Just as The Joker is to Batman and Dr. Evil is to Austin Powers, rent control is the landlord’s enemy. Supporters of rent control claim that without it many people couldn’t afford housing. But what happened to the basics of economics? The law of supply and demand should determine what your rental unit is worth, not the government.
Because of the handcuffs it puts on landlords, rent control creates rundown properties. Utilities, taxes, and insurance keep going up, but landlords of rent-controlled properties are unable to recover those costs through rent increases. This means they have less money for maintenance and improvements.
Have you noticed the lack of new apartments being built in cities where rent controls are in place? Developers choose to build condos instead, because it’s difficult to make money on a newly developed apartment building. And in many cities that have rent controls, apartment buildings get converted into condos so they can be profitable.
The loss of good quality rental units hurts the very subset of the population that rent controls were intended to protect! And it makes life pretty challenging for those of us who are real estate investors.
So what can you do if you’re a landlord in one of the U.S. cities or Canadian provinces with rent controls? Here’s how my husband and I make it work with our investments, which are all in rent-controlled provinces in Canada:
1. Increase your rents every year by the maximum amount allowed. This varies by province/city and usually changes each year.
2. When a tenant leaves, in most cases, you can raise the rent of that unit to the market rate.
3. Make sure the person on the lease is the person living there. I have a friend who lived in a New York City rent-controlled apartment for years. I don’t even think my friend knew the person who was on the lease – it was a friend of a friend! They were paying a paltry sum of money for a great place overlooking Central Park. Had the landlord been paying closer attention, my friend could have been evicted and the landlord could have more than doubled the rent to the market rate.
4. Renovate the unit. In many places, the law will allow for the landlord to give a tenant notice to vacate in order for renovations to be done. And if, for example, you spend $2,000 on renovations, then get $500 more per month in rent, it won’t take long to make back the cost of the renovations and start earning more profit.[Ed. Note: Renting properties is a great way to make extra cash in any market. For more strategies for making money with rental property, sign up for Internet Money Club member and real estate investor Julie Broad’s free monthly newsletter.]