or perceive improvements and the changing market conditions. You Represent the Rental Housing Industry If you take anything away from this document, we urge sensitivity as you approach rent adjustments. It s our goal to assist you in avoiding turnover associated with rent increases. We urge understanding of your residents and sensitivity to your market niche and your surrounding area when evaluating rental rates. Section 8 Contracts If you maintain Section 8 clients, remember to track market rates and adjust rental rates appropriately. The federal program only allows for rent subsidies up to 110 percent of fair market rates and local authorities often set lower caps. It is not uncommon for a Housing Authority to re-calculate payments to accommodate for fluctuations in the market and request repayment. Check with the Housing Authority you contract with for caps and payment information. Retaliation Under California law (Civil Code Sec. 1942.5), it is illegal for a landlord to retaliate against a tenant who has complained to the landlord, government entity or employee, or is withholding their rental payment because of a habitability, safety issue on the property, or if the tenant joined a tenant union. Retaliation include acts like denying the tenant access to property facilities, increasing their rent, or terminating their lease agreement or filing an eviction lawsuit against the tenant. Landlords must be careful not to increase the tenant s rent within 180 days of a tenant making a complaint. California state law presumes that a landlord is retaliating against a tenant who exercised their right if the landlord decides to increase the tenant s rent within 180 days of the date that a tenant filed the complaint. Rent Adjustment Kit December 2018 Page 2
Are You Thinking About Increasing Your Rents? If you are a rental property owner, you have probably been watching the rental market and the county s vacancy rates. Any person considering a rent increase should become a student of their neighborhood. What are the trends? Are vacant properties sitting for long periods of time? Do you see an increase in the number of for rent signs in your community? An informed owner should always be watching the market. If you are thinking about increasing rents, you should read the tips below to assist you in making a successful transition that will avoid unnecessary resident turnover. Adding Value This is an opportunity to renew your dedication to customer service and resident relations. Improperly administered rent increases have been known to account for as much as one-third of 30-day notices by residents. Turnover can be minimized if proper steps are taken to reaffirm the value of your rental community with your residents. Asking your residents for their opinions on new services or amenities can add benefit to the community. Additionally, consider regular surveys to your residents to find out if they need any repairs or maintenance on their units and attend to all repairs promptly. Just as any other business, strong customer service is a major factor in your overall success. We should note that if you take the time to ask the opinions of the residents, then you should act on that input and inform the residents of your actions. Dealing with Objections They may not view your rental community as a business, so you should attach a letter to your notice that kindly explains why you are increasing rents. If a resident has concerns, you should be prepared to discuss it with them. Often times, residents just want to be heard and possibly be given an explanation for the change. Listen to them calmly and avoid confrontation. Remember, your actions reflect upon the entire industry. Giving Notice of Rent Increases The procedure for increasing rent depends on the amount of increase. For an increase in rent that is 10 percent or greater, the owner must provide the resident with at least 60- days advance notice. For an increase in rent that is less than 10 percent (in any 12 month period), an owner must provide the residents with at least 30-days advance notice. If an owner gives more than one rent increase per year and those increases total 10 percent or more, the owner must give the residents a 60-day advance notice. For example, if the first rent increase is five percent, the owner can give a 30-day notice; if the second rent increase is six percent, the owner must give a 60-day advance notice. IMPORTANT: On November 14, 2018, Executive Order B-57-18 was issued making it unlawful for any person or entity to raise rents on rental housing 10 percent or more during an Emergency Declaration until November 8, 2019. Please refer to White Paper, California Penal Code 396 Price Gouging Rules Rental Housing on the SDCAA webpage for more information. Rent Adjustment Kit December 2018 Page 3
