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Owning or investing in property can prove quite challenging, particularly as laws change. This is especially true with Assembly Bill 1482, a new bill that could potentially make rent control a statewide issue. Today we are speaking with Dan Hines, Regional Director at Mynd Property Management in the Sacramento area. Dan is here to discuss AB 1482 and how this could potentially affect real estate investors going forward.
Steve Rozenberg: Hey everyone. My name is Steve Rozenberg and I am the Vice President of Investor Education at Mynd Property Management. And I'm joined today with Dan Hines, the Regional Director of Sacramento. Dan, thanks for being here today. Appreciate it, buddy.
Dan Hines: Yeah, thanks for having me. Hello out there. Thanks for checking out our video.
Steve Rozenberg: So today what I want to talk about is—this is something that's obviously pressing right now—of the AB 1482. For anyone that doesn't know, that's the new bill that's coming into effect that is basically, in one form of another, making rent control a statewide issue. Dan, give us your opinion on this bill. Who does it affect and, in your opinion, will it positively or will it negatively affect investors in the Sacramento area?
Dan Hines: Yeah, well there's a lot there, right, for our intents and purposes. This is a rent control measure. Technically, they're not calling it a rent control measure. It's more of a rent stabilization measure. There are really two big main components. There's the annual rate caps and then rules around just cause eviction. And I'll break down both of those a little bit. For the most part, it's going to affect multifamily properties. So people living in an apartment building. For the most part, single family homes are exempt unless it's owned by a larger investor or some sort of a corporate owner. But for the mom-and-pop landlord who owns one or two rental properties or something like that, I still recommend that you go through…there is a couple of great resources that produce some flow charts for how to tell if you're exempt and it lays it all out.
But for the most part, single family homes are exempt and then newer construction, so apartment products 15 years or newer, is also exempt. But again, there can be a couple of caveats, so make sure that you're clear on those details there. But I understand where their rent cap measure was coming from or what it was aiming to accomplish. California has a true housing crisis. It's a big problem. But unfortunately, most rent control measures over time end up having the opposite of the desired effect for most of our clients. So for the rent control measure, it's capped at 5% plus CPI, which was last year, we're using a 2.5% figure for CPI, and that's the consumer price index. It's essentially-
Steve Rozenberg: Can you explain what that is. Some people may not know that aren't familiar with the term.
Dan Hines: Yeah, so CPI, it's essentially the rate of inflation. There's a federal website, but then certain cities also designate their own CPI rates. For example, the city of Sacramento said "We're using 2.5% across the board," even though certain federal websites showed 2.7%. So, two-tenths of a percentage point variance there. So in our operations, we're using 2.5%. What that means is during the course of the normal year, landlords can raise the rent by 5% plus that two and a half for a grand total of 7 1/2%. The thing that's sort of ironic, though, is that during the normal course of business, most of our clients were never, or rarely, increasing rents higher than 7 1/2% anyway.
Steve Rozenberg: Right? Yeah. Now that they can't do it, they're like, wait a second, we can't do this. But the reality is most people don't do that because you'd price yourself out to have a vacancy every year, which would be counterproductive to the price increase. That's a good point.
Dan Hines: Yeah. You know what, a lot of our investors are sensitive to the market. They're sensitive to the residents. A lot, many of them deploy the mindset of, they don't want to rock the boat. So you've seen a lot of increases that have been four or five, 6% sometimes, seven-ish. But most cases we weren't going over the 7 1/2 anyways. So here in the Sacramento office, we have a lot of clients that had been pretty conservative because they understood what was going on in the market. But to your point, Steve, now they're saying, "Well, I don't want to get stuck behind the eight ball later on. So if legally I can push to 7 1/2, I feel like I need to make sure I do that so I preserve my future stake. Which that's what I was pointing toward and that I think it may have an undesired side effect.
Steve Rozenberg: Yeah. It's kind of almost like, it could be causing, like, the term is “run on the bank.” They could be causing a run on rent raises because, all of a sudden everyone says, "Hey, I've got hurry up." But my understanding is this is actually retroed back right to maybe like March or May, is that correct? Where it actually takes a look-back. So even if you try to increase it, it's going to take a look-back.
Dan Hines: Yeah. There's a look-back period which, candidly, we didn't have to do a ton of rollback anyway because, to my previous point, most of our rate increases weren't that high anyway.
Steve Rozenberg: Right. Exactly.
Dan Hines: So there is a look-back and then there was also a period of time that, if a landlord tried to issue some sort of notice, like a notice of termination after a certain date, that would also be void as well. Which is a segue to the other component of AB 1482 which is the just cause eviction. Is that another video or you want to touch on that here too?
