It's not getting any easier to be a landlord in Cali
Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
California just passed a rent-increase cap. Check this out:
https://rentalhousingjournal.com/california-assembly-passes-7-percent-rent-cap-bill/
@Marc Winter, as a Cali landlord I don't see this as a big deal. If I was to increase my rents by 7% PLUS inflation, I would soon be pricing myself OUT of the market. Also, note the ppl who are not effected: Less that 10 SFR, properties less than 10 years old, etc. If you have 10 SFR's, you have at least 5 Mil in property value.
I do, however, see it as a possible 'box in' for apartments & commercial.
Cali is going to vote on REPEALING part of prop 13, which IS a big deal. The present target are those big, bad businesses that bought their property pre-1975 and were afforded low property tax. I'm NOT sure if apartment complexes would be subject to this vote or not. If they are, that's where the 'box-in' starts as they will pass along the property tax increase.
But it definitely proves that Cali is going after ALL the tax they can, good years or not. The state is flush w $$$$ and probably looking to build homeless shelters that rival the Taj Mahal.
And after they are done getting those big, bad, evil businesses, they will go after the SFR. And THOSE were the ppl that were supposed to be protected. :-(
@Marc Winter, as a Cali landlord I don't see this as a big deal. If I was to increase my rents by 7% PLUS inflation, I would soon be pricing myself OUT of the market. Also, note the ppl who are not effected: Less that 10 SFR, properties less than 10 years old, etc. If you have 10 SFR's, you have at least 5 Mil in property value.
I do, however, see it as a possible 'box in' for apartments & commercial.
Cali is going to vote on REPEALING part of prop 13, which IS a big deal. The present target are those big, bad businesses that bought their property pre-1975 and were afforded low property tax. I'm NOT sure if apartment complexes would be subject to this vote or not. If they are, that's where the 'box-in' starts as they will pass along the property tax increase.
But it definitely proves that Cali is going after ALL the tax they can, good years or not. The state is flush w $$$$ and probably looking to build homeless shelters that rival the Taj Mahal.
And after they are done getting those big, bad, evil businesses, they will go after the SFR. And THOSE were the ppl that were supposed to be protected. :-(
@Marc Winter, as a Cali landlord I don't see this as a big deal. If I was to increase my rents by 7% PLUS inflation, I would soon be pricing myself OUT of the market. Also, note the ppl who are not effected: Less that 10 SFR, properties less than 10 years old, etc. If you have 10 SFR's, you have at least 5 Mil in property value.
I do, however, see it as a possible 'box in' for apartments & commercial.
Cali is going to vote on REPEALING part of prop 13, which IS a big deal. The present target are those big, bad businesses that bought their property pre-1975 and were afforded low property tax. I'm NOT sure if apartment complexes would be subject to this vote or not. If they are, that's where the 'box-in' starts as they will pass along the property tax increase.
But it definitely proves that Cali is going after ALL the tax they can, good years or not. The state is flush w $$$$ and probably looking to build homeless shelters that rival the Taj Mahal.
And after they are done getting those big, bad, evil businesses, they will go after the SFR. And THOSE were the ppl that were supposed to be protected. :-(
Alan, do you not foresee this being an issue for landlords acquiring undervalued commercial assets with below market rents? If a seller is 30 percent under market, it will take 4 years to get the property to market rates.
@Christopher Freeman, sincerely doubt ANY commercial asset is being rented for 30% under market. A seller would have to be living under a rock. For 10+ years! The seller is going to want to raise the rents as HIGH as possible to make the purchase look attractive to someone else.
I do see more of an issue if the Prop 13 rollback applies to apartments. Many of these complexes were built in the 40's, 50's & 60's. They may (or may not) have changed hands. If they were owned by the same family/company, they could have very low tax basis.
A rollback of Prop 13 for them would be a disaster where they would want/need to raise prices in a hurry. Far beyond the 7% discussed.
In any event, it will make renting a MORE expensive endeavor. Especially for businesses.
