One of agents emailed me a deal today. It's a 6 unit property in Berkeley. All 2 bed 1 bath. 4 of them pay $600 per month which is only about 30% of the market rate. Is this deal something we should avoid? This is something we can work it out after purchase? I wonder how difficult it would be to push them at least up to 60% of the current rate.
The best and most recent example of local government action that demonstrates the risks of rental property ownership in the East Bay (Berkeley and Oakland) is the City of Oakland's sneaky removal of exemptions from rent and eviction controls for duplex and triplex owner-occupants.
A voter-approved measure effective in January 2019:
Owner-occupied duplexes and triplexes were previously completely exempt from BOTH rent control AND eviction control. Those exemptions made 2-3 unit properties in Oakland attractive for investors.
The voter measure removed the exemption from eviction control for small property owners. That was somewhat of an inconsequential loss because at the time, there was no restriction on rent increases. So, if you had a tenant living under your roof that was a lot more work than normal, you could simply reset the rent to an appropriate level since rent control did not apply.
But notice the second provision in the voter-approved measure. When the voters ceded their right to approve future changes, they gave away the farm.
The Oakland City Council promptly adopted a moratorium on rent increases. They did so without any opportunity for public input. They then proceeded to conduct a rulemaking to impose rent control on duplex and triplex owners. That rulemaking concluded about a month ago. So now, owner-occupied duplexes and triplexes (except for units that are exempt as new construction, as defined by Costa-Hawkins) are fully regulated instead of fully exempt from rent and eviction controls. Most homeowners that were aware of the City's plans to adopt rent control expected to have some time before their exemption were fully revoked. But the city's strategy was to revoke those exemptions before the homeowners could make any adjustments.
There are likely thousands of owner-occupied duplex and triplex owners in Oakland who probably still do not know about this - i.e., that they have TOTALLY lost what previously was full control over who gets to remain under their roof, how long they get to stay, and what rent they will pay now and in the future. Very few of the affected homeowners recognized that the new rules would lock their rents at existing low levels and that the tenants they currently had might become permanent. Those who failed to act are less likely to be able to cover long term costs.
The clever maneuver by the Oakland City Council locked existing below market rents in place but did so in a way that most certainly will prevent many homeowners from making a fair return on their investments and will cause others to lose money on their investments. So, investors should keep an eye on any court actions resulting from the rules slipped into place by the Oakland City Council.
In Oakland, the annual CPI rate for rent increases effective July 1, 2019 through June 30, 2020, is 3.5%. This not as bad compared to Berkeley, where the annual increase for more than a decade has been 2% or less.
Since duplex and triplex homeowners are much more likely than apartment building owners to rent at below market rates, the new city rules in Oakland seem clearly to have been designed to intentionally punish those homeowners who had been renting at the most affordable rates. Ironic? The City of Oakland also recently won a Superior Court ruling in Owens v City of Oakland that validates the city's regulation of room rentals in owner-occupied single family homes.
Because so few professionals and homeowners understand what just happened in Oakland, I think the pricing in Oakland does not reflect the horrendous nature of the new policies on 1-3 unit properties.
I would tend to agree that Oakland and Berkeley are no fly zones for real estate investors. I intend to invest in small multi-family properties (2-4 units), but will add a layer of "regulatory armor" around any local investments based on what applies now and what the tea leaves tell me will apply in the future. Key word: future.
I have owned real estate for over 25 years and multifamily properties for 20 years. I still feel like new real estate investor. I am most interested in developing a system or joining a team to identify and invest in off-market small multifamily opportunities.
Jim, I'm looking at properties on Berkeley right now and I feel your pain. My head is spinning after reading all the rent control ordinances and exemptions.
Here are some links that I've been looking through this morning for my own research:
Berkeley rent ceiling search (max rent you can charge per unit): http://www.ci.berkeley.ca.us/RentBoardUnitSearch.a...
Rent Ceiling Overview: http://www.ci.berkeley.ca.us/Rent_Stabilization_Bo...
If you can figure all that out, let me know. From what can gather, you can reset the rent ceiling when a tenant vacates the unit, otherwise the max yearly increase is CPI * .65.
Curious if you interpret it differently. I'm noticing most properties on the market are priced as if they're charging market rents. Most properties I'm looking at don't make any financial sense given current rental rates.
