All Forum Posts by: Andrew Croley

Skip LeBron, take the C student, he'll be a "Miracle"-worthy, and faithful team player, not a headache.  :)  

I was recently in the same boat, 800+ credit applicant who inquired and expressed that YES she wanted the place first, and would look to move in about 2 years and relocate out of the area (just sold her home), and a 700 or so Credit score person who would likely rent for 3-5 years from me, maybe more.  Honestly, the lower credit applicant could have ended up being the better Long Term tenant I usually seek.  

But, ultimately, I'm a man of my word and I had already offered the house to the 800+ credit applicant.  She had not yet given a deposit or signed the lease, so I kept marketing of course (because I've been burned that way before too...).  I kept the 2nd applicant in the loop and advised him of the timeline I had given her to sign the lease and pay the deposit/etc.  I did ensure I gave her enough time to complete the full application process and pay the deposit/1st mo rent since I had already offered the place to her.  She did ultimately complete the process, but I definitely wondered if the second applicant would have made for the better long term tenant.  I had no other reservations and would have happily rented to either of them.  Time will tell I suppose :)

Hope that helps, you are not alone in your dilemma.  

Andrew

Searching other articles I also found this VERY Relevant Attorney General's clarification letter on the subject and it appears to confirm that leases OVER 1 year are not subject to PC 396...

thanks to @Elizabeth Goff who originally posted this link in another forum posting.  

https://oag.ca.gov/system/files/attachments/press_releases/10-16-17%20North%20Bay%20Assn%20of%20Realtors_Anti-Price%20Gouging%20Letter%20from%20the%20AG.pdf

Great info! @ Elizabeth Goff.

I was reading the PC 396 law the same way and am SUPER glad to have found the AG's letter you posted the link to!

It is interesting to see this interpretation in there:

"  Section 396 does not restrict its protection to a city or county where the
emergency or disaster is located. It is intended to prevent price gouging anywhere in the
state where there is increased consumer demand as a result of a declared emergency.  "

So who interprets increased demand (as a result of the emergency, vs normal high demand).  Is there a study on normally high demand levels vs ones related to the emergency, that one can base that decision on?  I'm guessing NOT.  Typical CA, they enact unenforceable laws and only selectively prosecute those that fit an agenda.

thank you again @ Elizabeth Goff!   

This thread was a couple years old and STILL Relevant, more should read it and get a copy of the AG's letter!

Andrew

According to the article I read on an apartment owners association website it's the governor's emergency Heat Wave declaration that affects all 58 counties and enacts PC 396, for 30 days, unless/until extended.  

The drought emergency covers something like 50 of the 58 counties, so likely, yes price gouging statute of PC 396 takes effect.  

Read it carefully.  

Some excerpts of PC 396:

"(e) Upon the proclamation of a state of emergency declared by… the Governor, …, for a period of 30 days following that proclamation or declaration, or any period the proclamation or declaration is extended by the applicable authority, it is unlawful for any person, business, or other entity, to increase the rental price,… as advertised, offered, or charged for housing, to an existing or prospective tenant, by more than 10 percent." 

(... = excerpts shortened/parts removed for brevity of meaning as I understand it) (It goes on in more detail about how the 10 % is calculated, etc)

"(j) For the purposes of this section, the following terms have the following meanings:

(1) “State of emergency” means a natural or manmade emergency resulting from an earthquake, flood, fire, riot, storm, drought, plant or animal infestation or disease, pandemic or epidemic disease outbreak, or other natural or manmade disaster for which a state of emergency has been declared by the President of the United States or the Governor.

...

(10) “Housing” means any rental housing with an initial lease term of no longer than one year, including, but not limited to, a space rented in a mobilehome park or campground."

Notice anything there in the law......I'll be more specific: 

"“Housing” means any rental housing with an initial lease term of no longer than one year..."

My belief is that the legislature believed that a lease term OVER 1 year constitutes price stability for the consumer/renter, and is therefore not regulated by PC 396.

CA voters overwhelmingly REJECTED CA's plans for statewide RENT CONTROL at the last ballot election, and NOW the Governor (Newsome) is simply using an excuse to enact Statewide, or nearly Statewide RENT CONTROL under the guise of global warming / climate / heat / drought, liberal excuses to overly regulate an otherwise well regulated industry, Rental Housing.

