Alameda Landlords Must Brace for Change Ahead

Alameda Landlords Must Brace for Change Ahead

 

I am a small landlord in Alameda. I own a three-unit property; I live in one unit and rent the other two. I treat my tenants well and I have kept rents below market to support my tenants, which I did with the expectation that I would be able to raise rents to market once my current tenants left. That was obviously a bad decision on my part. I do not make a profit on my rentals; the rents they pay cover less than the costs of the proportion of the property they occupy. The rents do of course help me to pay my mortgage and costs, so I benefit from being able to own a property — or at least, I thought it was a benefit, but I’m not sure about that any more.

Both new rent ordinance put in place in March which is set to expire in 2019, and the proposed initiatives on the November ballot, L1 and M1, impose substantial hardships on small landlords like me, especially those of us who have not raised rents to market rate as we have seen the world around us go mad. 

We are limited in the rent increases we can make, regardless of the reason for an increase, and we are required to participate in a bureaucratic process where we are required to prove just cause for any rent increase over 5 percent to a quasi-judicial body that has no particular expertise in housing policy, rental costs or real estate. 

We are required to show up at a scheduled review or pay for a representative to do so, or forfeit the proposed increase and any chance to raise rent for another year. I travel regularly for my work to pay for my house and the house my tenants live in, and it’s hard for me to make meetings that are scheduled without regard to mine. This means I either have to pay a lawyer to represent me or forgo business income of a day or more to present my case myself. Either way, I pay a few thousand dollars to plead my case.

Furthermore, I have to pay relocation costs of thousands of dollars, perhaps tens of thousands of dollars (depending on which ordinance passes) to my tenants under almost any condition except when they have violated terms of the lease — even if their lease is up and I choose not to renew it and it seems even if the lease is up and they choose to move. 

The law is vague on this point and under California law, the benefit of the doubt goes to the tenant, so I’m not hopeful about how the courts would interpret this vagueness. I also have to pay it immediately on ending someone’s tenancy. This means that I have to have savings on hand of $20,000 or more for my tenants’ behalf or I violate the law and can be fined and prosecuted. All of this for what? I haven’t made a penny off of my tenants — in fact, I’ve subsidized one of them, including her home day care center.

The people who have caused this crisis are investors buying up large rental properties, raising rents and forcing out established tenants. Not people like me. But none of the laws or initiatives differentiate and the result is that people like me are being punished and seriously financially disadvantaged. Is it really right to try to solve a regional housing crisis on the backs of small property owners just getting by? We did not cause the crisis. Is it really justice to save renters by taking money from small property owners — money that we may not in face have? I certainly don’t. I would have to take money from my retirement savings to meet the terms of the relocation payments or be in violation of the law. How many people do you know who have $20,000 to $40,000 in cash savings lying around?

The threat of being responsible for tens of thousands of dollars in relocation costs is enough to make me reconsider being a landlord at all. I seem to have two choices: do short term rentals on Air BNB, or sell my house and leave the Bay area. It’s obvious that tenants will not benefit if I make my units into Airbnb units. 

That’s looking like a pretty attractive option because if I make less money on renting out these places than I do on monthly rents, I still do better financially because I am not on the hook for relocation expenses. It would probably be cheaper for me to leave the units vacant, as I wouldn’t have to pay water, gas and electric and garbage and my insurance would go down.

So what would happen if I sell? Property values in my neighborhood will go up because my house will sell for more than I paid for it. It won’t sell for as much as it should, though, because the rents of my unit are artificially low and the new owners will have to go through a bureaucratic process to raise them. But it will be worth it to them and they will have just cause based on the higher price they have paid. 

So the new owners will either raise rents based on the higher cost they paid and the market value of the units, or if they are wealthy enough, they may take the units off the market altogether because of the new regulations. Or perhaps the house will be bought by investors who have the money and lawyers to deal with the process and litigate to raise the rents to market value.

I can see many other small landlords making the same calculations that I have in response to the new law. The net result will be that this legislation will only further drive the very changes in the Alameda community that its proponents want to stop.
Frankly, I feel cheated and stupid. I tried to establish some kind of home security for myself as a single woman by buying property so I would not be at the mercy of landlords. Understanding what that is like, I put community and caring for my tenants above my own pocketbook. 

Now, I feel like my community is punishing me for it and treating me like a pariah. Alameda has been the place it is in great part because of the large number of small landlords like me. Get ready. It’s about to change and not for the better for either tenants or property owners.

 

 

Sarah E Murray is an Alameda resident and landlord.