You can still do it that way. But instead of raising the rent 12% in one year, you can just raise it by 7% one year and then by 4% the next year.
The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year.
I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).
It's beyond me why people would think this is worse for the tenant. Can I move to CA and be your tenant? You're basically giving your tenants free money.
Let's say the rent is $1000/month (for simplicity). That's $12000/yr in the first year. If you increase the rent by 12% ever 4 years they'll have 3 years of paying $1000/month, followed by a 4th year of $1120/month and so on.
If you instead raised it yearly by 2.87%, which give-or-take is the same as a 12% one-off increase we can calculate the net rent paid over the period in the two scenarios:
The result is that by deferring rental increases you've given your tenant a benefit of $2106, and we can safely assume the rent is a lot higher than $1000/month. I.e. every month of the rent not keeping with market increases is more money for the piggy bank.
Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants. A smaller annual increase will give them time to adjust to market conditions and choose over a longer period whether or not to move and to save up to do so.
You are doing no one any favors except short-term renters who never get an increase. In other words, your so-called benefit is actually a detriment to long-term renters.
12 months or more to increase rent seems counter-productive. As it would mean that what makes most sense for landlord is to just increase by maximum each and every time as they cannot forecast changes over such long period.
Still, capping increases to something like inflation+2%, and making leases continuous with long termination periods would be entirely sensible fixes.
If inflation+2% is an acceptable rent change, I don't understand how needing 12 months or more to increase rent is a problem. The only thing a shorter time period allows is a landlord to say "well, over this past 3 months we saw inflation change by +-0% but 0+2 is still 2%, so we're increase rent 2% in the next 3 months period".
The entire point of the law is to prevent you from being able to make those larger adjustments, though.
How often do you replace tenants? And what's your occupancy rate? If you're in a situation where you can reliably raise rent 7% YoY indefinitely without decreasing your occupancy rate, then you were severely underpriced for the market (and you should probably fire that management company for pricing you that absurdly low). 7% YoY after inflation is a big increase that outstrips average wage increases.
If you aren't severely underpriced, then what's going to happen is that when you increase by 7%, the tenants will choose to end the lease because they can find something cheaper (or they emmigrate from the city because nothing is affordable), and you'll struggle to replace them with wealthier tenants willing to pay what you think is market price, so you'll have to lower rent to attract a tenant. Once you get to the point where your price is roughly in line with what the market will bear, you'll only be able to squeeze one or two years of rent increases out of a tenant before the non-monetary costs of moving are outweighed by the cheaper rent, so constantly trying for 7% YoY post inflation will just mean a decrease in your occupancy rate, both because you'll be replacing tenants more frequently and because finding new ones will take longer.
I was in a similar boat years ago. The company I rented from wanted to increase my rent 12% year over year. I told them I didn't make 12% more money, spent a lot of time pleading, and talked them down to merely 9%. Rents were all over the place, and there was little I could do about, except move to a new apartment every year.
12 months seems rather extreme range to me. So what would happen is that you rent a place, day after you move in you get notice that yes we are going to increase rent by maximum in a year. After all this is the most logical and effective time to do it. Now cost might not increase as much in year from that date, but landlord does not know. Come next year, they again also don't know, so again max allowed at time.
But instead, if you can notice rent increase let's say 1 month before year is full, they might look at what are current cost and think oh, I could do with lower increase.
Frequently, even on places that don't have "rent control", there's still limits on how fast landlords can jack up the price on a tenant in the place, but that doesn't apply to new tenants. So if you can only raise the rent by $100/mo once a year, but the market rent for the place is $1000/mo higher than current, you've got 10 years before you actually reach market rate.
If I recall correctly, sometimes there are laws that put a % cap on yearly rent increases.
They're intended to protect existing tenants, but they also discourage landlords from reducing rent if they think rents will come back up in the future faster than they're aloud to raise them.
It has risen for newer rentals. If I remember correctly, you can increase the rent max 3% per year for an ongoing contract and 10% in a new rental contract.
I think the parent's point is that since price increases are capped, landlords cannot increase beyond a certain point in a single bumper year. To compensate, they may increase rents beyond what they would otherwise to be able to maintain a similar average increase. Citation is needed, of course.
If rent increases are capped at 7% per year, landlords will have an incentive to increase it at the max, because that gives them more flexibility the next year.
For example, let's say the free market would raise rents 5% this year, and 8% next year. A cap of 7% means the rent will rise 7% this year, as the landlord won't want to have caps permanently reduce future rents.
> Every 12 months, tenants will receive a notice of pending rent increase, and that rent increase will be the maximum allowed by law.
I'd suggest having no maximum increase, and having the landlord be liable for moving costs if the tenant chooses to move and the landlord is not able to re-rent the unit within a short time period at the increased rent price.
This is a weird argument. Would this still happen if rent increases were capped at 10%/year, what about 50%/year? At some point no one is going to rent at the rates you're asking and you're going to have to stop.
Landlords prefer to give concessions (1-2 months free of rent) rather than lowering the base price. This effectively allows them to increase rent in 12 months by 10+% without issues of rent control legislation.
When I rented the company sent a letter every year asking us to agree to a 8-12% hike. Every year we ignored the letter until they called and we talked them down to either keeping the rent the same or raising it only a couple of percent. It's one of the headaches of renting, but it makes a huge difference over time.
Additionally the 3% rent increase theory may be true in aggregate, but doesn't take into account the real world practices of landlords. It's exceedingly common to list a property for a low lease then jack it up after the first lease term. They understand the friction of moving puts them in a better bargaining position the second year vs. first move in.
As a whole rates may increase 3% per year, but individually it will look more like a 7-10% increase the first year followed by 3% increases thereafter, unless you move.
Could the tenant not save the amount of money the rent was not going up to be prepared for the day when rent did go up? The tenant could have saved 5%’s worth of increase, invested it in an index fund for the day that the rent eventually did rise. A 12% rise after 3-5 years would be no big deal since the tenant would have been prepared.
The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year.
I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).
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