Whether you’re a home buyer, seller, landlord or tenant, there are several new laws set to go into effect in California in 2024 that will impact housing.
Here are six laws you should know about:
Accessory dwelling units, also known as ADUs, have often been rented out by homeowners in California. Assembly Bill 1033 will now allow ADUs to be sold, which could in effect create two- or three-unit condominiums on a given lot.
Effective in 2024, property owners in participating cities that decide to opt-in to the new program will be able to sell their ADUs separately from the main residence.
This also would mean covenants, conditions & restrictions (CC&Rs), the set of rules governing the use of a certain piece of real estate in a homeowners association, would need to be created for these condominiums.
In an effort to mitigate the risks of shoddy renovations to buyers of flipped houses — those that are purchased, rehabbed and sold for a profit — Assembly Bill 968 expands existing sales disclosure laws.
Anyone who purchases a home and flips it within an 18-month period must disclose all repairs and renovations made to the property during that time. The name of each contractor who performed work and whether a permit was obtained for each renovation also must be disclosed.
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Existing law requires a seller to disclose natural hazards, including whether a property is in a high or very high fire hazard severity zone, to a prospective buyer through the natural hazard disclosure statement.
Assembly Bill 1280 expands this criteria and establishes subcategories, including as to whether the property is located within a high fire hazard severity zone in a state responsibility area, very high fire hazard severity zone in a state responsibility area, or very high fire hazard severity zone in a local responsibility area.
If the property is located in any of these zones, the defensible space and (for properties built before 2010) fire hardening disclosures would then be required.
Three new laws aimed at protecting tenants are set to go into effect at the start of the year.
Assembly Bill 12 limits the amount landlords can require in security deposits to just one month’s rent in addition to the first month’s rent. California landlords also cannot discriminate on the basis of an applicant’s source of income, which means they must consider Section 8 applicants.
Assembly Bill 1418 prohibits cities and counties from enacting “crime-free” housing programs and nuisance ordinances that require landlords to evict or refuse to rent to those with prior criminal convictions.
Assembly Bill 1620 allows local jurisdictions to require landlords whose units don’t have elevators to allow physically disabled tenants to move into similar units on a ground floor and keep the same rent rate and lease terms.
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Written by Andrew Syrios, Provided by Bigger Pockets
I’m a big fan of buy and hold and the BRRRR method. That being said, if you’re going to go down this path, you will want to know how to increase the rent and the return from your rentals. Doing so encompasses all factors of property management. Leasing faster and to higher quality tenants will increase your return. Renting for a higher price and increasing the rent upon renewal will as well. And so will prevent maintenance problems before they come up, as well as increase tenant retention. But how do we achieve all of these ends?
Well, I’m glad you asked. Here are 13 of the best ways, in this humble author’s opinion, to do so.
It’s often noted that people make up their minds about you in seven seconds. In other words, you don’t have long to make a first impression. Neither does your rental. As I noted in previously, simple aesthetic improvements such as window shutters, painting the front door, mowing the lawn, hedging any bushes or trees, replacing the mailbox or address numbers, and the like can be hugely important.
For one of my properties, all we did was mow the lawn, cut back the low-hanging branches on the tree in the front, add a window box beneath the windows, paint the front door red, and add some bark mulch in the flower bed. A total expense of maybe $500-$700. But that can make an incredible difference in both getting a property rented quickly and getting top dollar for it.
2. Quality Advertising
I’ve heard it said occasionally that “all we need to do to rent a house is put a sign in the yard.” I think this is the wrong approach. As my brother—who is our property manager—put it:
“If all you have is a sign in the yard, then you won’t have as much interest as if it was online everywhere. Fewer prospects means less demand, and when the supply stays the same, the only consequence is a lower price.”
That’s Economics 101 for you.
Put simply, renting a property with only a sign probably means you are under-renting it.
Furthermore, you want to take high-quality pictures. If you can afford to invest in a top-end camera, it will pay for itself and much more. Just compare these two photos of this rather awkward house we own. One was taken from my old cellphone, and the other from a high-end camera. Which do you think is more likely to get that person scrolling Craigslist to call you?
Also, make sure to take pictures at about a 30-degree angle. Head-on pictures makes properties look very small, as the following examples show:
It should go without saying that you should clean a unit before showing it. But also, make sure the lights are on, and blinds are open, so the unit is well-lit when the prospect comes to look at. Dark rooms look smaller and less welcoming.
