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.
A few quick observations:
1- I sense that a lot of nice-guy landlords with way below market rents just got a major adrenaline injection, and are goona be quickly serving 60 day termination letters to those month to month tenants...so not sure exactly how that will help to stabilize homelessness. (The just cause aspect of the bill only goes into effect January 2020.
2- for MF buyers, a new strategy will be buying under performing assets at discounted prices, and then it’ll be “my family is moving in” big time (until the specifics of that are tightened up) and then next it’ll be “hello buyouts!”
3- owning rental SFH's and condos just became that much more of a valuable investment strategy in CA. So all of you "little ol me, I'm not sophisticated enough to do multifamily, just SFH and condos" investors, it's time to break out the Champaign this weekend...cause you just won the lottery!
4- looks like all of the California rental market just got a lot more precious, where we in San Francisco have been dealing with this for a long time. It basically creates loads of inefficiencies in the rental market, and savvy landlords will benefit from the cumulative effects big time. I mean, how many poor landlords do you know in San Francisco? For christsakes I know property owners in SF sitting on vacant by choice buildings (there are an estimated 30-40,000 vacant units in SF)- they don’t even have to rent them out anymore.
These are solid points Amit. Other people have made the point, but to add to you list:
5. Landlords that previously weren’t raising rent each year or raising it slowly are much more likely moving forward to raise rents by the maximum rent ceiling.
On a side note - I’m curious if anyone can explain the legality of the legislature creating a new law that goes into effect January 01, 2020 but then changes the rules back to March 15, 2019 (any rents increased from March 15-Dec 31 roll back to pre March 15). In layman terms - how the heck can they do that??
All my rents are about $500 under the current market and it was my choice to keep the rents low. I feel sorry for the investors who paid super high prices for rental units in the past year and purchased those properties with a negative cash flow, but with the ability to raise the rents. I believe there are many landlord who will not be able to make mortgage payments on their properties if they have to roll the rents back to March 2019. Many landlords will go bankrupt if they try to terminate their tenants tenancy in the next few months and many landlords have tenant leases where they cannot kick their tenants out. I really think landlords and the AOA should file lawsuits.
I don't think rental control has anything to do with homeless people because almost all homeless people have mental issues ans prefer to live on the streets. There is a very high percent of homeless people who are middle-aged and living on the streets to them is like being on a lifelong camping trip where they enjoy not having responsibilities.
@Joe Splitrock inventory is coming slowly, but than it go’s away. Well the part of Los Angeles that see. It’s coming the the bottom of the peak
@Eric G. Wow that’s not a lot. But 5% if better than nothing
A few quick observations:
1- I sense that a lot of nice-guy landlords with way below market rents just got a major adrenaline injection, and are goona be quickly serving 60 day termination letters to those month to month tenants...so not sure exactly how that will help to stabilize homelessness. (The just cause aspect of the bill only goes into effect January 2020.
2- for MF buyers, a new strategy will be buying under performing assets at discounted prices, and then it’ll be “my family is moving in” big time (until the specifics of that are tightened up) and then next it’ll be “hello buyouts!”
3- owning rental SFH's and condos just became that much more of a valuable investment strategy in CA. So all of you "little ol me, I'm not sophisticated enough to do multifamily, just SFH and condos" investors, it's time to break out the Champaign this weekend...cause you just won the lottery!
4- looks like all of the California rental market just got a lot more precious, where we in San Francisco have been dealing with this for a long time. It basically creates loads of inefficiencies in the rental market, and savvy landlords will benefit from the cumulative effects big time. I mean, how many poor landlords do you know in San Francisco? For christsakes I know property owners in SF sitting on vacant by choice buildings (there are an estimated 30-40,000 vacant units in SF)- they don’t even have to rent them out anymore.
These are solid points Amit. Other people have made the point, but to add to you list:
5. Landlords that previously weren’t raising rent each year or raising it slowly are much more likely moving forward to raise rents by the maximum rent ceiling.
On a side note - I’m curious if anyone can explain the legality of the legislature creating a new law that goes into effect January 01, 2020 but then changes the rules back to March 15, 2019 (any rents increased from March 15-Dec 31 roll back to pre March 15). In layman terms - how the heck can they do that??
