Prop 10–raise rent in anticipation?

Question

I own a condo in Oakland that I rent out; I have a long-term tenant paying rent a good deal below market. i was going to give her notIce of a 5% increase.

However, prop 10 has me worried about vacancy control. Should I do a significant bump to align the rent more with market before the city drops the hammer? I don’t want to because my tenant is older (and a single person in my unit, so a pretty low maintenance tenant)—and I’m not sure she can afford it, but I don’t want to be screwed  when she leaves.

Thoughts on how Prop 10 will play out?

Thanks!

Arlen Chou · Answer

@Kelly A. prop 10 is so bad on so many fronts for landlords and future tenants that I cannot even comprehend all of the ramifications.

First you need to consider if you are an investor or part of the social support system.  I own properties in Oakland and I have been in court with the City of Oakland regarding Costa Hawkins. I fought it for 3 years through RAP, Alameda County Court and eventually to the CA State Court of Appeals. I won both at county and at the state level.  I never expected to win at the local RAP level.

People should expect a wave of rent increases coming up. If you get locked in under the market rents it will not only create a legacy of low returns for you, but it will also be an issue for future buyers.

100% you will not be able to do step type of rent increase to market, RAP just won't allow it.

I understand your concerns about your tenant and that is something that you have to personally consider.  The worst part of prop 10 is that it is creating this exact scenario.  There are many landlords out there that would probably never raise rents, but now faced with the possibility of losing the option will probably make the decision to make the jump.  This will then hurt low income tents and potentially flood the system with more evictions.  This proposition is creating enemies where none existed before...

Vote no on 10 and tell everybody you know to vote no.

Account Closed · Answer

@Kelly A. I suggest you stick the 60 day notice of rent increase on her door TODAY. You want it to be active by 11/1, as it is very likely that Oakland will "roll back" rent increases that don't comply with the future RAP rules for anything prior to the date Prop 10 passes (Oakland will definitely add condos and SFRs to the list of rent controlled units if Prop 10 passes)

Thomas S. · Answer

If your rent is not presently at market then your income from the property  is not a issue. Correct ?

If it does not matter now why care about it after prop 10.

Account Closed · Answer

Thank you!

Susan O. · Answer

Depends on what your local city wants to implement.  Some cities might limit to 1 or 3 %.  Other cities might lock it up

Robert C. · Answer

@Kelly A., Mountain View is a perfect example of certain landlords getting screwed, because not only did they pass the new rent measures, but they rolled the effective date back a year, so landlords had to reverse any rent increases. To top it off, it sounds like Google is going to get into the landlord game by building housing for employees with support from the city. So they totally crapped on the mom and pop landlords, and they will probably make Google one of the biggest landlords in the city (unrestricted by rent control since they will build new). Big winners and big losers like always.

As for me, I have a building in SF that is vacant, and I'm going to keep it that way until I see what happens. If Cost Hawkins gets repealed and SF decides to add vacancy controls, that property's value is going to fly through the roof. I'm considering selling another multi-family there, but I got a great price back in 2013, so the numbers work. I also think more rent control measures may in fact increase property values over the longer term by constricting supply further.

You should figure out where your city is headed with rent control if Prop 10 passes. My guess is Oakland will add more restrictions, so you should prepare yourself as best you can if you want to maintain your building's value in the shorter term.

Susan O. · Answer

Thanks Saj.  Those roll backs are the worst.  I'm actually going to raise rents more now

Jo-Ann Lapin · Answer

So these are the unattended consequences. Vote no on prop 10

Kelly A. · Answer

@Susan O. do you mean that if Prop 10 passes, and a city passed their new regulations, we would have time to plan, before the individual cities enact their policies?

I've just started diving into this topic: One thing I'm curious about is how quickly municipalities can act if it passes-- I would imagine they would want to avoid the situation where everyone who can jacks up their rent all at once by the city's new implementation deadline. But they would have to give us notice, right?

Kelly A. · Answer

@David S. @Arlen Chou

Thanks for the feedback. Rents have really exploded in the neighborhood-more than I realized--so I could raise it by a third to bring it to low/middle market, appropriate because it's a little beat up and dated, especially now that the area has become so much more expensive.

I like the idea of the conditional raise. I may go ahead and give her notice of an almost full market raise, with a renegotiation if Prop 10 doesn't pass. At least we then know how one person will vote. :)

I'm an investor, yes, but also don't want to be a jerk, which is what I fear the city will force me to be. We had a satisfactory arrangement -- she's been there long-term, is low maintenance, and only one person in a large condo. I have a demanding day job. When she moves I'll have to dump in effort and cash, and I can always find other uses for those. The arrangement works for me now, precisely because I have pricing control. The unit is also not a pure investment; I plan on moving  back into it eventually. Otherwise I'd just sell it.

I will join the EBRHA for sure.

Prop 10–raise rent in anticipation?

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