We’ve all heard the real estate industry is undergoing rapid changes. But! The property management industry is healthy and thriving. In the previous episode about Property Management 101, Paul gave us all his best tips for finding new renters, and told us how he learned the hard way to check references.

This week, Paul goes more in-depth into property management and covers topics such as: 

How can property managers raise rent?

How long does the average client stay at a single property?

What is the average length of time that it takes to lease a vacant property? 

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Show Transcript

Michaella (00:13):

Hi everyone. Hello. I am Michaella with the Paul Ward Home and Ranch Team. I’d just like to welcome you to 15 minutes with Paul Ward, where Paul will answer common questions he has gotten as a real estate agent in Ventura County. He has over 20 years of experience in this area. Since it’s such a popular topic with a lot of information to cover, this is our second episode about property management. If you missed the first episode, check out the Farm Talk with Paul Ward Podcast wherever you get your favorite podcasts.

Paul Ward (00:45):

Hi, Michaela.

Michaella (00:46):

Hey, good morning, Paul.

Paul Ward (00:48):

So, what, what questions do we have?

Michaella (00:50):

Well, we’ve all heard the real estate industry is undergoing rapid changes, but the property management industry is healthy and thriving. Last week’s episode you gave us all your best tips for finding new renters, and you told us how you learned the hard way to check references. So this week I thought we’ll go a little bit deeper into property management and cover (things like): How can property managers raise rent? How long does the average client stay at a single property? And thirdly, what is the average length of time that it takes to lease a vacant property? That’s a lot to cover in just 15 minutes, but just to bring us up to speed, how long have you been a property manager in California?

Paul Ward (01:33):

I’ve been doing this for over 10 years.

Michaella (01:36):

Oh, wow. So question one should be an easy softball question for you.

Paul Ward (01:39):

Sure.

Michaella (01:41):

So can a property manager raise rent? And if so, under what conditions?

Paul Ward (01:47):

Great question. So yes, the rent can be raised and there is a California law. There’s a basically a state rent cap. So you can not just raise rent as much as you want. There is a rent cap. Some cities have their own caps in place that are more strict. But for California in general, you can raise rent 5% plus the CPI rate for that year, consumer price index rate for that year with the maximum of 10%. So if CPI is above 5%, you could do 5% plus another 5% on CPI. Or if the CPI is 3.5% for the previous year, it would be 5% plus 3.5% or 8.5%. So , it’s a decent amount. I mean, you don’t wanna scare your tenants away if they’re quality tenants but that’s the rule. 5% plus whatever CPI is.

Michaella (03:04):

Can you give us an example of when you raised rent or what happened after you’ve raised rent?

Paul Ward (03:11):

Sure. So I like to send out a 60 day notice that rent at the time that the lease is gonna be coming up for renewal, that the rent will be going up and , depending on the tenant and the landlord, of course, that will help determine what rent is gonna be raised. The new rent is gonna be raised too. So, more often than not, I find most landlords are more modest. They don’t try to maximize that increase. If the tenant is a good tenant, responsible tenant, they take care of the property, they pay their rent on time, they’re cleanly and the landlord genuinely likes that person, maybe they’ll do a little bit less than the 5% plus CPI. Now if the property is, big and expensive, they’re already getting a lot of money for the rent, it might be a harder property to rent out if there’s a vacancy factor.

Michaella (04:27):

Okay.

Paul Ward (04:27):

So that’s another reason to, maybe, increase the rent a little bit on the lower side because you don’t wanna have to then have the tenant move out and then all of a sudden now you’ve got a vacancy for a few months to get the next tenant in place.

Michaella (04:46):

Yeah. Speaking of tenants, how long do they usually stay? Like how long is a rental usually occupied by the same renter?

Paul Ward (04:55):

Sure. I don’t know if there’s any harsh statistics on how long tenants stay in Ventura County. But I can say that some properties just typically turnover more than others. Studio apartments typically have a higher transient rate where people are just kind of more in flux. I` f they start off young at a, in a studio apartment, maybe they wanna get a one bedroom, maybe they want to get a two bedroom. So they typically don’t stay for much longer than the, than a one year lease. Sometimes you have the exception, sometimes people just get entrenched and stay for many, many years. But typically I found that the smaller the property, the shorter the stay. If you’ve got a big family and kids and you’re renting out a house, it’s just that much more complicated and costly to move. And so typically those folks stay longer. My average tenant typically stays for about just under two years. But I also have tenants that have stayed for, well over five years. So it just depends, but more often than not, if a property is very small typically tenants don’t stay very long.

Michaella (06:23):

Oh, wow. That’s a good rule of thumb.

