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Sunday, January 12, 2020

Just Cause Eviction

What You Should Know

Landlords may only evict for “just cause.” There is a list of 15 reasons. The just cause reasons are divided into two categories:
1. “At fault” termination of tenancy is generally based upon a tenant’s breach of the lease, among other reasons, and does not require the payment of relocation assistance.“At fault” reasons include non-payment of rent, nuisance, criminal activity, refusal to allow entry, and breach of a material term of the lease
2. “No fault” termination of tenancy is allowed when the tenant has not breached the lease and will require the landlord to pay one month’s rent in relocation assistance. “No fault” reasons include owner occupancy, withdrawal from the rental market, substantial remodeling and compliance with government order to vacate the property. 

Just cause eviction only applies to tenants who have been continuously and lawfully occupying the property for 12 months. 

At Fault:
1. Non-payment of rent
2. A breach of a material term of the lease after being given notice to correct the violation
3. Nuisance
4. Using the property for an unlawful purpose
5. Criminal activity on the property or common areas or criminal threats against the owner or agent on or off the property
6. Refusal to allow entry
7. “Waste” – meaning damage to the property.
8. Assigning or subletting the property in violation of the lease
9. The tenant had a written lease that terminated on or after January 1, 2020, and after a written request or demand from the owner, the tenant has refused to execute a written extension or renewal for an additional term of similar duration with similar provisions, provided that those terms do not violate the just cause law or any other law.
10. Failure of an employee or agent to vacate after termination of employment
11. When the tenant fails to vacate after providing the owner with their own termination notice or after an agreed upon surrender.

No Fault:
1. “No fault” evictions are allowed when the tenant has not breached the lease and will require the landlord to pay one month’s rent in relocation assistance. “No fault” reasons include:
2. “Owner occupancy” where the owner, or the spouse, domestic partner, children, grandchildren, parents or grandparents of the owner, decide to occupy the property, assuming there is a lease provision permitting it.
3. Withdrawal from the rental market
4. Substantial remodeling or demolition of the property
5. Compliance with a government order to vacate the property

Wednesday, January 8, 2020

Gavin Newsom's Update on Rent Caps and Just Cause for Eviction Law

Calling all landlords who own multi family properties and condos!!! There are changes to what and how you can operate with your tenant.

Here's what you need to know about the rent cap portion:

1. Rent increases are capped at 5 percent plus inflation, or up to a hard cap of 10 percent, whichever is lower
2. All rent increases since March 15, 2019 will count toward the rent cap, and if above the permissible rent cap, will have to be rolled back effective January 1, 2020
3. For month to month tenants, the addendum should be incorporated into the rental agreement by providing the notice by a change in terms of tenancy. Use Form “Notice of Change in Terms of Tenancy” (Form CTT)
4. If your tenant is on a lease, then you’ll provide the addendum as a stand- alone notice
5. For all tenants signing a new lease or rental agreement or a renewed lease or rental agreement after January 1, 2020, the addendum must be included
6. The law went into effect January 1, 2020
7. All rent increases beginning from March 15, 2019 count toward the maximum rental rate. A landlord who increased the rent on or after March 15, 2019, but prior to January 1, 2020, cannot increase the rent beyond the maximum rental rate within any 12-month period
8. A landlord who increased the rent on or after March 15, 2019, but prior to January 1, 2020, beyond the maximum rental rate would be required to roll back the rent. The rent reduction would be effective January 1, 2020.
9. This law sunsets after ten years (January 1, 2030).
10. It covers only residential property. It does not apply to commercial property
11. A landlord can increase rent 5% of the lowest gross rent charged during the previous 12-month period plus cost of living, or 10%, whichever is lower.
12. All rent increases beginning from March 15, 2019 count toward the rent cap. A landlord who increased the rent on or after March 15, 2019, but prior to January 1, 2020, cannot increase the rent beyond the maximum rental rate within any 12-month period.
13. The regional Consumer Price Index published by the United States Bureau of Labor Statistics (using the 12-month period from April to April) is the utilized cost of living index See this link:
14. A landlord can increase the rent no more than two times during any 12-month period.
15. As long as a previous tenant continues to occupy the property, adding a tenant does not permit a rent increase beyond the maximum.
16. For a new tenancy in which no tenant from the prior tenancy remains in lawful possession of the residential real property, the owner may establish the initial rental rate.
17. Neither the rent cap nor just cause eviction portions of the law arewaivable. This type of rental agreement would be “void as contrary to public policy.”

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Tuesday, August 6, 2019

In the era of technology, communication and robots....

What role do we as humans play in the process of real estate transactions? This is always a conversation that comes up in real estate as things become more automated and the process more transparent.