Steve Rozenberg: Yeah. Well you know we can touch on that in another one cause that's great information, the eviction cause. But so, just so I can understand this, because obviously I'm not in California and I think it's important if somebody is seeing the news and they're seeing, "Hey this is what's coming." It's not really true. Because my understanding was that the whole state of California, single family, multifamily, everybody was under this rent control law. And what you're saying is that's actually not true. It's only if you buy multifamily. Now, what do you guys, what is considered multifamily? How many units is considered a multifamily unit?
Dan Hines: So in the industry, a lot of people will refer to four or five units being the magic number. But as far as the rent control measure goes, the rent cap, there's a different set of rules for if it's a single family home, so single family residence. There's a different set of rules if it's one unit to a duplex. So anything over one unit is an effective trigger. Duplexes also are treated more to be multifamily unless the property owner lives in one side. So, and even then, if you are an owner of a single family residence, you've still could be impacted depending on how you hold title and a couple of those other factors.
Steve Rozenberg: Okay. So single-family, because I know some people that have multiple properties on one lot. So in that case, they are affected by that. Correct? Because it's one plot of land and they've got multiple units or a vertical, obviously, same case scenario. That's interesting. Unless now if they live there and they rent it, is it more than one or what is that? Is that just getting a little too deep for this conversation?
Dan Hines: Well, so we're still waiting on quite a bit of guidance. So as you and I have this conversation right now in November, there are still certain things that we just aren't totally clear on. So we're participating in some of the work with the California Apartment Association, on the CAA. We're participating in the owner forums. I'm just going to some of these large forums where different attorneys are coming in and offering their understanding of it. But so, in the city of Sacramento specifically, there still a couple of rules that the city has just said, "Don't worry about it right now. Wait until after the first of the year and we'll send out more guidance.
"What I can tell you is things like if you have a single-family home and an ADU on the back, so an accessory dwelling unit commonly known as a granny flat. If both the granny flat and the single family home are rented to tenants, they will consider it to be-
Steve Rozenberg: Subject to rent control.
Dan Hines: Yeah.
Steve Rozenberg: Got it.
Dan Hines: We had a client, that specifically rents up to five people and it had an AB on the back. It's on one plot. Zoning appears to be single-family and it was a little session of “stump the attorney.” And that's the whole point is that there are things that we're assuming to be fact right now, but until final guidance comes out and you actually get into 2020, there are certain things we just don't have all of the information on yet. Consumers and landlords in the state of California.
Steve Rozenberg: No, that's great. And obviously it's going to evolve, right? It could even change again next year or in the next couple of years. So obviously it makes sense to like, as you said, stay up on the information. Do you know of any good websites that they could go to besides from Mynd.co as well, but other websites, state-regulated that they could look up to find information on this?
Dan Hines: Yeah, so the CAA offers a lot of good stuff. Sacramento has a Rental Housing Association. The acronym is RHA. A quick loop back to the Mynd website: we also have a series of videos that we put out along with our in house legal counsel where we're running through, up to date, here's the latest and greatest version of understanding about what it is. So what we're finding though is that a lot of these websites are sharing, they're regurgitating, a lot of the same information. So depending on what your keyword search is, just make sure that you're paying attention to the date that it was published so that, if there is some fresh guidance coming out, you're not behind the curve.
Steve Rozenberg: Great. All right. Okay. Well Dan, thank you so much. I appreciate it. For those of you that want to know more about Mynd, you can go to our website, M-Y-N-D.C-O. Dan, if they want to get ahold of you and talk to you up in Sacramento, what's the best way to get ahold of you up there?
Dan Heinz: Yeah, so through the Mynd website, there's a Contact Us function. We use a pretty cool case system and depending on where you are, it'll flow to me.
Steve Rozenberg: Great. Great okay, well, I'm Steve Rozenberg and this is Dan Hines, and we'll talk to you guys later. Bye bye.
Dan Hines: Thanks, guys.
Keeping up-to-date on changing laws is a necessity when owning a rental property. This may prove to be especially true with AB 1482, a new bill that will potentially make rent control a statewide issue. While it is touted as more of a rent stabilization measure, this bill has the potential to affect investors in every part of the state. This bill will not affect all investors, however, so knowing where your property or properties fit into this measure is key to setting the correct rents and keeping within the law.
Likewise, as some details are not yet known about this bill or how it will affect investors, it is imperative that anyone looking to invest or anyone who may already have investments in the real estate market stay on top of any developments with this bill or any other laws or measures that could positively or negatively affect their properties going forward.