Also, put some air fresheners in the unit to make it smell pleasant. As the site Fifth Sense notes, “The sense of smell is closely linked with memory, probably more so than any of our other senses.” In other words, if the property smells good, then when the prospect goes home to debate which unit they want of the many they’ve seen, yours will stick out in their memory.
I even heard of one person who baked cookies before prospects showed up. Now that’s an inviting smell sure to get a signature on the bottom line!
If you’re just opening the door and hoping the prospect will like your unit (or if your property manager is), you’re doing it wrong.
There are three great methods for selling during a showing:
If you’re doing the showings (or have hired someone to do them), you should use at least the first two and maybe the third.
Building rapport just means that you are friendly and open with them. Be genuinely interested in them. Ask questions and just shoot the breeze with them a bit. At the same time, don’t oversell or be pushy. People want to rent from people they like.
In other words, if you say that you think the house is 1,200 square feet, you have anchored in the prospect’s mind that the house is around 1,200 square feet. If you ask them to guess what they think it is, they will likely guess between 1,100 and 1,300 (assuming your number is in the ballpark, of course). If, on the other hand, you say you think the same house is 900 square feet, they may know that sounds too small but will probably guess between 1,000 and 1,200 square feet. So their answer will change solely because of your anchor.
But anchors can be qualitative, too. So, when I was showing houses, I would often say something like “I love this house,” or “the kitchen in this house is amazing” before opening the door.
Finally, in some cases, particularly in hot markets, it might make sense to use the rule of reciprocation. As Wikipedia describes it, “By virtue of the rule of reciprocity, people are obligated to repay favors, gifts, invitations, etc.” Psychologically, this works by people wanting to return a kindness (say renting from you) if you do something nice for them.
This may feel manipulative, but you aren’t going to convince someone to rent a turd from you if you give them five bucks. If you are renting a good property, what the Rule of Reciprocation does is set you apart from your competition’s equally good property. Putting such offers in your advertising will also help elicit traffic to your properties.
So, for example, in Eugene, Oregon, there is an oversupply of student housing, which we have a lot of. So we started offering a free pizza coupon to a popular college pizza shop just for viewing one of our properties. One year, we even offered concert tickets to local events being put on by an EDM productions company a friend of mine were partners in. There are lots of possibilities like this. Let your mind go wild.
The basic principle with apartment rents is that if you have low occupancy, you can’t raise your rent. But if your occupancy is around 90 to 95 percent, then it’s time to increase the rent.
With houses, though, it’s much harder to know what to rent a place for since there’s only one of them. Yes, you can comp it out on Craigslist or Zillow, or you can ask the neighbors, but you can’t be perfect.
My recommendation is to approach renting a house from the perspective that you can fix a property priced too high, but it’s hard to fix one priced too low. If you under-rent a property, you’re stuck with it. But if you set the price too high, you’ll know quickly it’s too expensive because you aren’t getting any calls. Then you can quickly adjust the price downward. So start near the top of the range you think it can rent for.
Of course, you don’t want to go crazy with this. Every day a unit sits on the market means rent that is lost forever. And if you have a lot of vacancies or it’s in the middle of the winter, and few people are looking for a rental, you should certainly be more aggressive. But in most cases, it’s better to start at the high range than the low.
High rent is useless if you’re settling for bad tenants. Take these two scenarios with the same house. One tenant rents it for $600/month and stays there all year. The other rents are for $700, but you have to evict the tenant and lose two months of rent plus the costs above the deposit to turn over the unit and the cost of the eviction. Here’s how it turns out:
With any sort of loan on that property, it would almost certainly have been upside down with Tenant 2.
Remember, it’s better to have a property sit vacant than to rent to a bad tenant. More than once, we’ve had a tenant do over $10,000 in damage. That kind of thing will ruin your cash flow for quite some time.
Make sure to check for evictions, their criminal record, and credit, and get landlord and employment references. We don’t accept evictions, nor do we accept felonies unless they are very old. The tenants should also make more than three times the monthly rent in income.
Finally, I would recommend turning over your employment and landlord references to AAA or another such company. There’s an incentive to hear what you want to hear if you check yourself, and that can bias your evaluation when talking to landlords and employers. Then you push through marginal prospects you probably should have declined. Third-party companies couldn’t care less, so you don’t get a blurry image when getting landlord and employment references.
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7. Always Raise Rent Upon Lease Renewal
As I once heard Dave Lindahl put it, “Tenants expect you to raise their rent each year, so don’t disappoint them.” These increases will at least keep your rent the same in inflation-adjusted terms and will often improve your bottom line.