In some small instances, real estate is a very transactional business. In most situations though, it is a human bartering property with another human. For as much as we would all like to think that we are perfect, we're just not. If we were, we would all have perfect bodies, never run late, and be infinitely wealthy because we've made all the right decisions. The bottom line is that perfection isn't the human experience and for as much as real estate is about real property, it's about people most of all.

It's about buying your first home together. Buying the home you will raise your family in. Buying the coastal property that will be a source of stories for generations to come. In other instances, it's about moving on to where you want to retire. It's about selling a property to not be a landlord anymore. It's about swapping the coast for the mountains. It's about selling to have less responsibility and to spend more time traveling. These are human experiences and goals that no robot or algorithm can experience. Ultimately, these are humans that are buying and selling properties. They are humans participating in a transaction, which is likely to be emotional. Transactions and people are complicated.

So where do agents fall into this process? I like to think of myself as a teammate. I'm there to help pump up my clients when times are tough. I'm there to help my clients stay focussed on the goal. I'm there to be by my client's side and collectively achieve the same goal of a successful real estate transaction. I'm there to help set up success. Buying and selling real estate is an emotional process. It's important to have someone be able to help. We're all humans trying to make things work, but we're also subject to human error and need a compassionate teammate to help us through.

Friday, July 19, 2019

Spanish Colonial: the remedy for a Mediterranean Home

I personally haven't heard a request for a Mediterranean or Tuscan style home in years. Especially in style and design, there are significant pendulum swings almost as a reaction to an over saturation. For example, V-neck tees, skinny jeans and hoodies used to be the fashion uniform just a decade ago. After a few too many butt crack sightings, we've transitioned to high waisted pants or shorts, cropped tees, denim on denim on denim or a more athleisure look where it is acceptable to wear sporty sweatpants and slides any time and anywhere. I think Adam Levine is the only one still wearing skinny jeans and V-neck tees, but I'll give him some slack given that was the look when he rose to fame.

So why do I mention fashion trends? Home trends go through similar pendulum swings. For example, before the recession, the trend was big Mediterranean or Tuscan style homes that were dark and rich with warm tones throughout. The homes were grand and regal. However, in comparison to the new homes that we find today, they're dark, gaudy, over the top and formal. Whether it is the modern farmhouse, coastal modern, mid century modern, or contemporary home, the defining qualities are light, white and bright across the board. I've even written posts on how to create depth and definition when your home is white on white on white. These new homes couldn't be more of a 180 degree turn from what was being developed even 15 years ago.

So what do you do if you bought a Mediterranean or Tuscan home and are looking to make your next move? Look towards Spanish Colonial homes. These homes are found everywhere throughout California with the highest concentration centered around Santa Barbara. Featured throughout Spanish Colonial homes are a sense of measured grandeur that is balanced with a breezy, sprawling quality that offers the best of indoor, outdoor California living. There's a balance between the crisp white walls and the depth of dark rich woods that range from raw to highly cared for lacquered woods. The ying yang balance of the crisp white and dark wood offers a timeless elegance comparable to the "I woke up like this" allure that comes from most Californians.

So now that your moth is watering over the fabulousness of a Spanish Colonial home, how do you garner this within your Mediterranean or Tuscan home. Your home is newer, in great condition and was in the elite pack of trend setting homes for it's time, but it's not what buyers are looking for today. Architecturally, both Mediterranean and Spanish Colonial homes typically have a sprawling grandeur to them, complete with curves, terracotta roofs, and dark brown wood work. The difference is that a Spanish Colonial home has a significantly greater contrast than the Mediterranean or Tuscan home. Spanish Colonial homes have bright white walls and feature darker wood accents than most Mediterranean homes. Quick math: swap your gold and jewel tones for white and replace your wood for a darker shade of brown. With this swap, you're killing a couple birds with one stone: you're making your home much breezier and you're making your home a classic California style that has been around for many years.

Most importantly, you should sell your house faster and for more money!!!

Wednesday, January 30, 2019

Echo News: What to expect out of our Real Estate Market

There is a lot of factors that are impacting our real estate market. The biggest being the following: interest rates and inventory.

When Janet Yellen was the Fed chair, her inflation target was 2%. She more or less wanted the economy to grow, but at a nice steady pace. Based on the following chart from Case Shiller's National Housing Price records, I think she has succeeded.

