California Rent Control

Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes

Why is no-none talking about this? It will cap increases to 5% plus inflation and you can no longer evict at no fault after the lease is up. This is a big deal

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Jeff Willis

CA & NV · Member since 2019 · 215 posts · 378 votes

It is a big deal but it is like pissing in the wind - nothing anyone can do about this.

AB 1482 (what you are talking about) coupled with the 2020 ballot measure to roll back prop 13 for commercial properties is a no-win for property investors and landlords in California. I am in the process of liquidating all my California holdings.

https://ballotpedia.org/California_Tax_on_Commercial_and_Industrial_Properties_for_Education_and_Local_Government_Funding_Initiative_(2020)

Heck LA County just approved a rent control ordinance. https://abc7.com/politics/los-angeles-county-rent-control-ordinance-approved/5529287/

In reality, your property taxes and could annually go up over the 5% rent cap and expenses will go far beyond that. Your ROI will be negative - not a good business model.

But the good people of California elected these fools, now everyone will pay the price.

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Jeff Willis
CA & NV · Member since 2019 · 215 posts · 378 votes
7y
It is a big deal but it is like pissing in the wind - nothing anyone can do about this.

AB 1482 (what you are talking about) coupled with the 2020 ballot measure to roll back prop 13 for commercial properties is a no-win for property investors and landlords in California. I am in the process of liquidating all my California holdings.
https://ballotpedia.org/California_Tax_on_Commercial_and_Industrial_Properties_for_Education_and_Local_Government_Funding_Initiative_(2020)

Heck LA County just approved a rent control ordinance. https://abc7.com/politics/los-angeles-county-rent-control-ordinance-approved/5529287/

In reality, your property taxes and could annually go up over the 5% rent cap and expenses will go far beyond that. Your ROI will be negative - not a good business model.

But the good people of California elected these fools, now everyone will pay the price.
28 Reply
Edit B.
OP
Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes
7y
Some of this is really bad. For one if you are an owner who is underrenting at the moment and plan on selling you will be screwed. Whoever will purchase will not be able to increase rents above 5% + inflation which means the perceived ROI will be very low and the sale price will be severely impacted.
The other key thing here is the no fault eviction- you will basially not be able to get rid of a tenant for any reason you want even after the lease contract has expired. This is crazy. This can be abused in so many ways by the tenant and places all the burden on the landlord.
12 Reply
Mike Franco
Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
7y
We're not talking about it because it's not set in stone yet. constantly being revised.

Just look at the text...

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1482

let's be real. How many of you increase rent by 5% per year plus 1.5 to 2% inflation?

some of you never increase rent on your tenants, and this would be a good time to keep up.

Let's take the average $2000 rental, you jack up the rent $100 every year, even on your existing tenants, and you come out ahead.

.

also, there are loopholes LLs can take advantage of, last I read. Your hands are not completely tied.

ab1482 proposes that you can get rid of tenants if you plan to move back in, but you need to cover a month of moving expenses.
so move back in, then jack up the rent to market rates.
10 Reply

Will F.

Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes

Originally posted by @Edit B.:

Some of this is really bad. For one if you are an owner who is underrenting at the moment and plan on selling you will be screwed. Whoever will purchase will not be able to increase rents above 5% + inflation which means the perceived ROI will be very low and the sale price will be severely impacted.

The other key thing here is the no fault eviction- you will basially not be able to get rid of a tenant for any reason you want even after the lease contract has expired. This is crazy. This can be abused in so many ways by the tenant and places all the burden on the landlord.

This is bad and huge. You should find out from local Apartment Associations who to contact. There is stuff you can do:

18 6 19

Update on the Statewide Rent Control

from Attorney Michael Millman

OPPOSE AB 1482 ; as amended; Sacramento super Power Players have been meeting at the Governor's Office for many weeks and negotiating a compromise RENT CAP Bill. All amendments must be completed by Friday September 6 2019. Economic Round Table; Blackstone; Realtors; CAA ; Building Industry were at the Table in the Governor Office. Deal is done. This Team was very concerned about possible State Wide Campaign as " Son " of Proposition 10. AID Foundation was considered in the Deal. Weinstein does not have the Signatures and required Money. He has signed off on the Deal. Bill to be printed today. Realtors and others will have the Bill. There are many Housing Issues which address Back Stone problems? Experts believe that David Chiu will consider Exempting New Construction for 25 Years or more ? ADU's must be exempt ?

