All Forum Posts by: Sam M.

Pomona recently implemented emergency rent control. The Annual Allowable Rent Increase effective August 1, 2024 - July 31, 2025 is based on the lesser of 4% or the change in the Consumer Price Index (CPI) for the Los Angeles-Long Beach-Anaheim metropolitan area. I attended a special council meeting last night on the topic. The public was allowed to give 2-min speeches (there were 34 of them). Tenants spoke and rental providers spoke. Mayor Tim Sandoval and several other Councilmembers listened to proposals for rent control from RSG (consulting firm out of Vista, CA). The city council is faced with a tough decision; make the emergency rent control permanent or not, or implement alternative strategies. In the meeting we heard from the many tenants who are victims of predatory landlords and from housing providers who attempted to explain how rent control destroys the business model for a housing provider. My take is that predatory practices and threats must be controlled, and housing quality must be enforced. However, if rent control is too restrictive, it will chase housing providers out of the city. Pomona's population is about 150,000 people (source Google). It was said in the meeting that 50-60% of the population are renters. If there are on average 3-4 people in each rental unit, that means they need about 23,000 rental units. It was said that the 2019 Tenant Protection Act has a negative effect on the number of rental units in some low-income cities (to the tune of 15%). Let's call it 10% to be conservative. Is the City of Pomona prepared to lose 10% of its rental unit supply (2300+ units)? Councilmember John Nolte mentioned that in rent-controlled cities in other LA County cities, that hardship petitions from housing providers was non-existent. His conclusion is that housing providers in those cities make enough money. The Mayor asked the question "what are costs of the housing provider?". He genuinely wanted to know. It struck me that the people leading the City of Pomona and making very big decisions about housing for its citizens, but they know very little about the housing provider business (industry) and how it works. It seems to me that the supply of housing is important to the citizens of the city, and the Mayor & City Council of Pomona should know more about what housing providers do and how they operate. If the City makes a bad decision, they could drive the supply of rental units down which would exacerbate the housing problem by reducing supply and negatively impacting the quality of housing as housing providers will simply leave Pomona and invest in Montclair, Ontario, Riverside, etc. If the rental unit has too little cash flow, the quality of the home will obviously decline. To the housing providers in Pomona ...how can we teach the Mayor & City Council of Pomona about the economics of and business fundamentals of providing our products to the market (housing)? Mayor Sandoval, please reach out to your housing providers personally, not through RSG. Let us come to the City and talk politely about the business models of housing providers so that you can be better informed. I am a small business (housing provider) and I have one rental unit in Pomona and am building another. I have to choose whether to sell those units which will take them out of the rental supply. I can speak to the business model of a small operation like mine if you want to hear it. 

@Dylan Speer, I saw your other post with the details. I agree that you would be putting your trust in the hands of the "subject to" buyer to make your mortgage payments. If you put it on the market... With the real estate listing agent, you will not be allowed to sell it for the term of the contract. Make sure the term is something you are comfortable with. Many contracts have a 6-month term (or longer) as default. 

I'm interested in seeing it if its still available. 

Victoria, 

Your question: If you give $415k to your parents will it trigger a gift tax on them? I'm sorry, I don't know. Does it have to be a gift or could it be compensation for raising you? (just kidding). This will need to be explored with a tax expert. Also, when your parents buy another house, they need to account for all of the cash they use in the transaction. 

Can you parents move their tax basis to another house in California utilizing prop 19 AND simultaneously can they transfer the Riverside house to you using the exception in prop 19 so that you can maintain the tax basis on the Riverside house? Again, I'm afraid I don't know. My intent was to throw some ideas your way but I don't have experience doing exactly what you are doing. Also, I'm an investor but not a tax, legal, accounting, or title expert. Unfortunately you have to talk to real experts to proceed safely. I hope you will let us know what happens so we can learn from your experience. 

