Author Topic: Anyone reconsidering CA landlording?  (Read 2983 times)

Villanelle

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Anyone reconsidering CA landlording?
« on: December 29, 2019, 03:14:11 PM »
Looks like CA just passed a law limiting rent increases to 5% per year, plus inflation.

Anyone either reconsidering landlording there?

I doubt we will sell, but it will make me more assertive with annual increases because if I don't do it each year, I lose the ability to add that year's increase ever again.  I can't do no increase this year and then 10% next year to make up for it (if the market would allow that).  We are very happy with our current tenant and were very conservative on the increase last year ($25 or $50 last year on $2900) but when the lease is up in a few months, I'll feel compelled to push for the absolute max we can get.

I'm also assuming, but could be wrong, that this applies both to increases for the same tenant when his lease is up, as well as to increases if our tenant chooses to move out for reasons unrelated to rent increases and you are shopping the property for new occupants, but I need to find the language and confirm that. 

affordablehousing

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Re: Anyone reconsidering CA landlording?
« Reply #1 on: December 31, 2019, 09:51:26 AM »
We are in a similar position. Not sure the rules on this but we are contemplating papering the lease renewal with the increase, then giving our tenant a discount based on some upkeep tasks. That way we preserve the right to keep pace with market, yet do what we can to retain a good tenant. I wouldn't want to lose someone we like over $500 a year. Food for thought. Curious if someone else looked at it this way and determined that's not possible. We're coming close to the lease roll timing on one unit.

Another Reader

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Re: Anyone reconsidering CA landlording?
« Reply #2 on: December 31, 2019, 10:29:36 AM »
The rent control law, AB 1482, does not apply to single family homes or condos, unless they are owned by a corporation or REIT.  Properties less than 15 years old are also exempted.  It's not clear to me whether the changes in eviction standards apply to exempted properties, based on what I have read.  However, you can still evict for the usual reasons ("cause"), such as non-payment of rent, under the new law.

ETA:  https://caanet.org/newsom-signs-ab1482/

Another Reader

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Re: Anyone reconsidering CA landlording?
« Reply #3 on: December 31, 2019, 10:32:44 AM »
Looks like CA just passed a law limiting rent increases to 5% per year, plus inflation.

Anyone either reconsidering landlording there?

I doubt we will sell, but it will make me more assertive with annual increases because if I don't do it each year, I lose the ability to add that year's increase ever again.  I can't do no increase this year and then 10% next year to make up for it (if the market would allow that).  We are very happy with our current tenant and were very conservative on the increase last year ($25 or $50 last year on $2900) but when the lease is up in a few months, I'll feel compelled to push for the absolute max we can get.

I'm also assuming, but could be wrong, that this applies both to increases for the same tenant when his lease is up, as well as to increases if our tenant chooses to move out for reasons unrelated to rent increases and you are shopping the property for new occupants, but I need to find the language and confirm that.

You can raise the rent to market for new tenants.  See the article: https://caanet.org/newsom-signs-ab1482/

Villanelle

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Re: Anyone reconsidering CA landlording?
« Reply #4 on: December 31, 2019, 01:00:23 PM »
The rent control law, AB 1482, does not apply to single family homes or condos, unless they are owned by a corporation or REIT.  Properties less than 15 years old are also exempted.  It's not clear to me whether the changes in eviction standards apply to exempted properties, based on what I have read.  However, you can still evict for the usual reasons ("cause"), such as non-payment of rent, under the new law.

ETA:  https://caanet.org/newsom-signs-ab1482/

We have a townhouse, which is neither a SFH or a condo.  I haven't been able to determine whether the law applies.  It would seem silly to exempt condos and SFHs but not townhouses, but stranger things have happened.

Good news about raising to market for new tenants.  I had assumed that was the case given the change to eviction rules, but good to see it confirmed. 

affordablehousing

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Re: Anyone reconsidering CA landlording?
« Reply #5 on: December 31, 2019, 05:08:30 PM »
A townhouse is a SFH. condos refer to fractional ownership situations. Log cabins are also SFH, just made out of logs;)

Check if there are any local restrictions on rent raises for new tenants. I think like in most things, just be good to people and reasonable and try to avoid needing to know much about the laws, like building codes and permitting, they just come into play when people get cranky.

Another Reader

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Re: Anyone reconsidering CA landlording?
« Reply #6 on: December 31, 2019, 05:50:17 PM »
A townhouse is a SFH. condos refer to fractional ownership situations. Log cabins are also SFH, just made out of logs;)

Check if there are any local restrictions on rent raises for new tenants. I think like in most things, just be good to people and reasonable and try to avoid needing to know much about the laws, like building codes and permitting, they just come into play when people get cranky.

Condominium refers to a form of ownership.  Most townhouses in California are condominiums.

