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.
Future landlord here. I am closing on a 4plex with all 4 units being rented about $200-300 below market. If I plan on keeping the tenants can I set rents to market since I am a new landlord with a new lease agreement or can I only increase by 5%+ CPI? The property is still netting about 1200 positive cash flow at its current rental prices but I'd like to get them each at least $150 higher without having to force them out.
>If I plan on keeping the tenants can I set rents to market since I am a new landlord with a new lease agreement or can I only increase by 5%+ CPI?
You can only raise the rent 5% + CPI. Also the if you plan on keeping the tenants is questionable. In general the tenants can stay as long as they desire with a couple exceptions 1) to move in an allowed family member 2) for a major renovation. You cannot simply decide you do not want to keep the tenants even if their lease is month to month.
>The property is still netting about 1200 positive cash flow at its current rental prices but I'd like to get them each at least $150 higher without having to force them out.
Which cash flow calculator did you use? what does 50% rule show for projected initial cash flow? The reasons I have these questions is that an initial cash flow positive, new financed at traditional investor LTV or higher, property is rare in San Diego when using realistic expense projections.
“force them out …” as indicated you are constrained on conditions to force them out. You or family can move in or you can do an extensive remodel. If a tenant can safely occupy the unit for the rehab work, they likely cannot be terminated without consent. I would think the following rehab projects would qualify for removing a tenant that desires to stay: abatement issues, new kitchen, reconfiguring layout for open floor plan, etc. what I think would not qualify are new paint, new floorng, re-doing bathrooms in a unit with multiple bathrooms, new windows, new room, new HVAC, etc.
good luck
Thanks for the feedback.
By force out I meant major rehab. Planning of separating meters for gas and electrical and doing a full interior rehab on the 2 larger units. I don't have do the rehabs since long term tenants have basically chosen to live that way for a few years but I definitely have to if bringing in new tenants.
I was just doing simple math to calculate positive net cash flow, Gross rentals minus PITI, water, trash, and maintenance. I was not using any specific calculator.
I guess I'll have to check with previous owner to see if they have already increased rents this year before I do the 5%+CPI.
The laws changed in California, so yes there is rent control statewide now. Before that in Los Angeles rent control was only on select units built before 1978. San Francisco had less restrictive rent control laws for tenants.
Now ALL of California has rent control though, part of this is to combat what has lead to the current issues that happened in the state.
Another law is landlords cannot refuse tenants with Emotional Support Animals (even stores and businesses have to allow customers with them now). So if your property normally has a "no pet" policy you now have to accept the Emotional Support Animal.
They also made it mandatory that a landlord CANNOT refuse a potential tenant that is on Section 8 or has a Housing Voucher of any kind. This new law is also known as "SB 329 and SB 222". A landlord or property can get in very big trouble for violating this, and I know some property managers and owners who already have gotten into trouble when the new law started, because they did not do their research about SB 329 and SB 222.
Basically if they pay let's say $100 and the housing voucher covers the rest, you have to adjust THEIR portion of the rent toward your income requirements (if you have any)...so one of my properties is listed as a potential tenant needs to earn 2x the rental amount....so for the potential tenant on section 8 that is paying $100 for THEIR portion, you would count the 2x of the rent as $200 a month, since section 8 is the paying the rest automatically. Some tenants pay nothing and section 8 pays 100% of the rent...so you have to adjust rules to accommodate them.
The Housing Authority is also now paying 110% of the fair market rate in many cities now, so it's made it a no-brainer for property owners and landlords. It's a win-win for the landlord and the tenant.
Again, these new laws are something most property owners and managers have knew were coming for a long time.
Here's a rant-
@Liz I wonder how they can enforce this. Section 8 has taken about 2.5 months to perform an inspection and process the paperwork here in Sacramento on a recent tenant of mine. I took a risk and let the tenant move in prior to inspection being performed(something I never do) because she was living in her car after moving out of her prior residence and she had heart problems. The process of getting the HAP agreement signed lasted another 1.5 months after that after so much pressure to perform from both myself and the tenant.
Normally the landlord would have to wait for complete approval to let the tenant move in which means they would have a vacant unit for 2.5 months after accepting the tenant??
If a regular tenant competes for the same unit and can be in the unit within 30 days or less with 1st months rent and deposit prior, why would any landlord on earth accept section 8? When its this broken?
I've spent countless hours trying to get Section 8 employees to do their job. Sometimes months of no response from them and dealing with people that simply just would not do their job until they got fired( often no one else took their cases). Ive written board members, supervisors, vice president of the board etc..
However it's not very surprising that state employees who essentially have no measure of performance, are given free money to hand out each year, often do not do their jobs.
These laws are short sighted to say the least and are written by legislators who are not usually very educated on the topics, completely out of touch with what is actually happening in the real world, and only care to appeal to their base(also uneducated "activists") and to get re-elected. I'm not even sure if they themselves believe that by singing some ******** paper into law they are helping affordable housing.
If you fixed Section 8 and actually paid say 1-1.05% of market rate you'd have a very desirable product and would need to fight off landlords from getting it, not "forcing" them to accept it
Here's a rant-
@Liz I wonder how they can enforce this. Section 8 has taken about 2.5 months to perform an inspection and process the paperwork here in Sacramento on a recent tenant of mine. I took a risk and let the tenant move in prior to inspection being performed(something I never do) because she was living in her car after moving out of her prior residence and she had heart problems. The process of getting the HAP agreement signed lasted another 1.5 months after that after so much pressure to perform from both myself and the tenant.
Normally the landlord would have to wait for complete approval to let the tenant move in which means they would have a vacant unit for 2.5 months after accepting the tenant??
If a regular tenant competes for the same unit and can be in the unit within 30 days or less with 1st months rent and deposit prior, why would any landlord on earth accept section 8? When its this broken?
I've spent countless hours trying to get Section 8 employees to do their job. Sometimes months of no response from them and dealing with people that simply just would not do their job until they got fired( often no one else took their cases). Ive written board members, supervisors, vice president of the board etc..
However it's not very surprising that state employees who essentially have no measure of performance, are given free money to hand out each year, often do not do their jobs.
These laws are short sighted to say the least and are written by legislators who are not usually very educated on the topics, completely out of touch with what is actually happening in the real world, and only care to appeal to their base(also uneducated "activists") and to get re-elected. I'm not even sure if they themselves believe that by singing some ******** paper into law they are helping affordable housing.
If you fixed Section 8 and actually paid say 1-1.05% of market rate you'd have a very desirable product and would need to fight off landlords from getting it, not "forcing" them to accept it.
@Edit B,
I am not sure how the process works in Sacramento, here in Los Angeles and Los Angeles County it takes 2-4 business days after the landlord/property manager sends in the RFTA packet to the Housing Authority.
I agree with you on some of what you said, but I am in the same situation as you and legally our hands are tied. Soon allowing pets will eventually be mandatory as well...we are already almost there now.
I look at it this way, a section-8 tenant is guaranteed rent each month, in LA some of it is 110% above fair market rate...and they pay $2,500 for the deposit. I can take a chance with a non section-8 tenant but with the pandemic I am still running into tenants who can't pay their rent certain months, and we are 16 months after the pandemic started. The 5 section-8 tenants I have in my various properties have always been able to give me my rent 100% of the time.
As another poster said in one of the forums, if I have a unit sitting for 4 weeks.. that is 4 weeks wasted that could have simply went to an applicant with a voucher and an inspection, and a paid holding deposit. I would rather have that tenant giving me income, than that same tenant going to my competition and giving them income instead.