So: The Bill sunsets in 10 Years. VACANCY DECONTROL will be safe for 10 Years.

Condo's/Single Family Homes and Duplex's wherein the owner lives on premise will be exempt.

The Annual Adjustment will 5 % and regional CPI ?

SF/Oakland/Berkeley/LA / West Hollywood and Santa Monica will be carved out and new law will not apply: There are Dozen more provision which you may examine later today.

Just Cause Evictions will be installed: Again, like Oregon Tenants Rights will not Vest for First Year. Then relocation Arrangements one month Rent and or Free Rent. Again, the Realtors will have the details of the Bill. This Bill may pass. CAA is Neutral :

Realtors Opposed. Vote will be next week.

Many should contact your Sacramento Friends to Vote No: The Apartment Industry should be set a Meeting with Federal HUD group in SF which investigates and publish the CPI each month. This Group will design and produce a Special CPI for Apartment Housing Expenses. This will cost $$$; but it will address our true Operating expenses: This is essential

Michael Millman 310 431 657 four

What to do?

1. Caphnll your Assembly Member at 800-798-659 three )

2. phn your Senator at 855-215-015 two )

Tell both offices: “Hi, this is (insert your name). I'm a Housing Provider from your district. Please ask the Senator/Assembly Member to Vote No on AB 1482. The bill discourages the creation of rental housing and doesn’t address the real problem – lack of supply.”

3. Share http://housingforcalifornia.com/no-ab-1482/

4. Tweet: https://www.votervoice.net/CARealtors/campaigns/67361/respond or

As a Housing Provider, I urge #caleg to vote NO on #AB1482. The solution to our state’s housing crisis is more supply, not restrictive rentcaps. https://imgur.com/a/ihwAe4S

Now is the time to take action. To do nothing is the same as supporting the loss of property rights - don’t let this happen to you! Do what you can to preserve your rights!

2 Reply

Will F.
Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
7y
It's really bad for lending and valuating your properties. I've raised rents or kept them up, but if you haven't you could devalue your property by hundreds of thousands of dollars keeping low rents. You simply won't qualify for high loans if you Refi or a future purchaser won't qualify. Therefore your $800k small apartment or house could be worth $600-$650k to a bank
3 Reply
Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
7y
Originally posted by @Jeff Willis:
It is a big deal but it is like pissing in the wind - nothing anyone can do about this.

AB 1482 (what you are talking about) coupled with the 2020 ballot measure to roll back prop 13 for commercial properties is a no-win for property investors and landlords in California. I am in the process of liquidating all my California holdings.
https://ballotpedia.org/California_Tax_on_Commercial_and_Industrial_Properties_for_Education_and_Local_Government_Funding_Initiative_(2020)

Heck LA County just approved a rent control ordinance. https://abc7.com/politics/los-angeles-county-rent-control-ordinance-approved/5529287/

In reality, your property taxes and could annually go up over the 5% rent cap and expenses will go far beyond that. Your ROI will be negative - not a good business model.

But the good people of California elected these fools, now everyone will pay the price.

Hopefully you're not selling all your California properties because you really expect property taxes to go up annually over the possible 5% rent cap because that actually can't happen. This proposed rent control bill only applies to some (not all) residential housing, and in California Prop 13 limits how much residential property taxes can be increased and they can't be increased over 5% (or even close).

There is a push to repeal the part of Prop 13 that protects commercial/industrial property, but that has nothing to do with the current residential rent control bill and no one's going to vote to repeal the part of Prop 13 that protects residential property.

