What to Know About Managing Rent-Controlled Apartments

By Brittany Loeffler on December 24, 2020

The real estate market is extremely volatile, especially when it comes to rental prices. As rents skyrocket, cities and municipalities are enforcing rent-controlled regulations for apartments. This keeps apartments affordable for tenants but is still fair to the owner or manager.

Of course, there are a few pros and cons of managing rent-controlled apartments and some tips on how to maximize the profits made from them.

rent-controlled apartments

via Pixabay

What is Rent Control?

Rent-controlled apartments are properties that cannot raise the rent price. They must follow rules and regulations enacted by the local municipality that has set a restriction on how much rent a landlord can charge tenants. Typically, renters spend 30% of their income on housing.

Rent-controlled apartments keep rent affordable to residents so that they can stay in the neighborhood. So, even if properties in the area are raising their rents, the rent-controlled apartments must keep their rent the same for their current tenants.

This is a very popular practice in New York City, especially because rent prices have gone through the roof.

Pros of Rent Control 

As a landlord or property manager, you’re probably shying away from the thought of managing rent-controlled apartments. Why would you want to keep your rents the same and lose out on money? Well, there are actually some great benefits to managing rent-controlled apartments.

Low Tenant Turnover

If you keep your rent price the same year after year, tenants are less likely to move out. Why would they want to leave if they enjoy the property and the neighborhood and pay the same rent price every year?

This is great for you because you don’t have to spend money on marketing and advertising or waste time showing the property to potential tenants. You’ll rarely worry about having to fill a vacancy.

Avoid Rent Declines

Usually, when you think about a real estate investment, you assume the property will appreciate and you’ll have a favorable return on your investment when you sell the property or ask for rent. However, there are cases where people lose money on real estate investments because the value decreases.

Managing rent-controlled apartments helps you to avoid rent declines in your area. This means you can rely on a consistent income.

Prices Can Eventually Increase

Just because your apartments are rent-controlled does not mean they have to stay that at that price forever. This price is only valid for the current tenants. So, if the tenant decides to renew their lease for another year, you cannot raise their rent.

But if your tenant ends the lease and moves out, you can then reevaluate the rent price based on your municipality’s rules and regulations. So, there is a chance to eventually increase your rent.

Cons of Rent Control

As with anything, there is a bad side that you must consider. It’s your choice to determine if the pros outweigh the cons or vice versa. Here are some of the cons of managing rent-controlled apartments.

Can’t Increase Rent

When managing rent-controlled apartments, you lose out on the opportunity to keep up with the local real estate market. If properties in your neighborhood have increased their rent by 20% over the last few years, you are still stuck charging your original price. While this is great news for the tenant, you have to sacrifice your opportunity to make more return on your investment.

Difficult to Understand the Laws

Fully understanding real estate laws can be fairly difficult. They can be confusing and not very clear with what they’re trying to enforce. When you first start managing rent-controlled apartments, you may feel overwhelmed by the legal jargon trying to understand the rules.

Property Can Be Hard to Sell

When you’re finally ready to sell your investment property, it can be difficult to do so. Other investors may intentionally avoid rent-controlled apartments simply because they don’t want to deal with the hassle of it. It can also be difficult to sell if you currently have a tenant as well because the new landlord cannot set their own price and must keep the current one.

Tips to Maximize Profits

Fortunately, there are ways that you can maximize your profits while managing rent-controlled apartments. The first one is to keep your expenses low. This could mean learning how to make property repairs yourself rather than calling a professional or having your tenants pay for all the utilities – even water.

You could also manage multiple properties, both rent-controlled and not. This gives you both stability and flexibility with what you can charge and how much you can count on receiving each month no matter what the market is like.

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