How to Properly Increase Rent Without Legal Troubles

I’m back to answer more of your questions surrounding the rent control measures here in the state of California.

There has been a lot of talk about rent control in California lately; many people don’t seem to fully  understand how to navigate this tricky issue. Today I’ll answer three frequently asked questions to provide clarity on this issue and help you avoid legal issues down the road.

“Why is there rent control now when, in 2018, Prop 10 was defeated by 62%?”

Well, the state legislature has a supermajority of people who back rent control, so if you want it to be overturned, you have to vote for people who don’t back rent control measures.

“How do you do a rate increase based on AB-1482?”

The rent increase under AB-1482 has two components: an annual 5% base increase, as well as the added CPI. The verbiage is not very clear here, and you won’t get very far if you use the U.S Bureau of Labor Statistics’ published CPI.

For example, if you had a property that had an increase in December, you’d use the most recent published CPI from November to add on the 5%. For example, in Los Angeles, the November CPI is 3.2%, so you’d add 3.2% to the 5% base rent increase for a total of an 8.2% increase. If you stay within that range, you should be legally compliant with AB-1482.

If you want rent control to be overturned, you have to vote for people who don’t back rent control measures.

You can use the average CPI of the previous 12 months, too. In the case of the December rent increase, you’d add the 5% base increase to the average CPI of the 12 months between November 2018 and October of 2019.

The cap on the rent increase is 10%, so if the CPI is 5.5%, you’d still add that to the base 5% increase, though it would go no higher than 10%.

“How does this affect relocation?”

If you’re relocating somewhere outside of Los Angeles, West Hollywood, or Santa Monica, for example, and you have to substantially remodel the home, you can require the tenants to move as long as you pay them one month’s rent as compensation.

If you have any questions about this topic, don’t hesitate to reach out to me. I’d be glad to help you. Until then, stay safe and happy!

Answering Your Questions About California Rent Control

Today I want to provide some clarity about California’s Assembly Bill 1482, a rent control law that has some investors worried.

My last video regarding California’s Assembly Bill 1482 generated a lot of interest and questions, so today I’ll review the bill and provide some clarity on rent control and what it means for you.

First, single-family homes and condos are not subject to rent control unless they are owned by a corporation or a real estate investment trust (REIT). In the city of Los Angeles specifically, however, condos, duplexes, and triplexes are subject to the rent control bill.

Secondly, many wanted to know how owner occupied properties would be affected by the bill. Under the Californian rent control law, if you have a duplex where you live in one unit and the other unit is rented to a tenant, the second unit is not subject to rent control.

Single-family homes and condos are not subject to rent control unless they are owned by a corporation or a real estate investment trust (REIT).

The rent control bill has convinced some that maybe they should look elsewhere to invest in rental properties. Based on a survey between 2001 and 2018, the average rent increase in California was only 2.5%. Some people have not raised their rents in two or three years.

So what is the effect of the rent cap? I think that will motivate many investors to increase their rents before the end of the year to the maximum amount allowable by AB-1482.

Finally, the California Public Employee Retirement System (CalPERS) just averaged out with less than 6.5% on their return. For them to really cover all the benefits for retirees, they need to get a 7.5% annual return. If you can get 8.5%, you are ahead of CalPERS in that regard; this is a positive point for you to keep in mind.

If you have any questions or feedback about California rent control laws, don’t hesitate to reach out to me. I’d love to hear from you.

Setting Up a Self-Directed IRA

A great way to invest in ADUs is by using a self-directed IRA.

As you may know, my last blog post focused on how the new ADU laws impact you and why it makes sense to invest in ADUs. Since then, I’ve gotten a lot of questions about how to do this. The answer is something quite a few companies offer: self-directed IRAs. Your opportunity zone fund, which is an LLC, will be owned by your self-directed IRA. You, therefore, become the manager of the LLC. So, you simply sell your stock into a self-directed IRA, which then becomes your opportunity zone fund. After 10 years, you can have multiple properties within your LLC, and any gains from the investments are completely tax-free.

If you’d like to know more about using self-directed IRAs, don’t hesitate to reach out to me. I’d be happy to help you.