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on today's meet Kevin Report we're talking about rent control at yes I'm coming to you from Austin Texas because our next in-person real estate investing crash course is here in Austin Texas on Saturday September 14th next stops by the way are going to be Miami a San Francisco Charlotte and Vegas can't wait to see you there but for now let's talk about what California just passed in terms of rent control and what you could learn no matter where you are a landlord an aspiring landlord and real estate investor or you're a tenant and want to know if this is good or bad for you hint I think it's bad for tenants so what just happened well California passed Assembly Bill 1482 which mandates state a wide a rent control you'll be able to extract some lessons from this no matter what state you're in or country for that matter so what exactly is statewide rent control well basically unless you already have rent control you now have a rent control and the basics of the law are this you can no longer raise the rent on a tenant more than five percent per year plus the cost of inflation so if inflation is 2 percent that means you could no longer raise rent more than 7 percent off whatever you had agreed upon previously now there's a cap at 10 percent the second part of the law is you can no longer terminate a tenant without cause see it used to be that if you didn't want rental property more you didn't want a 10 anymore you wanted to sell real estate all you had to do was wait until the lease expired and you generally gave your tenant a 30 or 60 day notice to move and they're out of there then you could go sell your vacant real estate that is of course if you wanted to sell the property vacant for most single-family houses and condos it makes sense to sell those vacant they tend to get higher values multi-family usually want to keep your tenants in place anyway but there's some important considerations for multi-family as well so in terms of termination though here's how the new law works if you want to get a tenant out you either get a tenant out through cos or without cause means the tenant failed some kind of obligation they didn't pay rent or they didn't follow the rules of the contract now even if the tenant breaks a rule it doesn't automatically mean six months later you get to kick him out and you don't have to follow the new rules if a tenant breaks a rule of the contract I believe and check with your attorney and your real estate advisers and I believe you have to give them a three day notice to basically cure or quit immediately otherwise you kind of lose that default right so for tenants this is going to mean it's very important to keep an eye on every term of your contract and make sure you're following all of the specific terms so you don't lose your new protections which we're going to talk about if those are good or bad in just a moment so so far we have two parts to this new rule we have a cap on how much rent can go up every single year and you can only end a lease if you have cause that is the tenant default it and you took action to follow up on that cause this is gonna be a big shift because a common thing landlords like to do especially in multifamily real estate is they'll buy a multi-family deal a wedge deal kind of like what how to buy wedge deals in single-family and how to buy wedge deals in multifamily completely different strategies by the way which by the way two things a it's really hot here it's like 8:40 a.m.
and I'm already sweating all over and B yes we are going to do a new course a coupon code this is going to apply to everything on the link below it's going to be coupon code rent control lol the price is going to be a little bit higher than what the price previously was obviously to reward all of the people who already bought in but the difference isn't that big so I still want to see you there use coupon code rent control lol for 22% office so now let's talk about the practicality of a little bit you buy a place that has a rent-controlled unit you want to renovate it you want to raise the rents what do you do how do you get a tenant out well if a lease ends that is it gets to the end of its 12-month period and then it turns over automatically into a month-to-month rental agreement which is normal that's how it works at least in California you do have the option to terminate the tenants lease without cause without cause means the tenant didn't do anything wrong instead you want to move into it to make it your primary residence you want to remodel it you want to take it off the rental market for whatever reason you want the tenant out well in that case you now have to compensate the tenant the equivalent of one month's rent or let them stay there last month for free so so far this is actually not that bad remember we have this 5% cap plus inflation that rent can go up and then worst case if you want to get a tenant out without cause you're paying one month's rent as a landlord to the tenant to sort of assist them in their relocation but what are the actual implications here that is is this actually good for tenants or is this bad for tenants and how should landlords protect themselves well let's answer that right now first things first let's talk about what this solves well this solves what was commonly done especially in expensive areas like the Bay Area you see this happen in New York basically what people would do is they would get tenants in that sort of these teaser rents and then they would basically prey on the tenants assuming they're not gonna want to move and hit them with very large rent increases for example you might have a $3,000 rent for you know an apartment in San Francisco and you rent it for $3,000 you live there for a year you're a great tenant you pay it on time and everything all of a sudden you get hit with like a $600 rent increase that's like 20% which is insane yet landlords were able to get away with that because it was pretty much common practice and then the tenants were would basically be sandwiched into this position of oh I don't want to move that would actually make cap rates look pretty dang frickin awesome for some investment properties because all of a sudden landlords we're getting these significantly higher rents sometimes higher than market value that now is going to go away and that sounds great so far we've heard a lot of good things for tenants then basically hey more cost of doing business for landlords landlords can't raise the rent as much anymore there's no more this bait-and-switch stuff which is actually honestly a good thing and if you want to get a tenant out without cause you're one month's rent but what does this mean as a landlord how do you protect yourself as a landlord now and does this actually hurt tenants well the way I'm going to tell you to protect yourself as a landlord is pretty much what all landlords should be doing with this new rent control rule and it ain't gonna be good for tenants in the real estate investing course I've always taught that you should raise the rent every single year well unfortunately there are a lot of landlords oh that's gross there's a dead rat right there anyway my rule is you raise the rent every single time the lease comes up for renewal well now with the new state mandated rent control guess what landlords absolutely have to do they have to raise the rent no exception every single year for one reason only