Vacancy Trends Historical Vacancy Rate Spring 2014 to Spring 2018 Year Survey Overall Total Vacancy Rate Overall Total City of San Diego Vacancy Rate City of San Diego Total County of San Diego Vacancy Rate County of San Diego Total Spring 2.8% 12,663 2.7% 4,513 2.8% 8,150 2014 Fall 2.3% 16,396 2.2% 8,434 2.4% 7,962 2015 Spring 4.1% 18,314 4.2% 10,627 4.0% 7,687 Fall 2.6% 19,768 2.8% 9,851 2.5% 9,917 2016 Spring 4.5% 21,096 3.2% 9,005 5.5% 12,091 Fall 5.4% 21,174 3.4% 9,498 7.0% 11,676 Spring 3.7% 29,527 3.3% 14,589 4.1% 14,938 2017 Fall 3.3% 21,361 3.2% 11,453 3.4% 9,908 2018 Spring 3.4% 19,351 2.9% 8,346 3.8% 11,005 Fall 4.3% 23,511 4.5% 12,267 4.0% 11,244 Source: San Diego County Apartment Association Fall 2018 Vacancy & Rental Rate Survey Vacancy Report By Region Location Age of Property Percent Total Number Less than 6 years 3.2% 370 12 6-25 years 4.3% 938 40 East County Over 25 Years 3.2% 1,675 54 Age Undefined 2.7% 623 17 Total 3.4% 3,606 123 Less than 6 years 18.3% 356 65 6-25 years 4.0% 1,809 73 North County Over 25 Years 4.2% 1,862 78 Age Undefined 1.3% 379 5 Total 5.0% 4,406 221 Less than 6 years 4.9% 879 43 6-25 years 5.7% 4,915 286 City of San Diego Over 25 Years 4.4% 5,913 223 Age Undefined 0.9% 560 5 Total 4.5% 12,267 557 Less than 6 years 5.1% 450 23 6-25 years 2.6% 855 22 South Bay Over 25 Years 2.7% 1,233 33 Age Undefined 3.9% 694 27 Total 3.3% 3,232 105 Countywide Total 4.3% 23,511 1,006 Source: San Diego County Apartment Association Fall 2018 Vacancy & Rental Rate Survey Rent Adjustment Kit December 2018 Page 4
Vacancy Report by Unit Type - Property Age All Over 25 Years 6 to 25 Years Less Than 6 Years Size of Percent Total Number Percent Total Number Percent Total Number Percent Total Number Studio 2.2% 1,080 24 1.1% 572 6 0.0% 3 0 1.9% 105 2 1 Bedroom 4.4% 8,664 379 3.7% 4,117 152 4.8% 2,930 141 7.1% 897 64 2 bedrooms 4.4% 11,721 518 3.8% 5,266 202 5.1% 4,364 224 7.4% 933 69 3+ Bedrooms 4.3% 1,866 81 4.4% 548 24 4.9% 823 40 4.5% 222 10 Source: San Diego County Apartment Association Fall 2018 Vacancy & Rental Rate Survey (Some survey responses did not include property age. Those responses are included in All. ) Average Rental Rates City/Area Name Fall 2018 Fall 2018 Fall 2018 Fall 2017 Fall 2017 Number of /Properties Average Mo. Average Rent per Average Mo. Average Rent per Bedrooms Surveyed Rent Sq. Ft. Rent Sq. Ft. City of San Diego (only) County of San Diego (Including the City of San Diego) Studio 562/41 $1,433 $3.13 $1,329 $2.97 1 Bedroom 4,287/189 $1,825 $2.68 $1,633 $2.41 2 Bedrooms 6,416/200 $2,172 $2.06 $1,976 $1.91 3+ Bedrooms 1002/67 $2,637 $2.16 $2,401 $1.94 Studio 357/30 $1,085 $2.38 $1,251 $2.79 1 Bedroom 4,154/104 $1,564 $2.34 $1,564 $2.30 2 Bedrooms 5858/157 $1,873 $1.98 $1,912 $1.92 3+ Bedrooms 875/68 $2,218 $1.85 $2,317 $1.90 Source: San Diego County Apartment Association Fall 2018 Vacancy & Rental Rate Survey Survey Period FALL 2018 SAN DIEGO COUNTY AVAILABILITY INDEX is 6.76% Availability Index Number of Managed With Notices to Vacate Survey data collected as combined figures. 1 Spring 2011 6.55% 15,105 2.88% 3.67% Fall 2011 5.56% 15,567 1.95% 3.60% Spring 2012 7.19% 23,243 3.77% 3.42% Fall 2012 6.00% 16,864 2.75% 3.25% Spring 2013 6.50% 21,302 3.30% 3.20% Fall 2013 5.56% 23,146 2.61% 2.95% Spring 2014 10.37% 13,584 3.4% 6.96% Fall 2014 10.37% 5.4% 18,578 2.7% 2.7% Spring 2015 5.25% 8,735 2.26% 3.0% Fall 2015 6.57% 19,768 2.39% 4.18% Spring 2016 7.38% 29,181 3.88% 3.50% Fall 2016 5.87% 32,335 3.93% 2.94% Spring 2017 7.58% 24,683 4.27% 3.31% Fall 2017 6.47% 26,258 2.62% 3.85% Spring 2018 9.36% 25,858 3.96% 5.39% Fall 2018 6.76% 30,227 3.21% 3.55% 1 In Spring 2007, the SDCAA began allowing survey respondents to report the combined number of units vacant and on notice in order to make reporting easier and encourage responses. The SDCAA received requests from members to return to the prior method Rent Adjustment Kit December 2018 Page 5
of reporting the figures separately to better analyze market fluctuations. Tips for Rent Adjustments 1. Keep rent increases reasonable for your residents. Reasonable increases will help to avoid cost-motivated vacancies. 2. Give as much notice as possible before a rent increase, as a courtesy to your residents. Give as much notice as possible before a rent increase. Consider phasing in your rent adjustments to ease the burden. Offer six-month or one-year leases which may help make rent adjustments a predictable event for residents. 3. Explain to your residents the reasons for the rent increase. Attach a considerate written letter to your rent adjustment notice which: Points out upcoming or recent improvements to the property. Explains to them that your costs have increased (for example, water, sewer, utility rate increases). Inform longtime residents of the changing market and the advantages of remaining a resident at your property. 4. Inform your residents of the value that they are receiving for their rent. Make a special effort to be aware of the internal condition of your apartment homes. If you are going to make improvements, try to time them before or in conjunction with the period of time you are adjusting rents. Remember, attend to repairs promptly. 