Welcome to the American Dream
If buying your first house is the American Dream, than owning a rental property must be the American Dream on steroids. For many that have never been a landlord it sounds like a great great idea. You save, you leverage, you borrow and you pour money into what you believe is going to be a large piece of your retirement income. You find a tenant, and then as the theory goes… you pay down the mortgage from the rental income while you manage the property… how hard could it be? The tenants leave, you freshen it up and repeat…
What could go wrong? It is right out of Real Estate Investment 101. From an investment standpoint, it’s income with very little risk of complete loss. The house is generally insured and unless there is a catastrophe, the losses generally marginal. Bad tenants come and go and eviction is still an option, even in California. But owning rental property has changed over the past several years and not everyone is built to be a landlord. The ugly truth of being a landlord in Sacramento is it is still tied to the people and the toilets. As long as you have one you need the other and eventually that spells trouble.
Property Managers Can Help
Many landlords that are not interested in the day to day management of their properties often hire property managers. Certainly that can help with the mundane day to day issues, but when it comes to a bad tenant, property managers are just the first line of defense. Don’t think for a moment that the property manager is going to take on any cost that affects their business without passing it on to you. The cost of a property manager is roughly 10% of the monthly income plus. plus the cost of advertising and screening prospective tenants. They are a cost plus operation and that means that the landlords pay all of the bills regardless of what has happened. With rental rules changing in California everything about being an landlord is becoming more costly and difficult.
The truth is, it’s time consuming and much more difficult than anyone realizes and you may find (as many landlords do) that … after finding a suitable rental property….
You either pay cash or take out a loan to purchase it, pay for the improvements, pay to advertise the property, screen for suitable tenants and then answer the phone every time they call. It doesn’t matter if it’s late at night when they call because the toilet is overflowing, you have to take their call and deal with it.
It means: you give up your personal life – you have no more free time, no golf, no fishing, no more vacations, no more weekend getaways… all because every penny goes back in to the rental property. Property taxes, repairs, you’re so busy as a landlord you become a slave to the property.
So Much for
Passive Mailbox Money… There is work required
It used to be that if you had a good tenant you had mailbox money coming in. Sure there were things that went wrong, but in balance you worked with your tenants to created that equilibrium… that kept everything respectful. Today, I am not sure that in California there is any balance or respect for landlords or their property rights. Just a few years ago, the threat of eviction was enough to keep landlords and tenants respectful of the inherent property rights. Eviction up and until then was a natural deterrent guaranteeing the rent was paid. It has been a reasonable option and helped keep the peace, but today there is an assault even on a landlords rights to perform an eviction. The process called unlawful detainer has become elongated and costly allowing tenants, even those that haven’t paid rent and that are causing ongoing property damage to remain in rental housing for 120 days or longer. Today mailbox money means that as a landlord, you are paying the bills associated with your rental.
Cities and Municipalities are Changing the Rules:
Just in the past 5 years owning rental property in Sacramento has meant that property owners are subject to more scrutiny at all levels. Cities are imposing rent controls and eviction guidelines that make it all the more difficult to remove bad tenants. Although the new rules are shrouded in protecting renters rights, they are born out of rental shortages and meant to restrict the rights of landlords. If you own rental property, you don’t need to read an article to know the ugly truth of being a landlord because you’re living the dream every day. Sure, when the tenants are good, dont break things and pay their rent on time it’s great. But overall, most landlords admit that it is not what they thought it would be…
It’s not like anyone give you a pass on anything. Cities and their code enforcement departments have officers ready and willing to cite you for any number of violations for your rental properties. In fact those same departments are more apt to inspect your rental properties by placing inspection notices on front doors. To make matters worse, there doesn’t even need to be a complaint. This new trend by cities, is costing landlords thousands of dollars by forcing them to upgrade windows, doors, and appliances in order to comply with new state energy and environmental green laws. To make matters worse, even regular homeowners are not subject to the same scrutiny or requirements to do the same upgrades for houses that they occupy. The double standard for landlords is growing statewide at an alarming rate.
Couple that with inspections from health department personnel and there is a ticking time bomb, whereby landlords have become financially responsible for the way that tenants live and treat houses that they rent.
There’s the cost
With all of the changes and challenges for landlords, the ongoing cost, it’s a wonder more and more rental property owners are not just liquidating their properties with today’s high real estate prices. For some, a sale would create a capital gains issue and make teh sale a tax nightmare. For others the houses may have substantial deferred maintenance and the landlords cant afford the repairs. For both types of landlords… it may be time to sell that Sacramento Rental Property to a cash home buyer.
For those with Capital gains concerns. Structure the sale so that you are accepting monthly payments over a term acceptable for you or do a 1031 exchange so that you can buy an another property, or vacation rental is a place that you like to vacation. For those with houses in need of serious work. Cash out. Declare losses and sell that house for Fair Market value minus the cost of repairs. Remember the condition of some houses determines the type of tenant that you will attract. You already know that some houses are their own worst enemy and have ongoing issues with electrical, or plumbing that is another ticking time bomb waiting to explode by inserting people into that equation.
Sure you get some rental income from the tenant but you also have to take care of the property, fix it up, make upgrades, and repair it if the tenants trash it when they leave. In other words, the costs add up and the financial rewards of owning a rental property may not be there for you anymore.
When you add up all of those liabilities, it equals STRESS! You’ve got so much to juggle and unfortunately the new laws and ordinances may make it prohibitive to own and maintain rental property in California. If you worry about it constantly, or even fear opening the mail because you may find bad news in the next envelope, there may be a solution.
Sell that Rental House to Westbrook REI
If you own a rental property and want to get sell it, we can help. We buy Houses (even frustrating rental properties that have damage or bad tenants that you can’t get rid of). Let us make you an offer on yours?