August Update: Tenants ask for rent reduction?

As of this week, the vast majority of property owners I’ve spoken with have the vast majority of tenants paying full rent, and on time. Depending your tenant profile, the ending of the $600 per week federal stimulus check could impact collections.

As Summer comes to a close and schools start up, we are all seeing the news about dropping rents. The average rent in San Francisco is down about 15%, depending on which article we read.

It is important to understand the long term difference between rent reduction and a period of “free rent”.

If you are dealing with a vacancy, as we were in July at our building in Adams Point, and the new tenants asked about a rent reduction from the advertised amount listed on Craigslist.

If we lower the rent, there are two disadvantages to that scenario:

  1. We have rent control, and can only raise it the allowed amount.
  2. The other long term effect is that your property is worth a multiple of the annual rental income referred to as Gross Rent Multiplier (GRM).

It was a tough decision to give our new tenants the month of August for free, but a $200 reduction for the next year, would make our building worth $30,000 less. Whatever reduction you are considering, add that amount up for one year, and give your tenants that amount as “free rent” upon move-in.

One year from now, if the Bay Area economy is recovering and the East Bay continues to be an attractive place to live, you will be very happy that you didn’t reduce rent.

With the Shelter In Place rules still in effect, we are still limited to what we can and can’t do regarding our rental properties. Below are the articles that will help you navigate these times.

Here is an article that summarizes the California Apartment Association:
CAA advice for rents during SIP:

Another article on what the current rules are for Oakland:
New Rules for Oakland rents

Please feel free to reach out to me with questions or concerns.

Our team has two buildings in escrow, and we did just list and close a 4 plex in Oakland, and nine (9) unit Berkeley property last month. Things are still closing, although it does require some creativity around inspections, appraisals, and one on one showings.

Oakland/Berkeley Rental Market

Before the “shelter in place” directive, the rental market was still solid and jobs were still being added to Oakland and Berkeley. As we get through this, that should continue.

Current Market For Building Sales

Right now there are many people feeling very anxious, and that is not the time to make big important decisions.

For example, if you want to sell your apartment at this time, we can help you with an evaluation and guidance. I have spoken to two of the top lenders for East Bay multi-units and they are working on, and closing transactions at this time. I can forward their contact info if you want to speak with them.
Right now, If buyers have a good down payment they can get a loan and I can navigate you through the process.

If we just work with our tenants and make sure that everyone is safe and healthy, we can build better relationships and get through this.

Be prepared to start getting phone calls from brokers who say “now is the time to sell, before it gets worse”. Unless they have that magic 8 ball, we don’t know the future.

We do know that people still need their housing and over time we will get back to where we were before the Covid virus.

It is always important to get guidance and advice from experienced multi-unit brokers who will market your property extensively to all potential buyers and brokers. Posting a new building on all websites and sending out emails blasts gives the property visibility to literally tens of thousands of potential qualified buyers.

I did a presentation on increasing your rental revenue at the East Bay Rental Housing Association in last year. Click Here: Maximizing the Return on your Investment for the highlights.

Interested in getting a valuation of your buildings?

Contact me and we can do an estimate with a quick drive by. Getting your current rents/number of units will allow us to get an estimate of value. Again, if you have any questions about rents for an upcoming vacancy, questions about tenant’s issues, or need advice on a repair person, please do not hesitate to call or email.

Why you’ll benefit from working with me

In addition to managing our properties for the past 20 years, I have worked on 45+ multi-units transactions in the past 10 years, as a real estate agent specializing in multi-unit properties. I have learned so much from both perspectives. Most importantly, this is a complicated process much different from working with single-family home buyers and sellers.

The goal of this newsletter is get feedback and share with this community our successes and challenges to make all of more successful and increase our cash flow! Questions about market rents for your units, tenant issues, or need specific repair people? I can help. Please give me a call or an email.