So maybe don't sell just yet. There's still money to be made in California. :)

5 Reply
Edit B.
OP
Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes
7y
@Will F. A rate increase cap can be reasonable to some extent but the no fault / fault eviction provisions and the fact that caps are transferred on a new purchase is going too far. Its completely unfair to those who have been nicer to tenants over the years and kept rents low when they didn't have to.
Who would pay today's premium on a property they cannot bring the rents to current market?

2 Reply
Will F.
Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
7y
https://www.latimes.com/california/story/2019-09-11/california-renters-relief-legislation-gavin-newsom-rent-cap

They passed the Rent Cap today California state-wide 5% + CPI (currently 2%). In future they may adjust this or make it harsher like the LA city rent control ordinance (RSO)

If I were anyone here sitting on under market rental units I'd raise rents as fast as possible if you can.

I rarely used to raise rents on tenants who were good. Like I often don't raise them at all. I kept rents under market, but now I will raise any time I can. And this will disincentivize me from doing cosmetic improvements. I guess we'll just have to adjust and adapt.
7 Reply
Joel Fine
Rental Property Investor · Leander, TX · Member since 2018 · 183 posts · 264 votes
7y
It's ironic. The headlines say that California passed rent control to ease the shortage of affordable housing. In reality it will do the exact opposite.
This would be a more accurate headline:
California legislature votes to overturn the law of Supply and Demand
Good luck with that, California.
Another quote from H.L. Mencken applies here:
"Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

12 Reply
Will F.
Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
7y
Originally posted by @Joel Fine:
It's ironic. The headlines say that California passed rent control to ease the shortage of affordable housing. In reality it will do the exact opposite.
This would be a more accurate headline:
California legislature votes to overturn the law of Supply and Demand
Good luck with that, California.
Another quote from H.L. Mencken applies here:
"Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

Yup it's all smoke and mirrors by California politicians.
In the long run this will reduce supply and therefore make values go up. In short run it will help a few people stay in their property a bit longer, but as a whole, this is economic suicide for CA. They're disincentivizing housing providers while saying we need more housing. California slowly chopping the limbs off it's business communities and making investors flee to greener pasteurs.

I'll stick around and watch my values go up in the long run. But the pain of the red tape and adapting to the BS has been killing me.
6 Reply
Mike Franco
Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
7y
relax.

jack up your rents, and keep jacking them up to the maximum allowed.

I'll have to wait to see what real estate attorneys say, and see if C.A.R puts out a webinar about ab1482, but it sounds like ab1482 has one major loophole in regard to fixed term leases vs "term not specified" leases.

All of these new rules seem to apply to term unspecified leases, i.e when you allow a year lease to lapse into month-to-month. If you sign a lease for a fixed term, you can still require the tenant to move at the end of it.

You're not stuck with the tenant forever, as long as you don't have a month-to-month arrangement.

.

This bill protects existing tenants from price gouging, but I don't think it applies once your tenant leaves and you try to acquire a new tenant.

That would not make any sense. For example, let's say you have a crap shack renting for $1000.

Tenant moves out, and you add-on, remodel, triple the square footage, quadruple the house value.

Then you put it back on the rental market.

Do you think you're required to list this mansion at $1050 max by law? Hell no. You jack it up to market rents.

So go ahead and make your improvements.

.

Also, according the bill verbiage, the rent increase cap is based on the previous 12 months of rent, so if you took it off the market for over a year, you're free to charge whatever rent you want.

.
I also see another workaround through the use of rebates. If you collect $2500 rent payment every month, and you rebate $200 monthly as a reward for keeping the house in top shape, technically your rent is $2500.
1 Reply
James M.
Rental Property Investor · Seal Beach, CA · Member since 2016 · 115 posts · 85 votes
7y
To all those voters that wanted rent control.. enjoy your enormous rent increases and your crapping living conditions. Damn commys in California.
14 Reply
Mike Franco
Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
7y
it's not all doom and gloom. Boys and girls, here are your ways out...

pretty much what I said before regarding rebates.