5. If residents want to discuss their rent increase, be knowledgeable of their rent history and listen to them openly. Don t be confrontational. Often the resident may be in an emotional state. Make every effort to listen to them and discuss the issue. 6. Be responsive if a mediation agency contacts you. If you are asked to enter into mediation, you may find it a creative approach that may resolve a conflict and accomplish a favorable outcome. 7. Consider how your actions may affect the perceptions of your company and the industry. You are a professional, and you should conduct your affairs legally and ethically. 8. Be aware of the limitations, restrictions and applicable rules regarding rent adjustments. Know the law and comply with it at all times. If you follow the recommendations listed above, you will be providing your residents with an opportunity to better understand our industry, and the reasons why they are receiving an increase in their monthly rent. Rent Adjustment Kit December 2018 Page 6
Rent Adjustment Check-Off List In an effort to assist you, the San Diego County Apartment Association (SDCAA) has developed this rent adjustment check-off list. Please take the time to review the material included in this kit and the rent increase process outlined below. Knowing Your Market Step One Are move-in specials or any other type of concessions being offered? Are your rental rates in line with the market rate? What is the vacancy rate? How many rental vacancy advertisements are appearing in the newspaper? Are waiting lists prevalent in your market area? Comparing Your Property What is the condition of your building? Step Two How well maintained is the landscaping? Are the parking lot and trash areas clean and free of trash or other items? Is the condition of your units comparable with other units in your area or market niche? What are the distinguishing features to set your property apart from others in your region? Is your property professionally managed? Do you have a neighborhood watch program operating in your community? Are you a Crime Free Multi-Housing certified program? Any recent property updates or upgrades such as new appliances, carpet, or window coverings? Step Three Determining Rents What are your objectives? Cover your costs. Maintain income stream. What is your vacancy rate? A commonly accepted rule is if your vacancy rate is more than five percent, you should reconsider an increase in rents. Shop your market What are the rates at similar communities? Rent Adjustment Kit December 2018 Page 7
Rent Adjustment Check-Off List Continued Step Four Preparing For a Rent Increase Remind your residents of the value they are receiving. Solicit their opinions through a resident survey (see enclosed sample Resident Survey). Review past performance of maintenance requests. Assemble a list of all the improvements that have been completed at the rental community in the past 12 months. Shop comparable communities in the area or in your market niche and prepare a list of communities with comparable rents for your residents to review. If your rents are significantly below market, you should refrain from attempting to increase rents all at one time. Develop a rental increase plan, which, over a period of time, brings your rents into line with the market rents. Note: Under fair housing regulations, the amount of rent you charge an existing resident or a new resident must be based on sound documented business practices. Develop a rent increase letter that explains the reason for the increase (see enclosed sample letters) and cites recent improvements or upcoming events. Prepare a sheet which outlines the reasonable costs associated with moving (see enclosed sample sheet). Review your assembled materials and be sensitive to your residents concerns, but also have answers for them. NOTE: The information on this list is not intended to suggest specific rental rates or the amount of an increase that should be implemented. Rent Adjustment Kit December 2018 Page 8
Resident Survey This survey is part of our continuing efforts to improve our community. Please take a few moments to respond to this survey and return it to the rental office. Your comments will provide us with the guidance that we need to better serve you. We look forward to your responses! 1. Please rate your satisfaction with the following aspects of our community. Instructions On a scale from 1 to 5, with 5 being the most satisfied and 1 being dissatisfied, please rate the following items. Customer Service Maintenance Exterior Landscaping of the Community Overall Management Maintenance Interior Other: 2. Please rate your interest in the following services if they were available to you in our community. Business Center (Computer, Fax Machine, Copy Machine, etc.) Restaurant Delivery Service (Local Area Restaurants)* Dry Cleaning Delivery Service* Community Newsletter Sunday Continental Breakfast (Monthly) Car Care Area (Self Service) Car Detail Service (Full Service)* Other: *Indicates that the resident will pay for the cost of this service in part or whole. 3. Are there any repairs you need done in your unit? Yes No Rent Adjustment Kit December 2018 Page 9