It's basic capitalism, when production costs increase (profit margins shrink), sales prices must increase. Think about all the non-paying tenants due to the Eviction Moratoriums, landlords have to stay a float somehow, which means rent increases across the board on all their units to help cover the cost of those who are NOT paying. No different that Walmart or any mom and pop store that has to RAISE their prices due to "shrinkage" i.e. THEFT. As CA continues to reward bad behavior, and fails to punish for "petty" crimes, businesses have no choice but to raise prices for everyone to pay. To simply think that businesses (which Landlords are a business) will, should, or even could, simply absorb the losses without passing it on to the paying customers is naïve.

hahahah that's a good one.  Did they tell you to hold your breath while you wait, too?  Trust us, we're from the government.... hahaha 

Get Quicken "Deluxe" 2013 to 2016 (one of those Deluxe versions, and Use Turbo Tax Premier Home and Rental Property at tax time), cheap 1 time expense and no recurring monthly fee.  AFTER 2016 they force you to the "subscription" model which is horse crap in my opinion.  I still use old versions of Quicken and have many ways to make it work for multiple rental properties (more than you are currently dealing with), future projections, etc.  I have been using Quicken for 25+ years and can't find a better replacement, even for the older versions.  They just don't offer online transaction downloads directly from your bank, which I never wanted in the first place, so I don't care that they stopped that feature from working on older versions.  

In short, get Quicken Deluxe 2016, or even 2013 year version.  I can't find a better program.  Tracks expenses flawlessly.  Only headache I have found at all is when I pay off a loan, it kind of disappears and I don't get the full line item register list of transactions on a close/paid off loan, SO to cheat the system, I alter my last transaction to leave $1 owing in the account to keep it alive.  I just make an manual entry on the transaction account the payment came from to debit that $1 so the "from" account stays accurate.  

Quicken Deluxe 2016.  Find the old versions by searching online, you may even be able to find the download files for free.  Avoid the new "Subscription" models in my opinion.  

Best of luck!  Happy Landlording!

Andrew

RUN away.  

If it's $75K purchase and $80K rehab (always seems to go beyond the budget), then your max flip profit is $5K, assuming you pay NO realtor fees, NO closing costs, and have NO cost over runs, NO holding Costs, NO finance costs, etc.  With Max $5K to be made, the only one who actually stand to make money on the deal is 1) The WHOLESALER and 2) the CONTRACTOR, there is NO money to be made from the investor.  

** Now, having said that, there is ONE case where the deal may be worth it, and only if it otherwise fits in your long term financial planning. That is the BRRRR (how many R's in that?) method. IF you buy for $75K and the rehab actually costs you $80K, you will likely technically be a little bit upside down on the cashout with closing costs, etc likely exceeding $5K on a cashout refi of investment property, BUT the upside I see it is that you have a FULLY Renovated LONG TERM rental that YOU did the rehab on (managed and paid for, made decisions about, etc) so you can be relatively sure that it was done right (assuming you had a quality contractor and managed the rehab properly). As opposed to someone else's FLIP project where you don't actually know where they cut corners, etc likely until after the fact. So, in this BRRR hold scenario, you can at least have peace of mind that you have a quality long term rental to hold and since you just did a great modern rehab on it, you should be able to command the high end of the rental price spectrum.

I've done this a number of times, and have had some projects overrun their budgets to where I was technically negative equity in the place, BUT, since it's not a FLIP/SELL, I'm not forced to sell. Instead I get a GREAT rent price out of the home and end up with a GREAT ROI after I do a cashout refi and get 70-75% of my money back out (hopefully more like 80-100+%, but I really can't complain about getting 75% back out and only having 25% equity in the house since I know the rehab was done well from my contractors).

Basic Scenario example: $100K all in estimate for purchase and rehab. Actual cost say $105K, plus $5K closing on the cashout refi of 75% LTV. Appraises for $100K, you're into it for $110K and you cashout $75K. In this scenario you have $35K of your money tied up into the property (not ideal), BUT you know it is likely in the top 5% of rentals for how nice the property is, fit and finish of the materials and rehab, modern, AND you are likely commanding a much higher rent rate than typical dated/run down "comparable" properties for rent. As a result, if you get an extra $200/mo rent on the place and it cost you an extra $5K (cause $5K of the expense was the closing costs on the refi that you would have even if you were under budget on the rehab), your ROI on that 5% overrun is still great! This is compared to buying a "turnkey" rental for $100K, still having to put 20-25% down and pay closing costs. I find most MLS "turnkey" investment property listings are NOWHERE near as nice as my rehabs and as a result, I get MUCH HIGHER RENT RATES.

One example was the "rent survey" from the appraiser was like $1400/mo rent and I already had it rented for $1800/mo.  Why?  Because the "comps" are typically clean but dated properties and good quality tenants (I find) are typically willing to pay much more for a NICE, Quality updated/modern rental.  

So, short answer, RUN don't take on the project with such short margins, but IF you do, do so with a LONG TERM HOLD mindset and NOT a flip/sell goal.  AND make sure you don't borrow funding that will force you to sell if you don't have additional funds to cover the overages.  DON'T over leverage the project so that you are NEVER forced to sell to pay off a Note....otherwise you're just asking to lose money, and that means ALL the time you spent managing the project is a LOSS as well as the financial loss.  

PM if you want to discuss this or other scenarios further.  I enjoy talking RE.  

thanks!

Drew