And the time to improve your property and jack up the rent is in between tenants. So if you plan to renovate and jack up your rent, make sure your tenant is on a fixed term lease, and kick them out at the end of the lease so you can make improvements.

1 Reply
Steve Buchanan
Rental Property Investor · Los Angeles, CA · Member since 2013 · 119 posts · 51 votes
7y
The bill also retroactively rolls back rents on large rent increases made on or after March 15, 2019:
"in the event that an owner increased the rent by more than the amount specified above (5% plus inflation) between March 15, 2019, and January 1, 2020, the applicable rent on January 1, 2020, shall be the rent as of March 15, 2019, plus the maximum permissible increase, and the owner shall not be liable to the tenant for any corresponding rent overpayment"
This affects me slightly. I increased one of our tenants rents on 4/1/19 which is looking like it would be rolled back next year. Thankfully it's not more tenants. It will now take 2 years from the rollback date to get the rent back to it's current rent.
This is going to be real troublesome for anyone who purchased a building this year under the pretense of under market rents. Imagine the people who payed a premium for a building with under market rents, took out financing based on the ARV at the time of purchase, have begun their value add, raised rents according to pro forma, who now come to find that all those rents are going to be rolled back or that planned rent increases in the near future cannot happen according to their plan.
7 Reply
Steve Buchanan
Rental Property Investor · Los Angeles, CA · Member since 2013 · 119 posts · 51 votes
7y
@Will F. "If I were anyone here sitting on under market rental units I'd raise rents as fast as possible if you can."
It's too late.
6 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Joel Fine:
It's ironic. The headlines say that California passed rent control to ease the shortage of affordable housing. In reality it will do the exact opposite.
This would be a more accurate headline:
California legislature votes to overturn the law of Supply and Demand
Good luck with that, California.
Another quote from H.L. Mencken applies here:
"Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

in Oregon they just went through this exercise and at least for now it did affect values.. with buyers slowing way down and offers when coming in way low as new investors don't know how this is all going to play out.. I don't personally have a dog in the hunt but I figure things will calm down over time.

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1 Reply
Account Closed
Investor · Gardena, CA · Member since 2017 · 445 posts · 398 votes
7y
They are also considering a law in Los Angeles where you will be force to rent to Section 8 tenants and that will be a real nightmare when our government gets to choose your tenants for you. You will not be able to move new tenants into your units within a few days because you will have to wait for Section 8 approvals and inspections. Then, it is very difficult to evict a Section 8 tenant. Just imagine having a nice building where half your tenants are educated hard-working and the other half stays home all day, thrashes your building and all they do is wait for their welfare checks. Rent control is a big issue, but I believe the landlords do not have the majority of the votes and it seems like the landlords always lose to these issues. Even when landlords win it gets put on the ballot again and again until they lose. Nothing we can do!
2 Reply
Eric G.
Real Estate Broker · Orange, CA · Member since 2015 · 79 posts · 86 votes
7y
@Jeff Fioresi I’ve poured over the text of the bill a number of times in the last 24 hours, and I’ve come to the same conclusion as you regarding just cause evictions. It doesn’t specify its retroactive like the rent increases, so I interpret that to mean it won’t take effect until January 1st. I watched the live stream of the vote yesterday and my heart sank when the results were tallied up. I’m never in favor of more government regulation. I think their hearts are in the right place, but their policies are misguided. Their mission is to curb homelessness as a result of the housing crisis. But they need look no further than Los Angeles to see a case study in progress. Los Angeles already has rent control measures similar to those passed, and yet, their homelessness is rampant and probably getting worse. And I can attest that rents are crazy high anyway. Might have something to do with the laws of supply and demand. Besides, if a landlord evicts a tenant, or raises rent to a level that essentially pushes a tenant out, it’s a zero sum transaction. When that tenant leaves, a new one comes in. You didn’t add or subtract to the homeless count. The only way to curb the problem is to increase the supply of housing.
8 Reply
Robert C.
Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes
7y
Some things to consider:
1.) Yes, it hurts anyone who was being nice about the rents or who recently bought value-add, however, I've heard that it is already driving up prices around the Bay Area for MF that has rents near market. Rent control picks winners and losers.
2.) There will be a short term slump, but for those of us who have been keeping up with rents, this effectively adds to a rent "floor" by increasing the reluctance to lower rents in the case of a downturn, and because everyone is going to start pushing rents up now to stay in range of market prices.
3.) As people have mentioned, there are some useful loopholes. Like, you can still get rid of a bad tenant during the 1st year without just cause.
4.) This could be a buying opportunity for long term hold investors.
8 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
7y
Originally posted by @Account Closed:
They are also considering a law in Los Angeles where you will be force to rent to Section 8 tenants and that will be a real nightmare when our government gets to choose your tenants for you. You will not be able to move new tenants into your units within a few days because you will have to wait for Section 8 approvals and inspections. Then, it is very difficult to evict a Section 8 tenant. Just imagine having a nice building where half your tenants are educated hard-working and the other half stays home all day, thrashes your building and all they do is wait for their welfare checks. Rent control is a big issue, but I believe the landlords do not have the majority of the votes and it seems like the landlords always lose to these issues. Even when landlords win it gets put on the ballot again and again until they lose. Nothing we can do!