But this could 'trickle down' to your average renter very easily. And they will be the ones VOTING to repeal prop 13, not the owners. ;-)
First the CA Assembly passing it does not mean that CA has passed it any more than the US House of Representatives passes it means the US has passed it. This does not mean it is not news worthy but just not worded the best. For CA to pass it, the Assembly must pass it, the senate must pass it, and the governor must sign it (the governor will sign it if it makes it to him).
The rent control regulation to have any value would need to have a law preventing the LL not extending the leases (often mistakenly referred to as evicting). Because the proposed rent control law is 7% + inflation it does not bother me until it has the accompanying regulation preventing not extending the lease.
There are all sorts of reasons that I am not a fan of forbidding LL to not extend the lease but the one that relates most to the rent control law is that it will make a value add upon purchase of a rented property very difficult. I have raised rents as much as 60% after the value add (and it did not end up increasing my cash flow due to the refinance aspect of the BRRRR).
So you find a complex that is thrashed that screams value add but you cannot get rid of the tenants by terminating their lease at least expiration (they automatically extend month to month with the LL unable to prevent it except with a few exceptions). You can raise their rents to possibly drive them out over a few years but that is a long time. Or you can buy each one out. This quickly eats into the return of the value add.
I also question how it is fair that the tenant can choose to not extend a month to month lease anytime with the proper notice but the LL cannot. I want my tenants to be able to move on if they do not like the place I am renting to them or do not like us. However, I also want to get rid of the tenant that is a pain in the butt.
Final pet peeve is how many people refer to not extending a lease as an eviction. It is not an eviction. Their are two parties (at least) in the lease and, without regulation, either party can choose not to extend the lease for pretty much any reason (outside of the protected classes). With the mandated lease extension regulation, the only party that can choose not to extend the lease (with a few exceptions) is the tenant. LL is stuck with the tenant as long as the tenant decides that they want to live there. It does not matter if the LL wants to rehab the unit, sell the unit, etc. (again with some exceptions).
It didn't pass...it has to go to the state senate. Let me guess...a trump voter.
Out of all the anti-landlord measures that they were considering, this is the least offensive one. Increases capped at 7% + CPI, so basically 10% annually. Extremely few areas see annual increases greater than 10% and that includes much of the super hot areas in the Bay area. Maybe around Inglewood near the new football stadium being built.
All stupid laws like this do is encourage landlords to raise the rent a little higher than they normally would for fear of the market rents outpacing their rent increases.
@Marc Winter, Too little too late. Even if you did argue that rent control has short term benefits, this would have had to have been passed 5-7 years ago to have helped anyone. At this point, it will just encourage all the “nice” landlords who were way under market to start catching up (hurting the tenants who were getting a deal). I would also argue that it will make current rents stickier in the next down turn.
The Bay Area had a 100%-150% run up in rents over the last 8 years. That’s not going to be happening again anytime soon and 10% annual increases will be plenty to keep up.
Thankfully CAR and CAA put some pressure on the writers to make this less onerous. There's also a sunset clause. While these aren't perfect by any stretch they are "contained".
On a local level, unfortunately, all the rhetoric and quoted average rental pricing is based on the big new fancy apartments with lots of amenities. (Which rightly service a large number of tenants) These are top dollar units and are largely excluded from local rent control laws. So new local rent control laws get passed that affect the smaller / older units. Many (guessing 20-30%?) are renting way under (20-40%) market rents. This is because the owners have owned the buildings for a long time and are trying to be nice to long term tenants, don't need the money, or just don't want change. This is drawn from looking at several units that come to market and you see their rent rates. Now with local rent control laws in place you are forced to raise rents every year even if you might have considered not raising rents (for whatever reason). Otherwise you fall behind and can never catch up if your personal circumstances would warrant it. Many government representatives are voting for votes not for the good of the people.
Ok long rant to simply say local rent controls are hurting the tenants as unintended consequences (though predictable)