It sounds great, doesn’t it? Owning a rental? Someone else pays your mortgage each month, you get the leftover cash. It’s cash flow baby, how can you go wrong? You get income each month, and if they do not pay you tack on a late fee. They still don’t pay? Evict their butt! Raise the rent yearly and voila, you can buy another, and another and another. WRONG!
Let me give you a real-world story. First, a friend of mine rented out his townhouse to a couple college kids. He had since bought a newer, bigger house. It worked fine for a couple years, then when move out time was happening (tenants graduating college) they proceeded to have a massive party, trashing the place to the tune of 40,000 dollars. Yes, 40k. Let’s just say that was equal to the amount of rent paid over the two years they rented from him but it likely was not. I helped with repairs, but they thew a kegger, had a bunch of folks over, and flooring had to be replaced, the bathtub/shower insert was broken, the toilet bowl was missing a chunk out of it. Yikes. All this for a little income? My friend sold the place at a loss, this was circa the housing bust.
If that doesn’t scare you, or you are very naïve now read, on for my personal reasons not to own one (again in CA specifically).
Rent Control Laws: They will keep getting more not less favorable to the tenet. Try making money/keeping up with inflation and property tax hikes when you have strict limits on how much you can raise rent annually.
Property Taxes: Prop 13 is/has been under siege for the longest time, eventually prop 13 property tax protections will go away for commercial buildings, this likely will include rentals someday. Prop 13 for those of you not familiar, limits property tax hikes to a set percentage a year, 2% I reckon. Without prop 13, Katie bar the door.
Tenant Has all the Rights: In CA Landlord = Bad, Tenant = Good. The laws are all on their side. All the time. Stove goes out? They can withhold the rent. AC/Heat goes out? If not fixed quickly…ditto. And withhold means straight up not paying for the month by the way. Trust me, I know this, as my office partner owns a rental, if it wasn’t paid for he would sell.
Eviction is HARD: Again, like the above, the laws are all on the tenant side. First, months upon months of payments must be missed. Then you must file with the court, then have the Sheriff serve the tenant in person, not via email, or snail mail. Then you will need a good lawyer, not a cheap one, because again if the “I”s are not dotted and “t”s not crossed then the process starts over. With your tenant living for free.
“Plandemics”: Yup, it was planned not a pandemic. Fauci came in and made the rules, governors enacted them. We shut down, but worse, you could not evict anyone for non-payment or any reason. Check out that sentence again. So, folks quit paying their rent, actually you would have been stupid to keep paying it. Now good luck collecting that bank rent. Oh by the way, I think CA just finally allowed evictions to start to proceed, literally a year plus after the plandemic was declared over.
Utilities: See above, but the tenant likely wasn’t paying those either, but since it’s your house and you the landlord are the owner…you owe them now or face a shut off. Again, as landlord good luck getting the state to forgive those.
Upkeep: It’s not the tenant’s house so don’t expect much from them. Major wet/dry rot, dead trees, water leaks, uncared for appliances will be the norm. Don’t expect them to make you aware of the cosmetic damage either. A client of mine had a rental with 25k of dry rot on the entire side of his rental. The sprinkler was hitting the side of the house for probably 2 years straight causing major damage. (Also not covered by insurance btw).
Mortgage: Whether the tenant pays rent or not, your mortgage is still due. Just remember that. Just like the property tax, insurance and utilities that are your responsibility. Those entities do not give a rip that your tenant ain’t paying you.
If these have not convinced you to not buy a rental in CA, then by all means go for it. I am sure a lot of you have wonderful stories of great tenants/experiences etc. so the obvious disclaimer, your experience may vary. I just do not see the upside in CA or any blue state for owning a rental property. For me there is too much risk involved. I see way too many negatives, and I do not wish to not sleep at night due to stress or whatnot.