Remember, assuming you are cash flowing, every additional dollar you can get in rent is pure profit.
That being said, it’s also important to let tenants know it’s coming. We inform them there will almost certainly be a rent increase each year when we sign the original lease.
We don’t rent month-to-month, to begin with, but we will allow tenants to switch over to a month-to-month arrangement once they have completed a year lease.
But we’re not going to do it for free.
BiggerPockets’ own Brandon Turner explains a great way to do this:
“When raising the rent, try this trick often used by marketers: Don’t tell them what the new rental price is going to be, but give them three price options to choose from. Think about it. Almost every big business offers three price tiers:
By offering three choices, individuals tend to compare the choices given, rather than comparing the price to other businesses. A coffee at Starbucks may be ridiculously priced, but by giving the customer options—the “Tall” for $3.25, the “Grande” for $3.75, or the “Venti” for $4.25—people rarely even consider the $0.99 cup of coffee they can get at the local diner across the street.”
Thus, Brandon gives tenants an option of month-to-month, a six-month lease, and a year lease. The shorter the lease, the higher the price.
Remember what my brother said: “Fewer prospects means less demand, and when the supply stays the same, the only consequence is a lower price.”
While I wouldn’t recommend renting to people with dogs in apartments (maybe I’d allow one cat). With houses, I absolutely recommend it. Opening up your property to people with pets increases the number of prospects—and therefore demand and therefore, price.
The reason is that many people want to rent houses in large part because they have pets. And Americans love, love, love their pets. One survey found that 62% of Americans have a pet, and of those who do, 95% considered their pets to be “members of the family.”
Pets do some damage, though. Luckily, you can cover that with a nonrefundable pet deposit (we charge $250) and pet rent (we charge $25 a pet per month). We usually set a limit of three pets and do not allow dangerous breeds of dogs.
We probably make more from pet rent than we lose in damages, but even if these charges are completely offset by more maintenance, you have dramatically increased the pool of potential renters, and with more demand comes a higher price. You’d also be smart to do some extra due diligence here and read up on the pet rent laws in your state, as they vary.
Some of the best ways to increase returns are to lower expenses. Preventive maintenance can do just that. You should not rely on tenants to replace furnace filters, clean off A/C compressors, or clean the gutters. But these small repairs can save you thousands of dollars in HVAC and foundation repairs.
Furthermore, some tenants won’t tell you about leaks for some unknown reason. If leaks fester for too long, they can cause major dry rot and water damage.
Regular inspections can find and address these issues. It’s preferable to do them semi-annually, but even once a year is better than nothing.
Furthermore, good maintenance is the key to tenant retention. After a tenant signs a lease, their only contact with you is paying rent and maintenance. Neither is pleasant. And if they’re late a month, there’s another unpleasant contact with property management.
But if you provide good maintenance, this will go a long way in keeping you in good favor with your tenants and increasing the odds of renewal. And turnover is often a landlord’s biggest expense, so anything you can do to mitigate it is a good thing for the bottom line.
In a similar vein, if you can find a way to positively maintain contact with your tenants, this will also help with renewals. It could be something as simple as a monthly newsletter or a social media presence.
You could also combine this with your marketing strategy. In addition to offering a pizza coupon to each group that viewed a unit, our Oregon management company also offered pizza coupons each month for those who rented from us. Yes, this costs money, but it not only works as a good marketing ploy. It also means that each month, while those students sent rent in, they got something back. That makes you look more positive in their eyes.
My brother asks for a prospect’s favorite restaurant on the rental applications. Then, if there’s a bad maintenance issue or one we handled poorly, he sends them a gift card to that restaurant. It’s more personal (and thus more effective) than a rent discount—and it’s cheaper, too.
Or you could put every tenant who paid on time each month of the year into a raffle and give away a TV or something like that. There are all sorts of ways to maintain a positive line of communication with your tenants, and doing so will help substantially with tenant retention.
Are there any other amenities you can charge for? My brother implemented a program where tenants can pay for us to mow their lawn each week during the summer months. Not many took us up on it, but it’s another stream of income that was easy to implement.
Jeffrey Taylor will charge more for amenities, such as adding a storm door or ceiling fan. While he doesn’t make money from this, he does improve his property for free. What other such opportunities are out there?