I guess they can do it because ex post facto doesn't apply to civil law? Maybe a lawyer can clarify?
@Amit M.Isn’t the vacant by choice because of all the change of use,or whatever hoops you need to evict a tenant?Whats the “hello buyout”?
I believe"buyout" refers to "cash for keys" or compensated voluntary eviction.
SFH is NOT exempt unless you are living in it and are renting out rooms, from what I read.....
Diane, I got tripped up on that as well, but item (8) says if your unit is alienable, under a separate deed, able to be sold separately, not controlled by a corporation/reit, it is exempt.
In contrast, apartment complexes owned by one owner, where units can't be separately sold, are not exempt.
@Eric G. Builders rolled over this because there is a provision which excludes new construction for the 1st 15 years. This was designed specifically to not impact them in the near term.
Builders are completely safe. New construction is untouched, and the bill expires in 2030, which is a mere decade from now.
I am a bit confused on this too... So if there is a townhouse with 4 bedrooms where 2 of the bedrooms have their own separate entrances, their own bathrooms and little kitchens, and this house is rented to 3 separate tenants (1 in the main house and 1 in each of the separate bedrooms) would this new bill apply to this townhouse?
Can you put this townhouse on the market today, as is, and sell it?
if so, then you are exempt.
despite your modifications, it sounds like your townhouse is still classified as one unit for tax purposes, so this would classify as a house hacking situation, which is exempt.
Many of you are forgetting that just because there is a cap of 5% on rent increases,by golly you're going to increase them the full 5%, perhaps in a show of retaliation. Don't forget laws of supply and demand where even a 2 or 3% increase might discourage tenants from wanting to live in your property. You can only get any rent increase if tenants are willing to pay the new rent.
You're forgetting that this new law will affect the law of supply and demand. The supply will go down due to this law. There is no educated person who believes otherwise. The demand will be the same, but less supply = higher prices. Perhaps the current tenants may move out over an increase, but there will be enough demand to fill the vacancy at the higher level. And thanks to the lower supply, current tenants will likely suck up the increase because there isn't a lot of alternatives thanks to the shrinking supply.
There are always unintended side effects. In an effort to limit large increases in rent, tenants may now have their rent raised a little each year. And the nice landlords who work to keep rent affordable will get hit when they sell properties with tenants paying under market rent. Investors may decide to "demolish or to substantially remodel the residential real property" as a way to force tenants out and raise rents.
What does the law say about voluntary vacancies and raising the rent? If a tenant moves of their own accord, can you then raise the rent to market level or does the five percent plus inflation cap apply? For example, Joe decides to buy a house and moves out of your apartment. Since Joe choose to leave voluntarily what limits apply to rent increases?
The concept you're referring to is called 'vacancy control' and no, the new bill does not institute vacancy control, i.e. you can still set rents after a vacancy to whatever you like.
@Bryan Souza
Interesting read, the article brings up a great point that, renters may be stuck in their current units because moving to a new place would not only be near to impossible due to long waiting lists, but also because they would likely face dramatic rent increase in the unit they occupy.
Leaving the market alone would naturally fix rates as competition to provide quality units would increase. Builders would build more units and developers would rehab old buildings.
An increase in supply would most certainly buffer the demand.
Exemption for properties less than 15 years old lets developers build condo-style rental units that can be rented without being subject to the new law and can be converted to condos after construction defect time limits expire. Or somebody like me could build a 2, 3, or 4 plex rent it for 15 years then sell it. Builders around here are reluctant to build projects that will become individually owned condos and risk construction defect lawsuits from HOA's or owners. So they build condo-style projects that are rented out as apartments. When the 10-year limit for construction defects expires they can be converted to condos. Now there's also a 5-year window to convert and sell before rent control starts.
I do not live in California, and I imagine that a lot of what we see on tv I sensationalized. However,
If a fraction of what is projected (extreme homelessness, drug abuse on public streets, human feces, needles and the like covering the streets) then California is in trouble as it faces the impending mass exodus of its productive citizens.
I don't know what you see on TV, but in Los Angeles there are homeless living under a significant number of freeway overpasses. While it is generally only a couple of people, it is not uncommon to see 20+ tents set up. Many times they will have couches sitting on the sidewalk. There are a ton of people living around mini-malls and behind markets/stores. Their "shelter" will be 50 feet from homes selling for $1-$2 million.