Hi Jim,
I am also trying to find a small multi-unit property in Berkeley or the surrounding area. I haven't been successful yet because I have found the same thing as Chris May, the deals I'm seeing don't make sense. However, one trick I learned is that if a tenant's rent hasn't been raised each year by the rent ceiling, then you can give 30 day notice and immediately raise their rent to the maximum allowed by the rent ceiling increase for all the years. If you want to talk about your particular deal please let me know. I live in Berkeley and would be happy to be involved if there is an opportunity.
Thanks for your input. What I was thinking was petition for historically low income. And I talked to the agent about it, but found out the Berkeley rent board has made it very difficult to approve rent increases based on historically low rents. It is an allowable increase but I have not heard many success stories using that as the reason for the increase.
Hi there, I've also been considering buying a MF property in Berkeley and wanted to confirm that it seems like so long as the units are vacant you can charge normal market rate rents right? Also, ya'll seem to be experts in this area. How does having the Berkeley vs. Oakland mailing city make a difference in terms of rent, appreciation, etc. Any difference? I'm fairly new to looking at this area and would love any feedback. Thank you!
The rent board in Berkeley is not easy to deal with. You are taking a big risk if you take on a property with low rents. There is no silver bullet if you are looking for one.
As far as Berkeley vs Oakland, the best parts of Berkeley and Oakland tend to move in locked steps. However, Oakland is a lot bigger and there are more to choose from. I personally like Berkeley better because the University provides a more stable rental population.
Thanks for your input @Xin Jin do you think students would be willing to commute from South Berkeley to the University? Given prices there are a bit lower than North and downtown Berkeley I think there are some opportunities there.
@Katrina Razavi You are right about prices being a little lower in South Berkeley. However, so are the rents.
Having that said, I know people commute all the way from Oakland to the University in searching of lower rents. If you find a good deal, I think south Berkeley and North Oakland are excellent neighborhoods to invest in. It offers a lot more than student housing. You will find very diverse renters from all walks.
Not all of South Berkeley are equal. You will find higher prices and rents around the Wholefoods than you do near San Pablo corridor. Unless you have lived here and know the market, it is best for you to find a local realtor who is used to working with investors.
Just FYI, in these long term rentals, you should be only expecting the income it produces today, not what it can produce. You will see equity gains from the limited housing market, but most of the long term tenants will be there for life unless they leave the area.
You are correct in your understanding @Chris May. You can't evict except for non-payment and the only rent increases you can do are the AGA increase.
To your question of whether Cal students will commute from South Berkeley the answer is absolutely yes.
The thing is the rules for Rent control are changing soon. @Ryan Scott Isacksen is correct the income is based on today. You might not be able to raise rents in the future if AB1506 passes. Then each city can make up whatever rules they want- like making newer houses go under rent control like SFRs too.
So essentially you can pay those expensive Berkley prices for the property then it won't cashflow due to rent control and issues like 60 day notice ceiling like @Ori Skloot mentioned
Soon you might not be able to even give a 30 or 60 day notice.... You won't be able to give any notice without "just cause eviction" basically you can never get them out of your property...
Here's background info on the rent control changes in Cali
https://www.buildium.com/blog/ab-1506-threatens-re...
@Xin Jin @Ori Skloot @Chris May
What I found out applies to Oakland.....and since Berkeley has similar Rent Control and Just Cause Laws it may apply...........
Consult an attorney to verify, but this is whai I found after a few hours research...... the "solution" is simple IF you are willing to do the following
Owner Occupy a FOURPLEX.....in Oakland that you buy..... .not a duplex or triplex.............AND
Rent to Section 8 Tenants........
Helpful Links................In the first line it says Section 8 Tenants are NOT COVERED by the Oakland Rent Control Ordinance
https://www.tobenerlaw.com/oakland-rent-control/
http://www.tenantsunion.org/en/rights/section/subsidized-housing-section-8
In the above it states thatHUD Housing and Section 8 Housing is considered Government Subsidized Housing and is therefore considered EXEMPT from Oakland Rent Adjustment Program!!!!!
Therefore you can can raise rent by up to 10% a year!!!!!!!!!
Now let's say you buy a FOURPLEX......again....not a duplex or triplex, but a Fourplex and you OWNER Occupy it.....it appears you can evict the tenants (and put your own tenants in) if they (have been living there less than 5 years, are not over 60, are not disabled, and are not catastrophically sick.