if they want to preserve the market value of their property they need to keep up with the rent here's an example let's say somebody rents a place out for $2,000 and then they don't raise the rent for 10 years and now the market value rent of that place is I don't know $3,500 now they want to go to sell the property guess what the new buyer can only raise the rent 5% plus inflation on the 11th year which means now maybe they're only going up let's say $125 now they've got a place that's renting for 2150 instead of the $3500 it should be renting for now you should immediately be thinking about what's the solution well the solution is you get them out without cause you pay that tenant one month's rent you get them out you rent it from market value right but here's the problem let's say you're a multi-family property owner now you have 10 in these units that's ten months of rent that's somebody either the buyer or the seller has to pay - all the tenants to get them out and get these or rents back to market value and you can't just adjust the tenants rent either they have to move so now you have a vacancy and you have to get a new tenant at least that's my understanding of the law and keep in mind I'm just some dude on YouTube so make sure to fact check all this stuff but linked in the description below you'll actually find the PDF of the most recent version of the law so you're welcome to a read above there so what's the first and biggest implication well the first thing is landlords every single year should be raising of the rent I think gone are the days of landlords no longer raising the rent because they're going to want to preserve their market value and not run into these one month rent donations at the end because they're trying to sell a property for market value so just to make that very clear I think gone are the days of no rent increase this year now people subject to rent control are going to want to raise the rent a good amount every single year in fact there might even be a second problem the temptation to raise the rent more because of rent control see here's an example if I have a really good tenant and I'm renting a place out for let's say twenty five hundred dollars I might raise the rent one percent like twenty five dollars I always raise it a little bit but I just want it to be small enough to where I know they're not going to want to move and hey I get a little bit more money and the market value goes up and really we're just adjusting for the cost of inflation anyway so the impact is super small well now I look at this and say well if I'm gonna be limited to five percent on some of these units maybe I want to start raising the rent three four or five percent to make sure I'm not falling behind on potential market value that's gonna be a second problem for tenants so first one is always getting the rent increase second problem possibly getting higher rent increases to make sure the landlords aren't falling behind you want to stay ahead of that curve and remember that's all because you want to preserve the resale ability of that property that market value now what's the next implication while landlords I highly suggest much more stringent rental contracts that is if previously you were thinking hey you know what I'll include the landscaping so I make sure it gets done correctly well this might be your temptation to say guess what tenants you folks in the new lease contract are responsible for the landscaping so that way if they screw it up you have reasons to give the tenants a three day notice to cure or quit it gives you an out potentially now be careful with this but I personally believe the third problem for tenants as tenants are going to see a lot more tenant required maintenance built into their contracts because that gives owners more options if they decide you know what you're just not keeping up on your obligations you're out with cause because you fail to maintain this that or whatever now a fourth potential problem for tenants and I mean this might be more theoretical but honestly I think tenants that especially tenants who lock in potentially lower rents under the protection of rent control I think they're gonna be disincentivized from buying real estate and I think that's actually going to keep them in this trap for a longer time that is everyone who's renting watching this video should be thinking to themselves what is my game plan for replacing my landlord so I can finally build well that's one of the strategies we teach in the investing course is how to go from zero to a million and then obviously I show you how to go from a million to beyond that now this has been pretty commonly researched and studied there is a ton of research on this but the fifth problem is that a type of rent control tends to actually increase rental prices and it kind of makes sense because if people can lock in higher initial rental prices the landlords are less concerned with the impacts of rent control so there's actually an incentive for landlords to renovate properties more to lock in higher market rents and then that way tenants are stuck with higher market rents so the exception to rent control that just passed in California is single-family houses and condos that are not owned by institutional investors so if like Blackrock owns thousands of houses they're subject to rent control but if a regular owners own single-family houses or condos that do not have any other rentable property on the same lot they are exempt from this rent control of rule so in other words pretty much any regular a family that owns a real estate and obviously check with your attorney and your real estate advisers but pretty much any regular family that's looking for those wedge deals so single-family houses those condos anybody looking for an opportunity in that space they're not even subject to this new rent control rule all this does is increase the complexity of either duplexes triplex is for plexes multifamily on a larger scale institution Lyonne properties it's going to increase the cost of business for any kind of real estate fund or real estate investment trusts and ultimately it might create some opportunities for buyers of edge deals why because if people already have lower locked-in rents on smaller multifamily properties the sellers might not be willing to deal with kicking the tender now paying that last month rent replacing the tenant and then finding a new one to sell the property for a market value so there might be some more opportunities to buy Wedge multifamily real estate because of rent control so it's taking away some wealth from sellers and giving it to buyers but again as far as that single-family space wedge deals will continue these extra complexities won't even apply which is shocking but hey whatever but really to me this new rent control law in California is just another classic example of lawmakers not understanding the practicality of owning real estate that is I think savvy landlords are going to stay up on rent increases they're going to start rent prices out higher and they're going to increase maintenance terms to make sure they leave options for them to potentially kick out tenants I'll obviously verify this read the link in the description below so you could read the rent control allow yourself bout the course always feel free to email me at Kevin and me Kevin calm thanks so much have a great day you
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