investing in rent control markets

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All,

curious if we have any owners of multi family properties subject to rent control and if so how is that working out from an investment standpoint?  any advice for MF investors?  Clearly there are investors in NYC and San Fran that still own and operate properties so they must be making money somehow!??!!?!  Any thoughts would be appreciated!  Thank you! 

Rent control only applies to existing tenants and once a unit is vacant market rent can be charged (at least for now)  if you stay on top of the annual increase it is doable.  In some house hacking situations it can even be a benefit due to some of the just cause rules for having a tenant vacate.  Because if a property is charging below market rent it is valued as such but if the new owner moves into a unit that the market rate is $2,000/ month when the actual rent is $1,000/ month they can come out ahead even if they have to pay $15k in relocation assistance to the tenant.

I came in 3 years ago to rent control. You were free to set rent at market with a new tenant, and you could include the next years increase in the lease but thereafter you were tied to CPI. I cashflowed and did so more after insulating/conservancy.

2 years ago the largest building in the town fell a fowl as tenants challenged the increases. Apparently they had some clause in their lease which said they did not have to follow it... The landlord hired an attorney to go into the counsel and explain all of the bad things about rent control (there are actually negative CPI times!) and they decided to give a base of 1.5% increase or CPI, whichever was higher. Upon vacancy the rent control statute no longer applies and will eventually phase out.

It was a windfall in equity from my point of view. I was in the process of 5 of 9 units being removed and brought up to market, so that would have happened anyway, but to be able to move with the market is sweet. It affords you the ability to maintain a high standard in your building and tenant.

Under rent control I think you just have to be prepared for keeping the building up to code. In my market the tenants are far below market and they know it. They are good tenants or I would have gotten them out- but they don't ask for much unless there is an issue. I have seen some really horrible rent control laws, ours was not the worst- but any of them put a crimp on the level you can maintain a building.

Hi Mike,

Although profits can be made in a rent control market, I would generally advise against investing in these markets. There are more risks involved (considering new legislation can be passed that restricts rents even further). Good luck!

Originally posted by @Aaron K. :

Rent control only applies to existing tenants and once a unit is vacant market rent can be charged (at least for now)  if you stay on top of the annual increase it is doable.  In some house hacking situations it can even be a benefit due to some of the just cause rules for having a tenant vacate.  Because if a property is charging below market rent it is valued as such but if the new owner moves into a unit that the market rate is $2,000/ month when the actual rent is $1,000/ month they can come out ahead even if they have to pay $15k in relocation assistance to the tenant.

 Aaron right now rent control only exists on existing tenants and it can be charged more....

But after November election if proposition 10 passes they might be able to cap rents universally and indefinitely.  Even on condos, single family etc.  It would be like socialism.

I'm voting no on prop 10 www.noprop10.org

@Will F. you are right that the prop may allow that to happen, but I'm optimistic because we have a few things going for us.  Number 1 is that there will be huge amounts of money fighting this prop for the reasons you stated.  Number 2 is that even if it passes the various cities would have to do this on their own.  So San Francisco and Santa Monica might get hit, but others like San Diego might not.