FINate

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Re: Anyone reconsidering CA landlording?
« Reply #7 on: December 31, 2019, 05:59:15 PM »
We got out of the landlording business in CA when a local draconian rent control law was proposed ~18 months ago. In the end it failed, however, our city council continues to attempt to pass it piecemeal.

Frankly, I'm glad to be done with landlording. Pain in the ass, and one set of tenants was particularly hard on the unit. Getting any kind of construction done around here in Coastal CA costs an arm and a leg and takes forever. The good news is that we ended up selling RE when, for whatever reason, the market here was super strong. House was sold in 10 days, ~10% over asking.

We're counting down the months until we sell our primary residence and relocate out of this crazy state. Statewide rent control is not the reason we're moving, something we've been planning for 2 years, but it's further affirmation of our decision to invest our time and treasure elsewhere. It's a symptom of a larger problem. At the state and local level California has done pretty much everything in its power to engineer a housing shortage, and now that the bill has come due we are so blinded by no-growth ideology that the proposed solution, rent control, will make the problem much worse.

At present the caps are relatively reasonable (5% + CPI), but you can be sure this will get ratcheted down as landlords increasingly get out of the business. Apartments will be converted to condos, or sold off individually to owners via TIC arrangements. Seems likely that it will also get expanded to SFHs and Condos over time as well. No place is perfect, but California has absolutely terrible instincts about such things.
« Last Edit: December 31, 2019, 06:02:45 PM by FINate »

Bloop Bloop

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Re: Anyone reconsidering CA landlording?
« Reply #8 on: January 01, 2020, 12:16:01 AM »
I'm sure there are ways around it, but as a landlord in a jurisdiction which recently banned rental bidding and generally is trying to make life hard for landlords, you have my sympathies.

I wish people had as much compassion for landlords as they did for tenants. The one-sidedness of the situation is rather sad.

Wrenchturner

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Re: Anyone reconsidering CA landlording?
« Reply #9 on: January 01, 2020, 12:50:51 AM »
I wish people had as much compassion for landlords as they did for tenants.
I don't think they will.  Tenants are looking for a residence, landlords are looking for investment return.  Seems like the dynamic will remain in the favor of people looking for a residence, but something resembling a balance will be sought by regulators.

Bloop Bloop

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Re: Anyone reconsidering CA landlording?
« Reply #10 on: January 01, 2020, 01:13:55 AM »
Yeah, I agree with you. Huge shame though - that people are so emotive and incapable of taking an impassive view of a transaction which benefits all involved.

electriceagle

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Re: Anyone reconsidering CA landlording?
« Reply #11 on: January 02, 2020, 07:38:11 AM »
At present the caps are relatively reasonable (5% + CPI), but you can be sure this will get ratcheted down as landlords increasingly get out of the business. Apartments will be converted to condos, or sold off individually to owners via TIC arrangements. Seems likely that it will also get expanded to SFHs and Condos over time as well. No place is perfect, but California has absolutely terrible instincts about such things.

Consider the history of rent control in San Francisco:

1979: Rent control created with 7% annual max rent increase and excludes 2-4 unit buildings
1992: Max rent increase reduced to 60% of inflation
1994: Rent control extended to 2-4 unit buildings
1998: Limits to owner move-ins
2000: Limits to owner ability to pass capital improvement costs on to tenants
2014: Agreements to pay tenants to leave regulated
2015: Landlords required to allow tenants to increase number of residents to max allowed by health code

Thus far, the solution to rising rents has been to do rent control harder.

rothwem

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Re: Anyone reconsidering CA landlording?
« Reply #12 on: January 03, 2020, 12:05:04 PM »
Yeah, I agree with you. Huge shame though - that people are so emotive and incapable of taking an impassive view of a transaction which benefits all involved.

Its surprising that people are emotional about having a place to live?
 
With that said, I think there does need to be some education about rent control.  It makes things worse for everyone, renters included, but there's a perception that its removal only benefits the fat cats. 

Dicey

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Re: Anyone reconsidering CA landlording?
« Reply #13 on: January 03, 2020, 10:58:28 PM »
5% plus CPI every single year doesn't seem particularly onerous to me. We're CA landlords, but our properties are all SFH's. We have no plans to get out.

PGSD

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Re: Anyone reconsidering CA landlording?
« Reply #14 on: January 07, 2020, 04:28:57 PM »
5% plus CPI every single year doesn't seem particularly onerous to me. We're CA landlords, but our properties are all SFH's. We have no plans to get out.

I'm also a SFH CA landlord and agree with the above.

