Is Rent Controlled Properties a good investment, in this market?

Asked by Donna Ferrell, Broker, Los Angeles, CA Fri Jun 17, 2011

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John Souerbry, Agent, Fairfield, CA
Thu Jul 28, 2011
I don't recommend rent controlled properties for my investor clients. There are two reasons: 1) rent caps seldom rise with costs and margins usually get squeezed below acceptable levels in the long run, 2) the existence of rent control often means that other landlord-unfriendly rules, regulations, and zoning are close by or on their way.
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Daniel Choi, Agent, Los Angeles, CA
Thu Jul 28, 2011
It all depends on your investment goal whether you need for tax shelter, investment vehicle with minimum appreciation rate, and so on.

In a slow rental market, it would make sense to have a property without vacancies even if this mean in a rent controlled property. If there is tenant turnover, owner can raise to market rent which happens frequently as people move in search of new jobs, or moving into with parents or friends.

Like any investment, your income should be able to cover your expenses and leave you with some reserve money to cover some unexpected expenses. Please remember to minimize your costs in all areas that you can find such as management, repairs, and so on.

I highly recommend experienced agents who can help you guide with myriads of issues common to rent controlled proeprties in LA county.

Good Luck,

Daniel Choi
Nextage Capital Advisors
1521 Wilshire Blvd
Los Angeles, CA 90017
(213) 820-7509 Free Real Estate Info in Spanish
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Kathleen Bec…, Agent, Santa Monica, CA
Sun Jun 19, 2011
Hi Donna:

This all depends...Rent Control can be good and bad! If you are looking at a building with long term tenants, for instance in Santa Monica, where the tenant may have been in a condo unit when it underwent a Torca conversion, and the tenant may be paying a very low rent and there is no way to get them out except for non payment of rent, then NO. The rents collected will not justify and cover the expenses. In the City of Los Angeles, you may find an income property that is vacant and you can charge market rents. Or you may find that all of the units are occupied, some with long term tenants, some with new...which ever you find, you must do the math and make sure that the expenses of the property are being paid for by the rent income.

Expenses include the monthly mortgage, insurance, utilities, property taxes, maintenance, gardner, management fees, and anything other expenses you can think of.

Just remember, in any investment property, that you have to calculate into your equation, the vacancy factor...and in the event that you do have to evict someone from one of the units, will you have the carryover to pay for and maintain the property during this period of time?

A non rent control property has not limits of what you may charge for rent. Rent control properties are limited to how much you can raise the rent and in some cities, they determine what you can charge and the yearly increases.

You also must be up on the rent control laws...the more you know...the better you are able to play the game!

Good luck!

All the best,

Kat Becker, Agent
Prudential California Realty
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Ryan Ole Hass, Agent, Santa Monica, CA
Fri Jun 17, 2011
Hey Donna.

That is a really loaded and tricky question.

LA City, WeHo, & Santa Monica all have different but renter centric rent control policies.

It really depends on what the current rent roles, expenses, and future debt service will be (plus a few other factors) to evaluate the asset as being a good investment.

I could go on for hours what I believe makes a good investment.

give me a call 323.762.2575

With Gratitude,
Ryan Ole Hass | MBA

The Red Door Group Los Angeles
Keller Williams Realty - Hancock Park/Larchmont
DRE# 01417826
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Shawn Poureb…, Agent, Los Angeles, CA
Fri Jun 17, 2011
Sure, they could be great investments , it all depends to the buyers goal, there are rent control properties with a very good return on investment or they financially make sense for that buyers needs.
Shawn Pourebrahim
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Ron Escobar -…, Agent, Beverly Hills, CA
Fri Jun 17, 2011
It all depends on the current rent roll... in general is better to have no rent control, but it is something that can be lived with... it only becomes an issue when the tenants stay there for a long loooong time... but that is not the norm...

Best of luck! - go get'm!
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