The mere notion of rent control is a foreign concept to many. Some investors shy away from investing in Bay Area real estate as a result. Their fears over rent control, even if real, can lead to missed opportunities.
Here are a few things investors should be aware of as they weigh the decision to buy rent controlled versus non-rent controlled properties. Most importantly, the law exempts units built after from rent control. A number of cities have set even earlier cut off dates: properties built after October are exempt in Los Angeles; properties built after June are exempt in San Francisco; and properties built after January are exempt in Oakland.
Other cities have chosen not to adopt rent control policies at all. Among those with rent control ordinances, most establish eviction restrictions, and limit rent increases , but allow landlords to charge fair market rents when a unit turns and a new lease is signed.
In the Bay Area and Los Angeles, the rate of inflation is historically much lower than increases in market rents, so tenants with a long tenure pay substantially below-market rents. This all seems awfully complex, no? Given the variation from city to city, and limits on rental increases, why would any investor consider buying rent controlled property? In fact, rent controlled properties have four distinct advantages:. In a non-rent controlled market, owners want as little turnover as possible.
Turnover equates to higher expenses. The opposite is true in a rent-controlled market, where regular turnover is considered a good thing because it allows the landlord to bring rents back to fair market value. The trick is predicting when people will move out. The question becomes: how much risk are you willing to take? We totally get it. There are certainly risks to consider before pulling the trigger. A little due diligence can go a long way, and as many of our property owners have found, can lead to tremendous upside in the long-run.
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Case Studies. Chapel Hill. Colorado Springs. Elk Grove. Featured Article. Green Valley. Investing Podcast. Investing in Rental Properties. Lake Oswego. One way landlords deal with lost income from rent-controlled apartments is to convert those units into market-rate condos , taking them out of the rental market entirely. Disincentivizes new rental development. Land developers are more likely to build condos than apartments if some or all of the units in the apartment building would be subject to rent control.
Higher rents overall. When landlords make less profit from rent-controlled units, they compensate by raising the rents on their market-rate units. This artificially increases the going rate for housing units, negatively impacting market-rater renters. Rent control is so controversial that 37 states actually prohibit rent control laws.
In California and Oregon, the rent control laws apply to the whole state, while in the other areas, rent regulation is in place only in specific cities.
Washington, D. Even in the handful of cities where they exist, rent controlled apartments are hard to find because renters tend to stay put in them. The push and pull of landlord versus tenant is an ongoing struggle in any city with more aspiring renters than there are places to live. Rent control may not be a perfect solution, but it does favor renters who are able to find those rare regulated units.
If you understand the system, you can use rent control to your advantage to help you find and keep an apartment in an expensive city. Rent controlled apartments are often hard to come by. Wifi, utilities, and monthly cleaning are set up before you move in, and all roommates are vetted, so that coliving is seamless. Find a Bungalow near you. Move-in ready homes and a built-in community so you can feel at home, together—wherever you are. Find a home. Aug 26th, View more articles.
Table of contents What is rent control? How does rent control work? Who determines rent increases? Renter protections New construction Arguments for and against rent control Where can you find rent controlled apartments?
What is rent control? These are a few of the reasons why: Poor housing conditions. The majority-conservative bench, landlords believe, might sympathize with real estate. O ne such decision came down in Cedar Point Nursery v. In the June ruling, the Supreme Court held that a California law allowing union organizers regular access to farms to recruit workers without the consent of property owners resulted in an unconstitutional taking of property in violation of the Fifth Amendment.
R eaching the Supreme Court, however, could be a long shot. The court only agrees to hear about to of the over 7, cases put before it each year — about 1.
A ny revision to the law by the state legislature is equally unlikely next session. Democrats control the governorship and hold supermajorities in both houses of the legislature. To flip the state Senate, Republicans would need to gain 12 seats in the election. Owners do have an opportunity to make some money in the near term, though. I tkowitz, whose firm provides rent-stabilization and regulatory due diligence for multifamily properties, said she has recently seen an influx of younger buyers looking to pick up stabilized buildings at a discount.
More often than not, a stabilized property will be steeped in both. An owner may have put off repairs in the wake of the rent-hike caps for improvements, for example, prompting the tenants to sue and channel their rent payments into an escrow account. The owner is left further behind on rent, still unable to afford repairs and with legal fees to boot — a vicious, expensive cycle. T o break it, Itkowitz advises incoming owners to first clean up the building.
I n a case she recently took on — an eight-unit building in Brooklyn — the new owners followed her advice and fixed up the property. Rent started rolling in and all but a few cases were dropped, she said.
The tenants argued they should be paying a stabilized rent; their landlord had been charging them market rate. On the other three, she felt she had a good chance of showing they should fetch market rate.
S till, owners who get in at a reasonable price can have a viable business, she said, provided they run their buildings efficiently and are aboveboard about which units are deregulated and which are not. V acancies surged in the city during the pandemic, but they are now moving back toward pre-Covid levels. In August, Manhattan rentals had a 3. The survey, however, does not account for warehousing — vacant units kept unlisted in an attempt to spur demand or because rent hikes no longer cover needed renovations.
T he window to hike rents on stabilized units could be closing, though. A bill introduced by state Sen. I tkowitz said she had heard the bill could pass as early as January, when state legislators go back into session. The Real Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.
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