While landlords across the US have been enjoying increasing rents and property appreciation as result of the recent real estate boom, a growing national rent control movement is causing many landlords to rethink holding on to properties in impacted areas. Landlords in California are growing especially nervous as momentum is building to repeal the Costa-Hawkins Act which prohibits rent control from many classes of rental properties. Today the Act provides the following landlord protections:
- It upholds a landlord’s right to increase rents to market rate at the time a tenant vacates.
- It forbids local governments from either instituting rent control or freezing rents on rental properties built after February 1995.
- It exempts all single-family and condo rental properties from rent control restrictions.
Currently, 15 California cities have rent control policies including San Jose, Mountain View, San Francisco, Oakland, Campbell, Los Gatos, Los Angeles, and San Diego among others. First Guardian Group is working with a growing number of older landlords who are concluding that it is now time to sell their appreciated properties and reposition their accumulated equity in more landlord friendly areas across the US. Increasingly, rent control is becoming the final straw that is motivating landlords across the state to put their rental properties on the market and seek better, hassle free income options.
Proposition 10, which is on the November ballot and has been endorsed by the California Democratic Party, provides an opportunity for rent control advocates to allow local governments throughout the state to broadly adopt rent control measures that may significantly impact the economics of owning rental properties. According to the East Bay Rental Housing Association, passage of Proposition 10:
Allows Regulation of Single Family Homes
- Local governments will be permitted to dictate pricing for privately owned single-family homes and condo rental properties controlling how much landlords can charge for their units – including even just a room.
- Landlords may be subject to fees for taking their homes off the rental market – even when they go to sell their home.
- Allows local bureaucrats to control property rents and empowers them to potentially charge additional fees to landlords.
- Puts as many as 539 rental boards in charge of housing and gives government agencies unlimited power to add fees on housing that will be passed on to tenants in the form of higher rents -making homes and apartments even more expensive.
Puts Taxpayers at Risk for Millions in Legal Costs
- Requires California taxpayers to pay the proponents of the initiative’s legal bills.
if homeowners, tenants or voters challenge the law in court.
- Even if the proponents lose in court, taxpayers will still be on the hook to pay their legal hills.
Adds Tens of Millions in New Costs to Local Governments
- The state’s non-partisan legislative analyst says the measure could increase costs for local governments by tens of millions of dollars annually and cost the state millions in lost revenue, which could mean diverting funds from other vital state services.
Drives Up the Cost of Existing Housing
- New government fees and regulations will give homeowners a huge financial incentive to convert rental properties into more profitable uses like short-term vacation rentals – increasing the cost of existing housing and making it even harder for renters to find an affordable place to live.
- In addition to limitations that may be imposed if Proposition 10 passes, a growing number of communities are enacting further measures to provide relocation assistance to tenants in so-called “no fault” evictions. Costs to landlords can range up to several months of rent that must be given to evicted tenants in addition to forcing landlords to be proactive in finding new housing options for their tenants.
First Guardian Group is pleased to provide solutions to rental property owners who are growing tired of the increased hassles and costs associated with owning California properties. Fortunately there are many attractive locations across the US that remain landlord friendly while providing affordable housing options for their residents. Properties structured as a Delaware Statutory Trust (DST) offered by First Guardian Group can provide stable, hassle free net income ranging from to 5% to 7% plus appreciation.
First Guardian Group can assist frustrated income property owners to convert and redeploy their appreciated equity into fully managed properties that can yield potentially higher income.
If you are getting fed up with rent control (or other issues), please contact us to explore your options at 1 866 398-1031.
This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal.
Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of LightPath Capital, Inc. Member FINRA / SIPC. FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities.
DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.