Feces and needles seem to be more prevalent in the enlightened progressive communities like Santa Monica and Venice and the slums of downtown LA. I was in downtown recently and there was feces all over the sidewalks. Downtown was experiencing a revitalization with high end condos, expensive stores, popular clubs, and highly rated restaurants. It was starting to become a destination place. That's all dead. RE prices are way down and sitting on the market for long periods of time. Lots of people won't go there.
Drug abuse seems to be ignored now. People were selling and using drugs in a library parking lot at night. This was well known and reported to the police. Nothing. From what I heard, it took some junkie getting shot there for the police to clean it up.
It has become a very lawless city/state. Steal small and the police probably won't even come. Break into cars and they probably won't even come. If you do get caught, you won't do any jail time. Use drugs in front of a cop and they likely won't give you a second look. Set up a tent city next to homes, the city will install trashcans for you. Maybe even a place to shower! Every few weeks the police and sanitation dept will come by and tell you to move. You pack up and literally go around the corner and wait until they have cleaned up all the garbage and sanitized the area and then you move back. It's like having a maid.
The police have been neutered by the city legislature. You have to take things into your own hands. There was a homeless person sleeping in front of the doors to a complex that I own a condo in. Residents had to step over her to get in/out. She managed to get into the lobby a few times and she peed on the floor and elevator. The police are a joke and wouldn't help. When people asked her to leave she got aggressively crazy. She threatened an 80 year old man. Police told us to put up a no trespassing sign. My tenant called me afraid of this person. I went over there and told the woman she couldn't sleep there. She got about 2 seconds into her crazy act before I sternly made it clear to her that I'd pick her up and slam her into the concrete sidewalk if she tried that **** with me. Oddly the crazy act ended immediately and she move to a building down the street.
Even with all the bad, the good news is that our city government is working very hard on fixing this situation. They've already taken several positive steps forward including banning plastic straws. I'm also pretty confident that fairly soon they will raise taxes so that a committee can be formed to discuss how to funnel off the tax money to their relatives and friends.
There is no doubt that people are leaving. Lots of upper middle class people. Their replacements are lower educated, poorer people. However, they will vote D, so there is no reason to be alarmed for the politicians.
@Greg M. everything you said about LA sounds exactly like Oakland and SF. Everything except RE prices being way down. For some reason it’s still record prices
Can you put this townhouse on the market today, as is, and sell it?
if so, then you are exempt.
despite your modifications, it sounds like your townhouse is still classified as one unit for tax purposes, so this would classify as a house hacking situation, which is exempt.
Thank you Mike!
@Greg M. everything you said about LA sounds exactly like Oakland and SF. Everything except RE prices being way down. For some reason it’s still record prices
RE prices in downtown LA are down, not so much the rest of LA. Condos that used to be a little over a million I've been seeing listed for sub-900 and sitting on the market. The rest of LA has cooled a little, but not a lot. The westside is still crazy. Nice Burbank is on fire. The SFV has cooled, but that was after a crazy run up in prices. Anything entry level and priced reasonably is sold super quick. It's that near $1M and higher level that has slowed down in sales.
@Ed B.I think everybody is just going to raise their rents 7% every year now. Supply and demand has been broken.
Excellent point, Thalia. If rent control caps rent increases it may spur those landlords who let rents lag, for whatever reason, to raise rents, and not simply to what they feel is needed to cover expenses but up to the 7% figure. If enough landlords do that, tenants will be forced to pay the higher rates.
Or buy a SFR with an "in law unit".....and rent out the in law unit.....or buy a place that has 2 houses on one lot.
@Edit B.
Bernie just announced his sweeping plan for the “housing crisis” in America. He wants national rent control. I doubt he’ll win the election, but I see the writing on the wall as far as which direction this country is headed in the long run. I fear sometime in the future we won’t be able to avoid this, regardless of where we do business.
Just an FYI, landlord lawyer Bornstein says adding a second unit to an SFR in Oakland makes it a duplex from the city's perspective. So, then it's subject to rent control after construction of the ADU.
I'm sure anyone adopting this strategy will start at market rate rents, anyway, but then you're capped at whatever Oakland's yearly allowable increase is. https://www.oaklandca.gov/reso...