What to do with a Vacant Apartment
Evaluate the condition of the apartment
Evaluate the last legal rent
Evaluate the market value for the apartment
If the apartment has been renovated and is in excellent condition and the last legal rent plus Guidelines increases are close to the market value, the apartment should be rented "as is" for the maximum legal rent. However, this is not usually the case.
Apartment Condition - If the apartment has never been renovated, this is an excellent time for the Landlord to improve his property and get a rent increase. When an apartment is renovated while it is vacant, the Landlord can get 1/40th of the cost of any Major Capital Improvements (see MCI for definition) in addition to the other allowable vacancy increases. This calculates to $25 per month for every $1,000 of work. The Landlord does not need any approval for the rent increase, however, he must keep proof of the amount spent, including contracts, invoices, material receipts and cancelled checks, in case any future tenant challenges the legal rent. Please note that cosmetic improvements such as painting (unless you have installed new sheetrock) and repairs such as replacing a faucet (unless you have replaced the whole sink) do not qualify for rent increases. Please also note that if a tenant does challenge the rent, DHCR does not give as much credit for work done by the Landlord or his employees.
Last Legal Rent - In calculating the Vacancy Rent, many items must be considered. If the last tenant was Rent Controlled, the rent increase is based on the Maximum Base Rent plus 150% plus the Fuel Cost Adjustment or the Fair Market Rent established by HUD for section 8 leases. If the last tenant was Rent Stabilized, the increase is based on the last legal registered rent plus vacancy increases per the Rent Regulation Reform Act of 1997 (18% for 1 year lease & 20% for 2 year lease) plus Rent Guidelines Board increases (currently 2% for 1 year lease & 4% for 2 year lease). Additionally, if the last tenant lived in the apartment for more than 8 years, the Landlord can charge 0.6% for each year the tenant lived there. This calculates to 6% for 10 years, 12% for 20 years, etc.
Market Value - Several factors should be considered when evaluating the market value including location, size, condition and amenities. Just because an 800 square foot, fully renovated 1 bedroom apartment, with a private yard, working fireplace and laundry room in the basement in a good neighborhood, 1 block from the subway rents for $2,000 a month, that doesn't mean that your 550 square foot (almost) 1 bedroom apartment with 1 window facing a wall and original equipment in bad condition, in a commercial area, 7 blocks (uphill) to the bus stop that goes to the subway is going to get you $2,000 a month just because it is a 1 bedroom (unless it's in Manhattan - but we won't get into that!). The best way to determine market rent is to ask a couple of real estate brokers in your area. They rent apartments for a living - they know what people want. Five years ago, everybody wanted carpets - now they want wood floors.
Once you have looked at the above factors, you are prepared to decide what to do with your vacant apartment. If you can afford to renovate and the increase for the renovation brings you rent up to Market Value - by all means, do so. (Sometimes, you can't afford not to renovate - the proposed Lead Paint Laws may require Landlords to check vacant apartments for paint in poor condition and to cure the condition.) If your vacant apartment has already been renovated or is in good condition or if the legal rent is more than the market value, you may just want to make any necessary repairs, clean it up and rent it.
The next step is to find the right tenant. Click here for Tenant Screening.