Law, politics, and associations

I spent these past couple of weeks attending the SF Small Property Owners Association meeting, the SF Apartment Association meeting, and a landlord-tenant seminar offered by SFAA. I always recommend that new SF property investors join at least one of the associations. How better to learn a thing or two about SF real estate investing than to mingle with the people who have been doing it for years.

One thing you will learn is that it's not easy being a landlord in a city like SF: landlord-tenant laws, rent control, Ellis Act, and Costa-Hawkins. Did you know that even though a tenant's lease is expired, they are considered a "tenant for life" and that you must have one of 14 "just causes" to evict? Eviction based on tenant actions (e.g. non-payment of rent) can take up to 3-6 months and cost $40,000 if the case goes to trial? I got the feeling most landlords end up "settling" with tenants regardless of the cause of eviction. To understand the strict tenant eviction laws and rent controls, you have to go back to the history of the SF Rent Control Ordinance enacted in the late 1970's. It was a time when the city was experiencing huge rent increased and evictions almost overnight. The situation reached crisis levels in the spring of 1979. To get a handle on the situation, City Hall proposed a series of restrictions, including a cap on rent increases for 60 days. It was suppose to expire 15 months later but, forward to 2005, the ordinance is still in effect. Since then it's been an endless battle between tenants and landlords. There's even a tenant's union that represents the interests of renters in the city. Any residential building, except single family, built before June 13, 1979 falls under rent control. Costa-Hawkins amended the single-family exemption, so that any tenant in a single-family unit rented before Jan. 1, 1996 also falls under the rent control ordinance.

And then there is the political situation and one thing I know is San Franciscans love politics. The landlord tenant laws are a huge political issue and, as most voters are renting, you can guess who has the upper hand at City Hall. Being that it's the political season, many of the associations were discussing their slate. They also discussed the laws going into effect on January 1st including one stating that tenants can be given 30 day eviction notices, instead of the 6o days now required.

You would expect that property investors could at least get a good return on their money for all the added restrictions. But, to be honest, investors purchasing income properties today in SF can expect to lose money each year, especially if there is financing involved. Cap rates are virtually non-existent. (Cap rate is the required rate of return on your money invested or required rate of return minus growth in cash flow). I'll talk more about return on investment, finding values, and ways you can still make money in later blogs. My hope is to find light at the end of the tunnel.

To find out more about the property laws of San Francisco, I recommend visiting www.mypropertyrights.com. The site belongs to Jeffrey Woo, an attorney specializing in property law.

The SFAA puts out many seminars for apartment owners and I highly recommend that new apartment owners join. Their website is www. sfaa.org.

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