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
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.
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.
Real Estate Broker · Orange, CA · Member since 2015 · 79 posts · 86 votes
7y
@Account Closed
Unfortunately you are the landlord that this law penalizes the most. You are only going to be able to raise rent 5%+the inflation measure. Technically, I believe you could give a 60 day notice of rent increase tomorrow to whatever inflated amount you wanted, and you’d get to enjoy the higher rate for about a month and a half. But come January 1, the rents have to revert back to your current rents plus 5% and inflation.
Real Estate Broker · Orange, CA · Member since 2015 · 79 posts · 86 votes
7y
@Account Closed
Just to elaborate a little further. While the bill does not take effect until January 1st, there is a clause in it that applies the rent increase caps retroactively to any tenant that has received a rent increase since March 15, 2019. So if a tenant was given a rent increase after that date that exceeds the cap, come January 1st the rent rate has to adjust down to the prior rate plus 5% and inflation.
The smallest of silver linings is that if you happen to be in that situation, the landlord is not obligated to refund any overage collected here in 2019. You simply have to adjust the rent down on January 1, 2020.
Investor · Gardena, CA · Member since 2017 · 445 posts · 398 votes
7y
I appreciate the help and I am bummed out. All the other landlords increased the rents so fast I didn't know what was going on. I have 4 apartment buildings in Los Angeles, Torrance, Gardena and Long Beach. I am sort of lucky because I raised the rents in two of the buildings and the increase took effect on March 1, 2019. So, I do not have to roll back those rents and I will definitely raise the rents again this March. I always give my tenants a 90 to 120 day rent increase notice.
Today, believe it or not, before I heard about the new law, I printed rent increases for 35 units and increased all the rents $200. A few minutes ago, I just re-printed the notices and had to decrease the rent increase to only $100.
I've always been generous to my tenants and kept the rents low. If I had increased my rents to what everyone else is charging I would be netting about $150k more every year and that is $1.5 million every 10 years. Bad landlord!!! But, I have happy tenants if that is worth all the work and frustration.
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
7y
@Pratik P. So a 7% yearly increase is not enough for you? Do they even have 7% rent increases in the Midwest (assuming you’re looking there). $500/month rentals were $500 10 years ago and will be $500 10 years from now.
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
7y
@Diane G. You should read the bill. Your SFH is and always has been exempt from RC and just cause. You're operating a charity being $700/month below market
Investor · Gardena, CA · Member since 2017 · 445 posts · 398 votes
7y
I raised the rents in an apartment building and the increase took effect on September 1, 2019. If I am reading the new law correctly, In January 2020, I have to roll the rent back to what it was on March 15, 2019 and I can increase the rent from the March 15, 2019 rent by 5% plus inflation in January 2020. Then, when will I be able to increase my rents again. I am guessing (hoping) that I will be able to increase the rent again on September 1, 2020 since all my units are currently about $500 under the current market.
Where do I get the inflation rate. Yesterday, I increased my rents by 5% plus 3% for inflation since the Consumer Index rose a little more than 3% in the past year.
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
7y
@Jack Orthman I believe the “just cause” portion doesn’t take effect until Jan 1 2020. So you are much better off giving every tenant 60 days notice to vacate, getting the buildings empty, and re-renting at market rates.
Granted you’ll need do some renovations but at least this way you’ll be at market rent within a few months.
Investor · Gardena, CA · Member since 2017 · 445 posts · 398 votes
7y
Thank you very much. That is very quick and smart thinking. I don't want to be greedy and ruin tenants' lives, but I also need to consider the best most-practical way to do business. I will definitely have to think about which units I want to terminate.
I hope I am wrong but I keep reading that this law does not apply to SFHs. Here is the text from the bill, I do not see where SFH homes are exempted unless you live in them in some manner as the owner:
(5) Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit.
(6) A duplex in which the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
Any place you can direct me that would include SFHs as exempted I would love to see it and allay me fears.
I hope I am wrong but I keep reading that this law does not apply to SFHs. Here is the text from the bill, I do not see where SFH homes are exempted unless you live in them in some manner as the owner:
(5) Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit.
(6) A duplex in which the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
Any place you can direct me that would include SFHs as exempted I would love to see it and allay me fears.
