Successful Real Estate Investing in a “Renters’ Rights” Moment
As California goes, so goes the nation.
In the wake of a unanimous vote by the Los Angeles City Council to make COVID-era tenant protections permanent, REIT investors nationwide are probably wondering just exactly how far this phrase—popular with both the state’s boosters, and detractors alike—goes.
So, what, precisely, do these ordinances mandate?
First and foremost, the ordinances renew and extend “just cause” eviction protections: Essentially, landlords will now have to consult L.A. Housing Department “at-fault” and “not at-fault” lists to determine whether an eviction is allowed. “At-fault” includes fairly predictable provisions (failure to pay rent, use for illegal purposes, failure to allow landlord reasonable access) while “not at-fault” covers affordable housing conversion or orders for landlords to vacate as a result of violations. (Interestingly, a “landlord cannot evict a tenant in order to sell the property, unless the property is owned by the Federal Government.”) Under not-at fault evictions, the landlord may be required to pay relocation assistance.
Pretty simple, right?
Well…not really. The devil, as always, is in the details and subsequent provisions somewhat complicate things.
These include:
Tenants will now have until the beginning of August to pay any back rent accrued between March 1, 2020 and September 30, 2021. Back rent accrued between October 1, 2021 and January 31, 2023 does not have to be repaid until February 1, 2024. Further, tenants who previously submitted COVID-19 Related Declaration of Financial Distress forms may be eligible for further extensions and exemptions.
Evictions based upon unauthorized pets and residents are now blocked without a “notice to cure” served at least 30 days in advance.
A tenant’s back rent must exceed one month of “fair market rent”—as determined by the U.S. Department of Housing and Urban Development—before notice of eviction can be served. (In 2023, “fair market rent” in Los Angeles ranges from $1,747 for a one bedroom to $3,170 for a four bedroom.)
If a landlord raises rent by more than ten percent, he or she must pay relocation fees for the tenant of approximately three times fair market rent as well as moving costs.
How this will affect policy in other states, of course, is anyone’s guess.
That said, the Biden Administration’s proposed Blueprint for a Renter’s Bill of Rights—which includes, among other bullet points, “Education, Enforcement, and Enhancement of Renter Rights” and “Eviction Prevention, Diversion, and Relief”—suggests macro regulatory events may very well overtake state-level actions.
We don’t have to tell you that a solution to the problem cannot be solely focused on the renter side of the equation.
There are two reasons for this:
To begin with, landlords and real estate investors are not a monolith. While a significant number of residential rental units are owned by corporations, it remains below fifty percent: In fact, according to statistics compiled by iPropertyManagement, more than seventy percent of rental properties are owned by individuals, nearly eighty percent are owner managed, and landlords collect less than seven percent of residential market revenue.
Further, the pandemic and its reverberations have hardly been kind to investors and landlords. “The share of landlords who collected 90 percent or more of their potential rental revenue fell 27 percentage points from 2019 to 2020 (89 to 62 percent),” Harvard University’s Joint Center for Housing Studies reports. “In fact, each city in our sample saw a three- to fourfold increase in the proportion of landlords owed 10 percent or more of charged rent by year’s end.”
In light of all this, it is more important than ever that real estate investors such as yourself partner with a lender who not only intimately understands the challenges and opportunities in rental markets but also possesses the expertise to help them navigate it efficiently and profitably.
As Florida’s leading balance sheet lender, A&S Capital provides direct financing on single and multifamily residential real estate throughout the country. Our team of seasoned, versatile professionals can help you secure tailored, bespoke solutions designed to channel the right lending to the right deals at rates that are fair and favorable.
