Why did YOU decide to become a landlord?

Was it the easy money, the low cost of entry or the landlord-friendly legislation here in CA?

(Jams head in hands.)

We’re guessing not.

We’re guessing you got into this landlord business – despite the risks – to live the dream: the dream of an asset appreciating and a well-funded retirement of extra cash flow, of travel, of time with your family…maybe even the eventual passing of a beloved home to your family.

Long term retirement building, a side hustle to your current entrepreneurial ventures/career, supplementing and diversifying your existing 401k and other investments: these are the reasons our clients decide to become landlords in one of the priciest counties in the nation….despite the risk.

And these are the reasons we’re here.

Normally, at the end of a calendar year, businesses send letters to their customers, reviewing the previous 12 months and taking a look ahead at the unfolding year.

However, this has not exactly been a normal year.

Let’s talk about your rental and what’s actually changing for your investment this year: short term and long.

—>During the most recent tumultuous real estate and rental period from 2008 to 2012, we saw property owners, particularly for those who owned higher-end rental properties here in Marin, who were wholly unprepared. —>We saw real estate agents unable to adjust to a rapidly changing market. —>We saw Marin homes that previously rented for $10,000 per month lease for $6,500, and $2 million homes sell for $1 million.

“But this is different,” you say.  “Sales are on fire!” you declare.  “There can’t be a down period coming.”

We know, we know, this is different.

But here’s the thing.

Real estate is well understood to move in 7-10 year cycles (COVID or not!).   With over $1 billion in rentals served since getting into this business in 2005, we’ve operated in an “up” market, a “down” market, and everywhere in between.

The signs are here.

The high-end rental market, though a few bright spots have been seen (like the $21,000/month penthouse rented at The Cove in Tiburon in Q4!), has been tepid at best for the last 36 months.

For the last six months, short sales have quietly begun in Marin – and not just the outskirts: San Anselmo, Larkspur and more.  Sales in Marin may be doing well, and rentals may be holding their own, but the same signs we saw in this business pre-2008 are there now.

And also… now we also have this little thing called a pandemic, and all the tenant-friendly CA legislation that comes with it.

[Insert quick zillow search of your rental’s approx value for sale…]

Yet: there’s no need to panic.

Those same rentals we saw go for 40% off in the nadir of the last crash have since seen hundreds of thousands of dollars in appreciation of value since then. We continue to believe real estate and rentals are a great, long-term investment here in Marin.

You don’t need to panic.  But you do need to pay attention to what’s happening right now to get there.

So for 2021, here’s our message to landlords everywhere:

It’s time to go back to basics.

We urge all property owners — whether you employ professional property managers or choose the DIY approach — to emphasize sound business principles based on a long term vision, to err diligently on the side of caution and to maintain vigilance in keeping up with rapidly changing legislation this year.

In everyday language, that means 2021 is the year of going back to our roots, and to the principles on which solid rental decision making is made:

• Thorough screening of tenant applicants
• Tightly written rental contracts
• Diligence following latest required disclosures (which will change this year)
• Decisions based on process and not emotion

No exceptions.

And you’re going to need a team.

Owning rental property continues to be an attractive investment opportunity, but only if it is treated as a business. That means working with the right expert in the fundamental aspects of your rental business.

We all know we wouldn’t hire a dentist to perform knee surgery, no matter how much a person liked this eager dentist, right?

—>Seek counsel from a real estate attorney who specializes in landlord/tenant issues (not your brother’s friend who used to be a corporate attorney)

—>Seek tax advice from accountants who emphasize rental property ownership and can help you minimize tax liability

—>Know an insurance agent who can advise you on specific landlord tenant insurance policies can help keep you and your asset protected

—>Use licensed, qualified, insured vendors for personal liability protection

—>Know where to turn for the right answer when you have a question about managing your rental so you don’t make an innocent misstep and cost yourself thousands of dollars.

If you want your rental and your (er, diminishing) rights as a CA landlord to be best protected in the coming year, know the law and know your source:

—>Seek counsel from a real estate attorney who specializes in landlord/tenant issues (not your brother’s friend who used to be a corporate attorney)

—>Seek tax advice from accountants who emphasize rental property ownership and can help you minimize tax liability

—>Know an insurance agent who can advise you on specific landlord tenant insurance policies can help keep you and your asset protected

—>Use licensed, qualified, insured vendors for personal liability protection

—>Know where to turn for the right answer when you have a question about managing your rental so you don’t make an innocent misstep and cost yourself thousands of dollars.

(This is where we insert a shameless plug for our new sister company, www.TheLandlordCode.com, teaching independent DIY landlords how to avoid problem tenants while managing your property from anywhere in less than 15 mins a day! Our Landlord Course and Lounge are coming in Q1…the waitlist is open now.)

What does this mean for you?

Pandemic-hastened legislation and regulations in 2020 have had an enormous impact on how property is rented and managed here in California.

The recent political landscape with regards to the rights of tenants and ever-tightening rights of property owners is in a constant state of flux.

While much is still unknown, we do know that eviction bans will stay in place for the near future and rental price increases will be limited in many areas.

Relocation assistance (where YOU have to pay your tenant to move out) is in effect for many rentals, as well as AB-3088, which as most of you know by now, is the legislation that allows tenants who declare “covid hardship” to remain in your rental virtually rent free, with no end yet in sight.

So what now?

We believe that knowledge is power, and that the best offense is a good defense.

We’re going to arm you with our predictions so you can make educated decisions for 2021.

Here are our predictions for 2021:

—>The market segment that will likely languish the longest is the high-end ($8,000 per month and up).  While the sales market may continue to be robust, the overall rental market will drift as long as there is uncertainty in the economy and with more potential regulatory/legislative activity on the horizon.

—>Initial numbers suggest the luxury segment finished 2020 about 2% up overall (this after a flat previous 36 months), which is great news.  However, we believe this is a partially inflated number due to the initial extreme reaction and reshuffling which occurred this past summer, and we do not believe this trend will continue into 2021.  This is year to price moderately and double down on tenant qualifications.

—>For the average rental in Marin (defined as the $3,500 – $7,999 segment from our studies) 2020 rental rates were mostly flat to modestly up in some areas, but across the board volume was down in most segments.  There are fewer rentals available, with proportionately fewer prospective tenants looking.  The higher priced your rental, the more you will feel the effects of a changing economy in 2021.

—>San Francisco landlords need no reminder of a market currently seeing 20-30% lower rents and extended vacancies longer than both the Dot Com crash, and last real estate market crash.  This is not expected to change in 2021.

Again, knowledge is power.

Armed with this understanding of the market, we hope in sharing our predictions you can make informed decisions about your rental business in 2021.

Our goal in creating Foundation over ten years ago was to help our clients manage their assets in a way that helps through difficult times, protects investments, and make smart decisions…no matter what the market looks like.

We have watched; we have learned, and we have created systems that work and protect.

We have a lot in store for our clients in 2021 that we can’t wait to share with you.
In short, we’ll leave you with this.  Sometimes cliches are also the best advice. Be prepared.  Understand that owning property has always been a long-term proposition.  We’re optimistic that we are prepared to work with you to maintain and to enhance the value of your rental property business now, and in the long run…so that vision of retiring with a well-performing rental asset comes not only sooner rather than later, but comes easier as well.

We appreciate the trust that you have placed in us and look forward to working within 2021 and beyond.

From all of us at Foundation, here’s to the New Year!