Ed, I believe the applicable excerpts in the bill are the following:
(e) This section shall not apply to the following types of residential real properties or residential circumstances:
(8) Residential real property that is alienable separate from the title to any other dwelling unit, provided that both of the following apply:
(A) The owner is not any of the following:
(i) A real estate investment trust, as defined in Section 856 of the Internal Revenue Code.
(ii) A corporation.
(iii) A limited liability company in which at least one member is a corporation.
(B) (i) The tenants have been provided written notice that the residential property is exempt from this section using the following statement:
“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (d)(5) and 1946.2 (e)(8) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”
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So, the way I read that is, as long as it's a single family home (since it's separate in title) that's NOT owned by a REIT, a corporation, or a LLC in which one member is a corporation, and you provide the tenant the above statement stating the property is exempt from the rent control, then the new law won't apply.
So I guess I will allay my own fears. Sorry for the previous erroneous information. the above wasn't from the "finalized" bill:
Here is how the bill reads now:
(5) Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit.
(6) A duplex in which the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
7y
Originally posted by @Account Closed:
@Pratik P. So a 7% yearly increase is not enough for you? Do they even have 7% rent increases in the Midwest (assuming you’re looking there). $500/month rentals were $500 10 years ago and will be $500 10 years from now.
It's not the rent increase cap I have an issue with. It's all the other stuff. The increase cap is only a problem to those who have their rents far below market, they're going to be playing a game of catch up for a long time....And there are many places in the midwest where rents are going up due to higher demand and population increases, so I wouldn't agree with that last part.
Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
7y
A few thoughts (with 10-100+ unit MF asset class in mind):
5% + CPI is generous, yes. But ONLY if current rents are market. 15% or more below current rents, your timeline to catch up just got longer. Which means that on the acquisition side, turnkey MF properties at market rents will be priced to perfection with low caps. MF properties that are mis-managed, way below market rents, value-add - owners of those properties got royally screwed. Investors previously underwrote those deals with aggressive timelines and rent increases. That timeline just doubled or tripled, killing IRR and investment prospects. Buying activity will reduce significantly unless sellers adjust their prices down.
As most have said, this will worsen the housing problem and supply side for various reasons. Existing MF properties will rise in value but again, only those that are close to market rents.
Lenders will see this - agency debt, big banks, etc. Large metros in California (Bay area, Sacramento, etc.) are typically Tier 1, providing the best interest and LTV options. They will still lend of course but depending on NOI, LTV will decrease for value-adds. More cash will be needed to close these deals, weeding out some buyers and reducing demand.
Again, mom and pop owners who have not kept up with rents and were being "nice" to their tenants with reduced rents got royally screwed. Their asset value just plummeted since future buyers cannot raise rents to catch up with market and capture equity. They will calc in a stretched timeline and in most cases, better ROI is available else where. Institutional asset managers are typically ok since they stay on top rental rate trends.
Rental increases are a guarantee now as landlords want to make sure that the gap between the market rents and their rents doesn't get too wide. If the hole they dug themselves into is too deep, it's going to take a tremendous amount of effort and time to get themselves out. And time is money.
We are in the process of selling 75% of our MF assets in California, taking profits off the table and looking at other states for investment and we are almost complete with that process. We will buy again in California after things settle and for the right deals.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y
This rent control is just going to drive every landlord to keep up with annual increases. Other landlords will just find ways around the controls. Those who are stuck renting places are low rents will do nothing to improve their properties. So this "solution" to the housing problems will just create higher prices, lower quality and encourage people to force tenants out on the street.
If California wants lower housing costs, the only solution is increased supply. That means new construction. Land is limited, so that means building up. The problem is building and environmental restrictions make it difficult and expensive to build. So the politicians pass laws that make it hard to build, then solve the problem by forcing price caps on the market. It is amazing how elected politicians have no basic understanding of supply and demand.
California landlords need to ban together and support advocacy groups for your industry.
The Realtor Association was fighting this down to the last minute. But somehow the California Builders and the Apartment Association decided to roll over on this. I’m pretty sure these groups put a lot of money and effort into opposing the rent control proposition on the last ballot. So I’m not sure why they rolled over months later.