Why Is Rent Control Counter-Productive?

“Next to bombing, rent control is the most effective technique so far known for destroying cities.” Assar Lindbeck

From Swedish economists, like Mr. Lindbeck, to multi-family property owners everywhere, these words ring true. Many tenant groups believe that rent control would make housing more affordable in today’s market. In actuality, it would ultimately drive prices up because of the law of supply and demand.

LESS INVENTORY
In a time when the amount of available housing is not able to meet demand, the last thing we need is to have that inventory reduced. Rent control will do just that. It will lessen the incentive for builders to risk their time, money, and credit on a project that if unsuccessful, will result in potentially large losses. It will only make sense if there is a substantial upside for the builder if the project is a success. Another consideration is that some investors will turn their rental units into condos. These condos, in most cases, will not be affordable to the people who had been renting prior to the conversion.

MAINTENANCE
Especially for a new multi-family owner, the expense of maintaining your rentals may exceed your income. When you take over a property, you are subject to the repair history of the previous owner, and it may take a while to get caught up. I have owned buildings where the previous owner did the minimum of repairs just to “get by”. I have always tried to maintain my properties so that I don’t have to send out a repair person twice for the same repair. Some owners try to just get by. In my opinion, this is a more costly way to run a building. If my income is further reduced by government-imposed rent control, it reduces my options. I have only so much money to spend on repairs. Do I cut corners or just not do the repairs? What do I tell the tenant? This is a dilemma that is made worse with rent control.

WHAT TO DO?
Especially if you own multi-unit rentals in Los Angeles, Beverly Hills, and Santa Monica, and even if your building is not, it is CRUCIAL that you raise rents when it is legally possible. Join your local apartment owners association, if you are not already a member. Familiarize yourself when 1482, the California statewide rent control law, but also with the laws applying to the jurisdiction where your rentals are located. It is important to stay within the rules and raise your rent accordingly. This affects not only your monthly cash flow but the value of your building if you sell or refinance. The appraisal of your property will be based, to a large degree, on income and expenses. Do whatever you can to maximize your investment.

“Don’t measure yourself by what you have accomplished, but by what you should have accomplished with your ability.” John Wooden

What we at PRS PROPERTIES CAN DO. We can refer you to companies doing background checks. We can also refer you to eviction professionals if needed. If you should decide to sell, we can help you exchange into a larger or smaller property or properties, or we can help you move into something with fewer management responsibilities. We can also recommend experienced licensed contractors who can perform any repairs or installations you may need prior to selling. We can also look at your building for other easy and inexpensive changes that might allow you to get a higher value. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, deferred maintenance, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are currently in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.

Remember – KNOWLEDGE IS POWER!