'Good Cause' Eviction - New York
Hello BP,
If you a real Estate Investor in New York, you are going to want to weigh-in on another ridiculous regulation designed to help marginalized tenants in the city that will - in-effect - marginalize landlords across the entire state. Last June 2019, sneaky NY legislators forced a law upon us. The so-called Tenant Protection Act of 2019, which, among countless other travesties, limited security deposits to a maximum one months rent, protracted the already drawn out eviction process by more than three additional weeks (it takes about 8 weeks - in a perfect world - to get a tenant who hasn't paid rent, out of a rental) and provided the requirement for up to 90 days notice to remove holdover tenants, based on the time they've lived in a residence. Each of the aforementioned topics could easily support hours and hours of commentary and analysis, so you can imagine the effect it had on those of us (including all of the courts, process servers, legal aid & attorneys) who were caught by complete surprise and had countless cases upended when NY took away the minuscule amount of leverage landlords had. Well, they're at it again.
This year, another 'landmark' piece of legislation currently in committee of the NYS Senate is moving its way through the lawmaking process. If you are not familiar with the term, 'good cause' or 'just cause' eviction, it basically means that landlords, in order to remove a tenant, must have what the state deems as a justifiable reason to do so. Herein lies the rub... This law aims to remove reasons like, expired leases, absence of leases and refusal of lease renewal terms as reasons for asking tenants to move out. Furthermore, the law defines the rules for raising rent to include a cap of between 1.5% - 3% per year. In a nutshell, conceivably, a tenant would never have to leave unless you could prove in court that they were constituting or causing some incurable situation. This simply does not happen in upstate NY eviction courts. There are practically, only two types of evictions: Non-Payment and Holdover. Nonpayment was made terribly more difficult (and costly) by the Tenant Protection Act and Holdovers will go away if this bill becomes a law.
For those of us who are scaling our real estate businesses this law poses several new problems. I'll state just the top few that come to mind and pertain to my business but I'm happy to hear additional feedback and other perspectives.
- Inherited Tenants - I rarely purchase vacant multi-family buildings. SFRs sure, but usually not MFRs. As a fellow investor reminded me, "We call them 'Income Properties' because they are producing income!" If this bill passes, purchasing inhabited buildings will now be MUCH riskier than it used to be. I have bought turn-key investments thinking that the deal was sweeter because of the "good tenants" and been burned for it. After a while, I was able to look past the tenancy to the potential of the properties. With Good Cause Eviction, investors will now need to consider these inherited tenants, and the rent they pay, much more carefully.
- Property Improvements - Here's the bottom line, if investors cannot raise rents to account for capital expenditures on property improvement, the likelihood that they will make improvements decreases. If there is no "R" in ROI, then there can be no Investment. Let's face it, this is a lot of fun, but that's not why we invest. In the end, if landlords cannot improve property and rents are capped at 1.5%-3% per year, it's really the tenants who suffer.
- Rental Markets - I haven't thought this all the way through yet, but in order to mitigate my own personal risk, the first thing that occurred to me was that I should renovate my units to the nines, jack the rents and aim for higher 'quality' tenants. I.e., people with more money. Serving mostly low income (Broome County NY, Binghamton, Johnson City, Endicott) my business currently deals mostly with working, low-income individuals, couples and families. Our goal is to provide happy homes and my staff and I really enjoy the tenant base. There's an immense amount of intrinsic satisfaction that comes along with providing hardworking people, great apartments; apartments that are better than what the market says their money should buy (if I may be so bold as to assert that...)
I could go on with other examples but I'd rather hear what the fellow investors in New York think. I'd also urge everyone who does not agree with this idea that tenants should tell landlords what they can do with their property, to oppose this legislation and vote Nay!
https://www.nysenate.gov/legislation/bills/2019/S2892?fbclid=IwAR1Jm7r1gyFhF_TE6nQZMld3wo3HNro46DCX5xux4dTW-dtpkF2faOs8Kws&intent=oppose
Regards,
Dave