It appears the law doesn't apply to SFH's but, even if it did, 5%+CPI rent increases in SoCal would almost certainly be a recipe for losing tenants, thus increasing vacancy rates, yearly.   

iris lily

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Re: Anyone reconsidering CA landlording?
« Reply #15 on: January 07, 2020, 05:04:30 PM »
I had an interaction this week with a California refugee, fleeing no-where-to-rent land because her disability check was just enough to push her over the edge into low-middle income housing and there was none. There was only low-income housing.

She gave me quite an earful about the evilness of landlords who charge a “market rate” (yes she used that term) when people can’t afford that! When I pointed  out that “market rate” was in fact an amount  a landlord could get because people paid it, she stated it was an unfair amount. Homes are a basic right. And etc.

She is a very nice woman but you people in California created this. Here in flyover country I would rather do without that attitude, and I am not even a landlord. You get what you sow.

PGSD

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Re: Anyone reconsidering CA landlording?
« Reply #16 on: January 07, 2020, 05:36:01 PM »
Yes, CA is definitely the land of fruits and nuts :). We ARE a sharing state and, since we have WAY too many crazies here, we're happy to share our "special" people with the rest of the country. Don't worry, there are more than enough to go around.

You're welcome :)


Villanelle

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Re: Anyone reconsidering CA landlording?
« Reply #17 on: January 07, 2020, 06:06:03 PM »
5% plus CPI every single year doesn't seem particularly onerous to me. We're CA landlords, but our properties are all SFH's. We have no plans to get out.

I'm also a SFH CA landlord and agree with the above.

It appears the law doesn't apply to SFH's but, even if it did, 5%+CPI rent increases in SoCal would almost certainly be a recipe for losing tenants, thus increasing vacancy rates, yearly.   

To me, what it means is that (if this applied to my townhouse) I am going to be much more aggressive with annual increases.  I can't skip this year to keep a great tenant and then add 10% next year.  Because of the compounding, if you forgo some of one year's increase, it is gone forever (and that amount will compound because percentages are involved).   So I can see why this would actually drive annual increases up. 

Dicey

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Re: Anyone reconsidering CA landlording?
« Reply #18 on: January 07, 2020, 06:46:50 PM »
5% plus CPI every single year doesn't seem particularly onerous to me. We're CA landlords, but our properties are all SFH's. We have no plans to get out.

I'm also a SFH CA landlord and agree with the above.

It appears the law doesn't apply to SFH's but, even if it did, 5%+CPI rent increases in SoCal would almost certainly be a recipe for losing tenants, thus increasing vacancy rates, yearly.   

To me, what it means is that (if this applied to my townhouse) I am going to be much more aggressive with annual increases.  I can't skip this year to keep a great tenant and then add 10% next year.  Because of the compounding, if you forgo some of one year's increase, it is gone forever (and that amount will compound because percentages are involved).   So I can see why this would actually drive annual increases up.
I agree to a point. The market's ultimately going to dictate how much rents can go up.

FINate

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Re: Anyone reconsidering CA landlording?
« Reply #19 on: January 07, 2020, 08:54:46 PM »
I agree to a point. The market's ultimately going to dictate how much rents can go up.

True. The market sets prices, landlords and tenants merely discover these. That said, many mom-and-pop landlords are slow to raise rents for good tenants, preferring to charge below market rate and wait until filling vacancies before resetting to market. This is a case of "no good deed goes unpunished" as small landlords with below market units are the most impacted. I would expect most of these landlords to max allowed increases (~7%) YoY until they hit market rates.

Also, rent control in AB 1482 does not apply to SFH owned by individuals (vs corporations) or newer buildings. Anyone with a non rent controlled building currently below market rate will immediately increase rents. No one wants to get trapped with a under performing asset if the state decides to later expand the scope.

FIRE47

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Re: Anyone reconsidering CA landlording?
« Reply #20 on: January 09, 2020, 07:27:43 PM »
This seems downright generous, where I live it is limited to CPI - there is no +5%.

Bloop Bloop

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Re: Anyone reconsidering CA landlording?
« Reply #21 on: January 09, 2020, 07:44:54 PM »
Wow. What's the point of investing in something if you're bound to CPI returns? Might as well leave it in a term deposit.

Villanelle

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Re: Anyone reconsidering CA landlording?
« Reply #22 on: January 10, 2020, 12:29:38 PM »
Wow. What's the point of investing in something if you're bound to CPI returns? Might as well leave it in a term deposit.

Generally it's not *quite* that dire as you can increase rent when you change out tenants.  But yes, it's a real problem, and that's exactly why rent control often ends up making housing less affordable, even though that's the problem it is supposed to address.  Landlords leave the business (which is likely why this law has the exemption for SFHs--they know the huge apartment companies are less likely to exit though sometimes they do just convert to condos and sell--and they want to keep people like me in the rental game).  Rents are cranked way up in between tenants because they need to account for the inability to increase them for a while.  And suddenly it's even more difficult for those at the lower end of the market to find and afford places to rent.