Paul Ward (06:26):

Yeah. I mean, it’s just a stage of life, right? I mean, if you’re just kind of starting out, you’re getting out on your own, maybe you’ve moved out from mom and dad and you’re just kind of starting out. You get a studio apartment or a one bedroom apartment, and then from there you go to something a little bit bigger.

Michaella (06:45):

Yeah, no, absolutely.

Paul Ward (06:47):

Yeah. But the more transient, you would typically stay a shorter period of time.

Michaella (06:53):

You’ve talked about raising rent and rental length. Can you tell us about how long a property is vacant for on average?

Paul Ward (07:01):

That’s a great question. Typically the lower the rent, the more calls come flooding in. So if you have an affordable one bedroom apartment, which rarely comes available, or two bedroom, one bath that maybe is priced a little bit below market, the phone just rings off the hook. And there are multiple applications within a short period of time. Once you get into the detached single family homes if the landlord is asking just below what the market calls for, then they could rent that house out very quickly. If they are asking top dollar for whatever reason, they wanna push the envelope and ask the maximum amount that the market would say it’s worth, then they might have to wait a little bit longer. So there is a benefit to asking just under what the market calls for, because you’re gonna fill that vacancy more quickly than if you’re asking top dollar and you might have a longer vacancy and wait a little bit longer to fill that rental.

Michaella (08:17):

So have you ever had extremes where you’ve rented a property very quickly or extremes where a property sat vacant for awhile?

Paul Ward (08:27):

Yes, actually both. So a property that I rented right away, actually, this is a crazy story. I had just put the for rent sign up in the front yard, and I was literally walking behind the house to put the hammer away and the phone rang. When I answered the phone, and of course I didn’t know who was calling, he said he was calling on the property for rent. I didn’t know which property he was talking about. Then he said the address. I literally still had the hammer in my hand. He was just driving by. So pretty, pretty extreme. But yes, if a property is affordable for the masses and doesn’t come available like a studio apartment or a one bedroom even a two bedroom, one bath that’s priced maybe just below what the market calls for, the phone will ring off the hook and there will be multiple applications for the landlord to consider within a short period of time.

Paul Ward (09:39):

So those do not stay available for very long at all. And you could find a tenant today in this market in a very short time span. On the other hand, if a landlord is asking top dollar for what that property calls for, maybe the house is a little bit small, maybe the bedrooms are a little bit small, and they’re trying to just kind of squeeze that very last dollar out of that property, then that property could stay vacant for longer than average. Just recently I rented out a house and they did get what they wanted, but it took two and a half months. The master bedroom was small, where it could not accommodate a king size bed. It could accommodate a queen with maybe a nightstand, but certainly not a king.

Paul Ward (10:33):

And so it took a little bit extra time to get that vacancy filled. Now, if they were asking a little bit under market what that property would call for, they probably would’ve had more applications to consider and would’ve rented it sooner. So they wouldn’t have gotten as much money in the end, on a month to month basis, but they would’ve had an extra month of rent. So you kinda have to look at that, what is that vacancy time frame, and could you get it filled sooner? If you’re not asking top dollar, having a property vacant does cost money.

Michaella (11:17):

No, absolutely. Well, you’ve given us a lot of information about rental properties, rents, contract length, vacancy expectations. Do you have any last words of advice for people with property rentals?

Paul Ward (11:30):

Yeah, I mean, I would say, I follow my intuition and I know that’s not really advice-advice, but if that little voice inside says something’s amiss, then something’s probably amiss. So anytime you go against the grain and say, “I’m gonna go out on a limb here and give this person the benefit of the doubt,” even if your inner voice says, “Something’s off,” more often than not, something is off. So do your due diligence, do your research. , FICO scores are very important when it comes to looking. It’s not everything, but it is a factor when looking at tenants. Follow your intuition when it comes to finding quality tenants.

Michaella (12:31):

Oh, thank you Paul.

Paul Ward (12:33):

Absolutely.

Michaella (12:35):

So that about wraps up this episode of 15 Minutes with Paul Ward. Don’t forget to subscribe and never miss a future episode. Paul’s contact information is in the show notes. If you have a suggestion for future episodes or if you have more questions. Also, if you have a few minutes, please rate, review and subscribe to the podcast. It’s totally free for you, and it goes a long way in helping people discover the podcast.

Paul Ward (12:59):

Wonderful. Thank you, Michaella.

Michaella (13:01):

Thanks.

Paul Ward (13:02):

I would like to thank our sponsors, of course, The Escrow Hub and The Money Store.

Michaella (13:07):

Excellent. And you can find more information about The Escrow Hub and The Money Store in our show notes as well.