The Future of Rental Investments in California

This last year has seen the onslaught of numerous laws which will have a huge impact on residential income property ownership. These include the following:

  • Cap on rent increases
  • Restrictions on notices to move
  • Inability to evict for non-payment of rent
  • Restrictions on ability to collect past due rent
  • Recent court rulings that make Arbitration Agreements unenforceable
  • Recent court rulings that makes the waiving of jury trials unenforceable

All of these restrictions are major. Rent caps, restrictions of notices to move along with recent court ruling are probably here to stay post Covid.

Will these new laws affect the value of rental property? They may not. The other side of the coin is the same lawmakers that place these restrictions on owners also restrict new construction. So, with the limitation of new housing comes the limited supply of housing which increases the value of existing housing…supply and demand.

However, the impact of these new laws makes ownership much more complicated and time-consuming and subjects owners to lawsuits when alleged violations of laws occur. With so many new complications it will be very difficult for an owner to stay current and abide by all the new regulations. This may force many owners who wish to manage their own properties to think twice about continuing to do so.

With all the new rules and regulation comes the threat of legal action. Think about this. A person without much of a case who decides to sue you and represent themselves and asks for a jury trial can force an owner to pay legal fees in the tens of thousands of dollars. And, if they get a judgement from a sympathetic jury it can cost much more. If you win the case your ability to collect attorney fees (if there is an attorney fee provision) is very limited. In practice I suspect your ability to get reimbursed for attorney fees will be severely limited.

The above describes some of the problems we’re facing today. What else can they come up with? More of the same? Wealth taxes? Higher taxes on rental income? City fees on property owners?

I hate to be so pessimistic but all of this was really foreseeable. I warned my owner/clients of the probability of rent control in Long Beach years ago. Long Beach was the lone holdout among major California Cities without some form of rent control and other related restrictions.

So, if you want to stick it out in the rental business you better have lots of insurance, a “thick skin” and the patience to deal with government bureaucracies.

In a future blog I will discuss some of the benefits of owning rental houses and how this investment avoids some of the issues with apartments.

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