How Long is Too Long?

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How Long is Too Long?

How Long is Too Long?

by Sonya Loera
Apartment News, June 2022

On June 28, Governor Gavin Newsom signed into law AB832, thus extending California’s eviction moratorium until September 30.

This same legislation increases the value of the reimbursement that the state’s emergency rental assistance program provides to now cover 100 percent of past-due and prospective rent payments.

But for both landlords and low-income residents, how that assistance may be obtained and who actually qualifies under what circumstances becomes much more complex. And, like many such undertakings, as Assembly Speaker Anthony Rendon explained to CalMatters, “We’re trying to implement new processes and protections, and we’re hoping that those will be effective.”

So what does all of this mean for Orange County apartment owners? Even for those who have not had to cope with residents losing their jobs and unable to pay rent, the economic hardships have been challenging. Perhaps more strongly than anything else, the extension of the eviction moratorium signals that there are still uncertainties ahead.
Certainly the return to pre-pandemic norms is going to be a much longer process than envisioned. And, for apartment owners, regaining the cash-flow levels of previous years may be an uphill struggle.

With all that is happening, no matter how your rental properties are currently positioned, it is critically important that you step back and look at the bigger picture. You need to quantify not only your day-to-day needs and goals, but also the impact the new laws may or may not have upon returns and values in the future.

Expenses are a major consideration. Beyond regular operational costs, prices for lumber and other construction materials have skyrocketed. And, then, there are the long waits for replacement items which cause delays and potentially a loss of income if preparing a unit for re-renting.

Seasonal adjustments have to be taken into account, as well. Particularly this year as summer temperatures rise to record-breaking levels, putting added stress on air conditioners and compressors.
Also, as noted just a few months ago in this column, deferred maintenance items are another part of this equation. Ignoring certain types of preventative upkeep can often result in even greater costs downline either in terms of the actual repairs or with a loss of value.

Then, there is the question as to how you will pay for those increased expenses. Do you have sufficient savings? Unless you have set aside specific reserves, is it even in your best interest to tap into those funds?
Should you be considering a rent increase? Yes, statewide rent control sets a limit on the amount, but there are also the market constraints to take into consideration. 
Even for properties with more affluent residents, the pandemic carried both an economic and a lifestyle impact. No longer able to dine out and travel, a good number of residents took advantage of those savings and the still low interest rates to make the move to home ownership. Working remotely further changed where some residents felt that they need to live.

At the bottom line, if you have not done so recently, you need to survey what similar properties in your area are charging. This is important information that can be invaluable in guiding you in making decisions going forward.
If your rents are below those of other comparable properties, then that tells you there are opportunities. Perhaps now is not exactly the right time to institute a rent increase, but you may want to start making preparations and spend some money on exterior touch-ups, landscaping and common areas.

Your income and expenses not only determine your cash flow, they impact value as well. Today’s income property investors are taking a hard look at the fundamentals. They want to know that a property has the potential to generate a return and they are no longer counting on big price escalations.
So where do you go from here? Everyone’s situation is different. However, you owe it to yourself and to those who rely upon you to acknowledge that everything is not necessarily going to quickly bounce back. It is going to take time and you need to be prepared for that fact.

Sonya Loera
Agent, Manager DRE#01947308