Jeffrey Taylor (Mr. Landlord) is the master of this idea. Here’s how he describes his “3-Star Resident Program”:
“When residents move into one of my properties, I welcome them into my 3-Star Resident program. It doesn’t cost them anything, and they get perks by being a part of it. Their ‘anniversary’ becomes a time of celebration. Every year, I give them a choice of property upgrades (costing between $25 and $75 each) for paying rent on time.”
This bonus goes back to the rule of reciprocity mentioned above. It also can act as that gentle shove in the direction of “yes” when someone is sitting on the fence and needs a tiebreaker to decide on whether to renew or not.
And Taylor goes further:
“…in the third year, I announce a new program: the VIP program. Starting the fourth year, I return $100 of their deposit.”
These are by no means the only things you can put into such a program, but they’re a very good start.
You should approach the management side of your buy-and-hold business as not just “what you have to do to own properties,” but instead as a profit-making business in and of itself. The more you can raise rents, lower costs, and increase retention, the better your bottom line will be. Good management can save bad investments, and bad management can kill good ones. Be proactive in increasing your rental returns.
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By John Triplett
Here are 7 predictions for where the rental market is headed in 2024 from the economists at Apartment List as the once red-hot rental market of previous years has now cooled.
Here is a key topline summary for 2024:
Construction data from the Census Bureau suggests that multifamily supply growth should remain strong through 2024. The number of new multifamily apartment units under construction hit one million for the first time ever in 2023, and completions are expected to peak in 2024. With so many units in the construction pipeline, 2024 should be the strongest year for new multifamily supply since the 1980s.
2023 is set to have the second slowest rent growth of any year in the history of our estimates (going back to 2017), coming ahead of only 2020. Looking ahead to 2024, “we expect demand to bounce back slightly, but remain on the soft side. The labor market remains fairly strong and there is likely some pent-up demand for new household formation. However, affordability continues to be a major concern and sentiment data shows that Americans still lack confidence in the economy. Even in the most bullish scenario, it’s unlikely that demand will be strong enough to outstrip all of the new supply that we know is coming, likely resulting in our vacancy index rising modestly from its current level in 2024. We expect that rent growth will rise out of negative territory early next year, but that it won’t get above the low single digits in 2024.”
Many families are remaining renters longer than they may have in the past. Even those who can afford to buy in today’s market may find that renting now actually makes more financial sense. Although most Americans still aspire to own homes, more are now finding themselves renting later in life, and that trend is likely to continue. Consensus expectations are that mortgage rates will ease modestly next year, but likely not enough to significantly alter the prevailing dynamics of the for-sale market. As paths to homeownership fade for many, renting will increasingly be seen as the more practical housing option.
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In 2023, the remote work narrative focused on return-to-office plans, but this focus obscures the fact the pendulum will never swing fully back to the pre-pandemic norm. According to the latest estimates, 28 percent of all work days are still from home, and that figure appears to be stabilizing at that level. 42 percent of American workers currently have some form of remote work flexibility, and hybrid arrangements are much more common than fully remote ones. The data shows that hybrid work is here to stay, driving demand for rentals that provide spaces and amenities that blend work and home life for today’s flexible workforce.
The nation’s fastest population growth in recent years has been taking place throughout the Sun Belt. But in many cases, Sun Belt markets have also been among the most accommodating of growth, allowing for new housing development to meet the growing demand. The key takeaway: fast-growing Sun Belt markets will continue to be renter magnets, but rent growth should be kept in check thanks to lots multifamily development.
As we head into a presidential election year, the question of whether the economy is good or bad has proven to be surprisingly complicated. Most of the key indicators of economic health are looking quite strong, but economic sentiment surveys show that confidence and satisfaction in the economy remain weak. It’s likely that at least some of this disconnect is being driven by waning housing affordability. As the election cycle continues to ramp up, candidates on both sides of the aisle will need to articulate housing plans and speak to what has become one of the most pressing concerns of the American electorate. 2024 could be the year where housing rises to the forefront of the political discourse.
“We expect 2024 to bring a new wave of AI-powered tools specifically for renters. It will soon become commonplace for renters to use AI in their apartment searches to search, compare, and coordinate actions. It will take time for these advancements to change macro market dynamics, but the next high-demand rental market cycle may look quite different with new power in renter’s pockets. And as adoption of AI-enabled rental search tools accelerates into 2024, both renters and property managers can seize opportunities from this new technological frontier.”
“2024 is certain to bring twists and turns no model can predict, as the new year always does. But we hope that by forewarning of what’s foreseeable—from new supply waves to persistent homeownership headwinds bolstering rental demand—we can help you prepare for what is ahead.”
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