In case you don't know what a "subject to" purchase is (as mentioned by Jonathan Aversano), this is when you are buying the home "subject to the existing mortgage". Since there is no existing mortgage, it doesn't apply in the typical sense. Also, in this situation, your parents need cash, not paper. But I thought about another idea (not sure if it would work). Your parents could get a cash-out refinance for the $415k, then deed the property to you. You would make the payments and effectively this would be a "subject to" transfer. The down side is that if your parents need to get another mortgage, this could inhibit them. When they apply for another loan for their new house, their DTI would include the mortgage on the Riverside house. If they have very high income it might work. Also, they have to trust you to make payments or it could affect their credit. You could refinance 6-12 months later. Again, this is another think to explore with a mortgage broker. All of this seems like a lot but it will save you a lot in property taxes. 2011 was a good time to buy a house as the value were low. You can save more than $10k per year for as long as you own the house.

Okay, the house is free and clear and parents could deed it to you. The transfer should be made between parent and child to avoid county reassessment. Call the county and ask for the procedure. Once it's in your name, then you can get a cash-out "refinance" mortgage loan on it. However the bank may want it to be "seasoned" meaning in your name for a period of time. For example, I paid cash for houses and had to wait 6-months before I could put a mortgage on it. If your parents can wait that long it's the simplest. Maybe you can call around to mortgage brokers and see if you can get a $415K cash-out mortgage on a house that was recently deeded to you. With a 45% LTV (loan to value), that's low risk for the bank and you can likely avoid putting money down. Your payment will be ~$2600 to $2700 per month not including taxes and interest. Your debt to income ratio (DTI) must be below 40% (depends on the mortgage company). I would talk to mortgage brokers and see what's possible. Research California Prop 19 (2020) because it changed the rules for inheriting property. I believe there is an exception ... if the inherited property is used as the new owner's primary residence, then the property's assessed value is not reassessed and the new owner can continue paying property taxes based on the previous value. The County should have information about it.

Is it possible to have your parents deed the house to you and keep the tax basis. Look into it. If you buy the house from them, it will be reassessed at current value. If the purchase price is very low, the county will use market value and your annual property taxes will be $23K per year. You could assume their loan but this depends on what they still owe. Just some things to think about. It would help to know what the current mortgage balance is and the assessed value of the home (what do your parents currently pay in property taxes). If they purchased the house 2 or 3 decades ago, then they are probably paying far less than $10K in annual taxes. It would be a shame for the transfer to occur as though you are not parent / child and lose the opportunity to keep a low tax basis. Read Publication 800-1 on www.boe.ca.gov

Alfonso - go this club and show people your deals.  https://iereic.org/. If you have good deals, you will find money.
If you would like to review what you have with me, I would be happy to talk to you. Send me a private message. 

Have you thought about wholesaling your deals to raise cash? Finding deals is the key to success- if you have them, you can make money. Get them under contract and post them on Facebook forums and Bigger Pockets and local RE clubs via meetup.com. If they are real deals then you will find buyers. 

Dear Sam, 

I love writing to people named Sam, haha. Thanks for replying to my post! In my case, I was lucky not to have tenants stop paying rent during COVID and I did not raise rents for two years. Now, most units are far below market rent and I'm limited in my ability to increase. 

Example; I have a 1-bedroom unit that was renting in the high $700's during COVID. According to AB 1482, the max rent increase is 10% (regardless of CPI). It will take years to get it over $1000 while the market rents are twice that. CPI is up but now, I must wait another year to add a few $10's per month. 

I agree we have to mindful of our customer base and the economy. In 2008-2010 people lost jobs and stopped paying rent. I worked with tenants, lowered rents and had to evict a few people. I survived it but we didn't have the state controlling rent or stopping evictions. We need to generate cash when we can because there will be difficult times for landlords too; especially when the state steps in and interferes with the market. The state forces property owners to take the brunt of losses caused by bad lawmaking. If the state would focus on increasing inventory and stop making real estate investments unprofitable, we wouldn't be having the problems we are having. 

Sorry, I got on a roll. Thanks for the information about CPI. I would like to see the numbers. Can you share the report or tell me where you saw it? 

Sam