In section F on page 3 of the following link it states that Just Cause Protection Applies to the following..........
file:///C:/Users/bgarlington/Downloads/OAK036393%20(2).pdf
A rental unit in a residential property that is divided into a maximum of three units, one of which is occupied by the owner of record as his or her principal residence.
Again.....check with your attorney,...but THIS Sounds like Owner Occupying a Fourplex in Oakland AND renting to section 8 tenants is a legal way to raise rents by up to 10% in Oakland AND if you want to NOT deal with inheriting tenants and you want to put your own tenants in your FOURPLEX you can do so.
Brian you might want to check this out as well about the rent control expansions
Oakland more landlord friendly vs BEZERKELY.
I'd never consider Berkeley for rentals due to Tennant friendly code ... Oakland slightly better but both places impossible to cash flow. You are banking on appreciation only. Caveat Emptor. Buyer beware.
That said I used a very good professional PM company when i did own in Rockridge for my prior SFR.
Hit me with a PM if u need a good PM company I'm that area.
Good luck
The best and most recent example of local government action that demonstrates the risks of rental property ownership in the East Bay (Berkeley and Oakland) is the City of Oakland's sneaky removal of exemptions from rent and eviction controls for duplex and triplex owner-occupants.
A voter-approved measure effective in January 2019:
Owner-occupied duplexes and triplexes were previously completely exempt from BOTH rent control AND eviction control. Those exemptions made 2-3 unit properties in Oakland attractive for investors.
The voter measure removed the exemption from eviction control for small property owners. That was somewhat of an inconsequential loss because at the time, there was no restriction on rent increases. So, if you had a tenant living under your roof that was a lot more work than normal, you could simply reset the rent to an appropriate level since rent control did not apply.
But notice the second provision in the voter-approved measure. When the voters ceded their right to approve future changes, they gave away the farm.
The Oakland City Council promptly adopted a moratorium on rent increases. They did so without any opportunity for public input. They then proceeded to conduct a rulemaking to impose rent control on duplex and triplex owners. That rulemaking concluded about a month ago. So now, owner-occupied duplexes and triplexes (except for units that are exempt as new construction, as defined by Costa-Hawkins) are fully regulated instead of fully exempt from rent and eviction controls. Most homeowners that were aware of the City's plans to adopt rent control expected to have some time before their exemption were fully revoked. But the city's strategy was to revoke those exemptions before the homeowners could make any adjustments.
There are likely thousands of owner-occupied duplex and triplex owners in Oakland who probably still do not know about this - i.e., that they have TOTALLY lost what previously was full control over who gets to remain under their roof, how long they get to stay, and what rent they will pay now and in the future. Very few of the affected homeowners recognized that the new rules would lock their rents at existing low levels and that the tenants they currently had might become permanent. Those who failed to act are less likely to be able to cover long term costs.
The clever maneuver by the Oakland City Council locked existing below market rents in place but did so in a way that most certainly will prevent many homeowners from making a fair return on their investments and will cause others to lose money on their investments. So, investors should keep an eye on any court actions resulting from the rules slipped into place by the Oakland City Council.
In Oakland, the annual CPI rate for rent increases effective July 1, 2019 through June 30, 2020, is 3.5%. This not as bad compared to Berkeley, where the annual increase for more than a decade has been 2% or less.
Since duplex and triplex homeowners are much more likely than apartment building owners to rent at below market rates, the new city rules in Oakland seem clearly to have been designed to intentionally punish those homeowners who had been renting at the most affordable rates. Ironic? The City of Oakland also recently won a Superior Court ruling in Owens v City of Oakland that validates the city's regulation of room rentals in owner-occupied single family homes.
Because so few professionals and homeowners understand what just happened in Oakland, I think the pricing in Oakland does not reflect the horrendous nature of the new policies on 1-3 unit properties.
I would tend to agree that Oakland and Berkeley are no fly zones for real estate investors. I intend to invest in small multi-family properties (2-4 units), but will add a layer of "regulatory armor" around any local investments based on what applies now and what the tea leaves tell me will apply in the future. Key word: future.
I have owned real estate for over 25 years and multifamily properties for 20 years. I still feel like new real estate investor. I am most interested in developing a system or joining a team to identify and invest in off-market small multifamily opportunities.