San Diego already has a regulation that indicates you cannot consider the source of the funds which in effect means you cannot use section 8 as a criteria to eliminate tenants. The work around has been to have nice places that can command rents above the section 8 limits. Also some perspective tenants do not know the rules and still ask do you take section 8? I indicate no but do not tell them it is because our rent is above the section 8 threshold.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
7y
Originally posted by @Account Closed:
@Steve Buchanan Your statement below is me, unfortunately. Bought 4 units in April in Escondido, CA that were severely under market. Raised rents to market in July and made some improvements (new kitchen, vanities, in some units, deferred maint, etc.) to justify the rent increase. All tenants stayed and agreed to the new rent and have been there for 8+ years minimum. We signed year leases with 3 of them which go through July 31, 2020.
1 tenant is still on Month-to-Month and my intent is to give him 60 days notice before 10/1 before the just cause eviction goes in on 1/1/20 (the Just cause doesn't look to be retroactive like the rent increase). Is anyone else considering this option? It's really the only thing I can do at this point. Very unfortunate timing. I made a good investment that has turned into a not so good investment overnight.
"This is going to be real troublesome for anyone who purchased a building this year under the pretense of under market rents. Imagine the people who payed a premium for a building with under market rents, took out financing based on the ARV at the time of purchase, have begun their value add, raised rents according to pro forma, who now come to find that all those rents are going to be rolled back or that planned rent increases in the near future cannot happen according to their plan."

Not to be the bearer of more bad news... If you raised the rent more than 6.9% you will need to lower their rent because your rent increase is after March 2019.
0 Reply
Thalia G.
Member since 2018 · 80 posts · 21 votes
7y
@Edit B. I’m shocked nobody is talking on this. I talked to old friends that are landlords and nobody knows or seems to care.
1 Reply
Robert C.
Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes
7y
@Account Closed is right about lowering the rent, but just want to add the text currently states you don't have to do that until January 1, 2020. Also, I would look regional inflation rates. The text also says you can use regional CPI data, and only have to go with the state CPI if there is no regional available.
1 Reply
Ed Morrison
Member since 2019 · 24 posts · 12 votes
7y
I care. I maybe exiting the rental market because of this. I know for sure, that I will be raising the rates on all my rentals and putting them under new leases in the mean time. Fortunately for us we are at market rates already.
There was a provision in the bill that would exempt any landlord with less than 5 rentals. It appears they took that out. Which may explain why it isn't being discussed but I think more likely people just do not know.
The arrogance of the politicians in California to do this AFTER the people voted rent control down as a proposition is mind boggling to me.

7 Reply
Thalia G.
Member since 2018 · 80 posts · 21 votes
7y
@Will F.they have a provision that makes the rents go back to March 2019. this whole thing seems to be specifically on older apartment buildings.
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