If yes, please let us know the problem and the unit number below. 4. Please list new events or classes that you would like to see offered. 5. If there were one item that you could change about our community, what would it be? 6. Would you recommend our rental community to a friend or resident who was looking for rental housing? Yes No Why Additional comments: Thank You for Your Time! Please drop this form by the rental office or mail it to the address listed below. Place Stamp Here Name of Rental Community 1212 XYZ Street, Unit ### Any town, CA 90000 Rent Adjustment Kit December 2018 Page 10
Sample Rent Adjustment Letter With a Month-To-Month Agreement (DATE) (NAME OF RESIDENT) (ADDRESS) (CITY, STATE ZIP CODE) Dear (NAME OF RESIDENT): We enjoy having you as part of our rental community, and we look forward to continuing to serve you in the future. As you know, we here at (INSERT NAME OF COMMUNITY OR MANAGEMENT COMPANY) work to maintain a clean, safe environment for your rental home and the entire rental community. We are always working to bring you the best possible service at a reasonable cost. However like any other business, we are impacted by escalating maintenance costs, rising insurance bills and increasing sewer, water and trash rates. Like any other business, we can only stretch our dollars so far, that is why we are increasing rents. We value your business, and we hope that you will continue to see the value of living at (INSERT NAME OF COMMUNITY). Effective (INSERT DATE) the rental rate on your unit will increase to (INSERT AMOUNT). We are confident that these new rental rates are competitive with similar rental communities in the area. If you have any questions, please contact me at (INSERT PHONE NUMBER) to discuss your rental options. (OPTIONAL Insert a listing of rental community amenities or special events and how you look forward to the resident continuing to be a part of the community.) Sincerely, (INSERT CONTACT NAME) NOTE: It s highly recommended that you send this letter 60-days prior to the rent increase. Rent Adjustment Kit December 2018 Page 11
Sample Rent Adjustment Letter With a Lease Agreement (DATE) (NAME OF RESIDENT) (ADDRESS) (CITY, STATE ZIP CODE) Dear (NAME OF RESIDENT): How time flies-the renewal of your lease agreement is quickly approaching. We enjoy having you as part of our rental community, and we look forward to continuing to serve you in the future. As you know, we here at (INSERT NAME OF COMMUNITY OR MANAGEMENT COMPANY) work to maintain a clean, safe environment for your rental home and the entire rental community. We are always working to bring you the best possible service at a reasonable cost. However like any other business, we are impacted by escalating maintenance costs, rising insurance bills and increasing sewer, water and trash rates. Like any other business, we can only stretch our dollars so far, that is why we are increasing rents. We value your business, and we hope that you will continue to see the value of living at (INSERT NAME OF COMMUNITY). Effective (INSERT DATE) the rental rate on your unit will increase to (INSERT AMOUNT). INSERT RENTAL OPTIONS AND PRICE BREAKDOWNS FOR A SIX-MONTH LEASE, 12-MONTH LEASE OR A MONTH-TO-MONTH RENTAL BASIS. We are confident that these new rental rates are competitive with similar rental communities in the area. If you have any questions, please contact me at (INSERT PHONE NUMBER) to discuss your rental options. (OPTIONAL Insert a listing of rental community amenities or special events and how you look forward to the resident continuing to be a part of the community.) Sincerely, (INSERT CONTACT NAME) NOTE: It s highly recommended that you send this letter 60-days prior to the rent increase. Rent Adjustment Kit December 2018 Page 12
What Does It REALLY Cost To Move? Many people who move into a new rental home are shocked to discover the REAL cost of moving! Cost may vary, but here are just a few of the costs that met be incurred Moving Company $ Telephone Deposit or Transfer $ Electric Deposit or Transfer $ Security Deposit $ Application Fee $ Pet Deposit $ First Month s Rent $ Miscellaneous $ Accessories: i.e., Shelf Paper, Boxes $ Replacement of Broken Items, Etc. $ YOUR MOVING TOTAL COSTS $ You Should Also Consider: The time and trouble of packing and unpacking. Lunch and drinks for your friends who help you move. Inconvenience of an address change. Time spent connecting telephone and electric services. Time spent looking for another rental Before you decide to move you should consider these important facts. Rent Adjustment Kit December 2018 Page 13