What do you think is the general perception of landlords?
We can tell you.
Most people think landlords are greedy, difficult people who make a lot of money off tenants while letting their properties slip into disrepair to the point that they’re awful to live in.
That’s rarely true, of course. Sure, there are bad landlords – just like there are bad tenants. But most landlords are regular people who have to navigate a difficult system and a lot of red tape to make any money at all.
The current economic climate being what it is, you’re lucky to break even if you’re renting out a property today. Profit margins are super thin and it’s taking a long time for most investors and landlords to see any return on their investment.
So, why do landlords continue to rent out homes?
The truth is, there are very few professional landlords left – especially in California. There are just too many unknowns, tenant protections that are too prohibitive, and a myriad of expenses that lead to burnout quickly.
Professional property management can help. We take on all the headaches, stress, and logistics for our clients so they don’t have to deal with these things. If you’re investing in real estate because you want to make some passive income, it’s important that you understand there’s nothing passive about owning rental property. It can be a passive way to earn money if you hand your investments over to a property manager. But, if you’re planning to lease, manage, and maintain the property on your own – you’re looking at a full-time job, not a passive income opportunity.
Here’s what it’s really like for landlords in the California rental market.
Taxes and Expenses are Landlord Burdens
Taxes, fees, and inspection costs can quickly add up for landlords in California. You’ll be charged federal, state, and local taxes. You’ll also be expected to obtain and pay for a business license when you rent out property. There’s a fire department fee, and you have to pay someone authorized to inspect your property and ensure it’s habitable.
Your property likely is habitable, but you’ll rarely get an all-clear from an initial inspection. Something minor will be cited and you’ll need to repair it and then have another inspection. For example, your heating and electrical units are required to have information clearly labeled in black marker. If it fades even a little bit, your inspector can cite you for the violation.
Things can get pretty nitpicky, and that’s frustrating for rental property owners.
Code enforcement fees are an expense that people rarely think about, especially if they’re not actively investing in rental property. Landlords understand them, however, and tend to rage against both the burden and the expense. You’re basically paying your own county to tell you what work your property needs. Then, when it’s time to do the work, you can only hire those vendors and contractors approved by the county.
It’s a lot.
All of these expenses lead to landlords needing to raise their rents in order to cover their costs. If you don’t increase what you earn – you will lose money.
Many tenants and non-landlords see the rental increase as a way for landlords to earn more profits. Usually, they’re just trying to keep up with their rising costs.
Keeping Up with Market Trends and Requirements
In addition to the expenses, there are also laws. Federally, there are fair housing and anti-discrimination laws that need to be followed. On the state level, you have even stricter fair housing laws as well as rent control and just cause eviction laws. There are specific regulations and requirements when it comes to security deposits. Locally, you have to follow habitability standards and codes.
Staying ahead of these laws takes a lot of work and requires a lot of knowledge. If you don’t have those resources as a landlord, you may find yourself making expensive legal mistakes.
It’s actually very difficult to be a landlord, especially if you’re not working with a professional property management company.
You’re dealing with all the expenses and the laws, and you’re also struggling with vacancies, turnover costs, the potential for tenant damage, and all the risk and liability that comes with owning investment property.
Rents are in a strange place right now. They are too high for most tenants to afford, but they’re still too low for most landlords to make any money.
How is this sustainable?
Landlords are making more money today than they have in the past, but it’s not translating to profit. When people read about rents rising all over the country, they’re thinking that the landlords are really making money on the deal. It doesn’t work that way, especially not for the landlords who have just one or two homes to rent out.
In addition to rising rents and low inventory, there’s also the matter of the impacts that COVID had on the rental market. The eviction moratorium threw the entire rental market into confusion. Instead of solving a serious housing problem, governments chose to prohibit evictions, which put a lot of landlords in a financially precarious position. They could not collect from their tenants, but they were still responsible for paying their own housing related bills and maintaining their investment.
With the relief programs a lot of money was flowing through the federal and state governments – but how many landlords really reaped any benefits?
The Realty Is: You Need Professional Management
Landlords don’t have the best reputation. They also don’t have the best chances of success in the current market and the present economic situation.
That doesn’t mean you shouldn’t rent out property. There’s also a lot of opportunity.
The balance can be found by surrounding yourself with experts. When you’re working with professional property managers who know the market, understand the laws, and make smart decisions for your own investment growth, you can have that profitable and passive investment that you want.
We’d love to talk more about this. Please contact us at The Equity Group.