There have been several rate hikes in order to control/manage the rate of growth in order to achieve her steady growth and recent reports tell us that we are quickly approaching a 3% inflation. Check out the following article for more information:

The reason this is significant is how this impacts interest rates for home loans. As the fed implements rate hikes, interest rates for most loans increase including home loans, car loans, commercial loans, etc. As interest rates increase, there is more money that gets allocated to paying down the interest as opposed to paying down the principal of the loan. As a result, the price of home that an individual can afford decreases because the average monthly payment on a loan increases with increased interest rates. 

Although we've seen a slight dip in home loan interest rates for the first part of the year, we are still at higher rates than we were for the prior year. This has resulted in a decrease in demand in that price point because people maybe can't afford now what they could last year. 

This has been a negative impact on the market. The concern is does this mean that we are coming into another recession. My response is absolutely not. The reason being is that the overall fundamentals of the market are still really great. There's more equity in homes. Here's an unemployment chart demonstrating that we are at our lowest rates in 50 years.

Yes, increasing interest rates are tough, but people are still buying homes because it fits our lifestyle or people want to achieve stability and homeownership. 

Nationwide and locally we have seen an increase in inventory and a decrease in the volume of transactions for the last quarter of 2018. That makes a number of people nervous myself included. However, there are several contributing factors to that. Again, increased interest rates at the end of last year make it more difficult for buyers to afford a home. This is also known as reduced purchasing power. Second, it's the holidays and few people move over the holidays. Third, in most situations, we have reached or surpassed pre-recession highs. That is psychologically challenging for a lot of buyers especially when this is compounded with higher interest rates and reduced purchasing power. Fourth, it takes time for sellers to see and or appreciate the impact of all of these factors on the market and what that does for the purpose of selling your home. 

Again, this doesn't negate that we have good fundamentals in our real estate market overall. We just need to be aware that these factors impact the speed at which our properties will sell. Days on market increases slightly. Buyers have more to choose from as inventory turns over at a slower rate. As a great example, we've seen a lot of movement in our income property market. Most investors have seen the slight slow down in the market and have aggressively come out and negotiated to target lower property taxes. By waiting for a slight correction and being aggressive, investors can control one of their most significant ongoing costs: property taxes. 

We've been growing at roughly 6-7% year over year, but with increasing inventory and interest rates, we will likely see that rate of growth slow down. If I had to compare it to something, I'd say it's a little bit like pulling your foot off the gas when driving a car. It's not to say that we aren't still moving forward, we just aren't accelerating. We will likely see fewer developers and small scale flippers because aggressive market appreciation is more or less their safety net. They purchase a property based on comparable properties at the time of purchase, but become significantly more profitable when that same property has increased by 6-7% more than the comparable property at time of purchase. 

The overall takeaway: the market is still healthy, just be patient and responsive.

Thursday, December 6, 2018

Affordability-what is it and how does it impact our housing market

Affordability. A lot of us talk about what we can and can't afford, but what does that look like in terms of real estate and what does it mean for our overall economy? First and foremost, I'm going to suggest that you check out my youtube channel where I discuss interest. I'll be sure to include a link below. The gist is more or less that interest rates impact how much you can afford. As each individual payment becomes more as a result of higher interest, affordability decreases because your money is going towards interest rather than principal, aka payment on loan.

This means that as the Fed continues to hit us with rate hikes, our monthly payment increases and therefore reduces how much we can afford to purchase. This rate of affordability is decreasing as the Fed continues to increase interest rates.

For nearly 6 months now, I've been predicting a market slow down as a result of the increasing pressure on affordability. Normally the counter argument is that interest rates are still historically low compared to other economic cycles in our history. That's definitely one argument, but the better argument for buyers is your reduced property tax rate. Our market is still growing, but at a reduced rate. The volume of transactions is the most significant decrease across the board especially if you're following our market. I think in our quarterly market update meeting, the volume of transactions had reduced by as much as 20%.

This scares an awful lot of people and brings up the dreaded idea of another recession. How does our current market stack up in comparison to our pre-recession market? We may not have the concept of depression era mentality, but we definitely have recession era mentality. Many reports will tell you that we have surpassed pre-recession highs. However, those reports are not adjusted for inflation. That is hands down the most muddling factor when looking at data and it's beyond important to note for the sake of comparing markets. Nominally and in Orange County in particularly, we have far surpassed pre-recession highs. However, if you adjust for inflation, we're closer to our 04-05 market. The reason I bring up this difference is that in 04-05, most people were keeping up the Jones's and not doing the math themselves in terms of what they could or could not afford. They were depending on big banks to tell them what they could afford. It was right at about this point that lending got really squirrelly. These days, the banks require more in a down payment or PMI and people are evaluating their overall financial health for themselves. Because of this, our market is responding more appropriately than it did in the past.

I don't know about everyone else, but my grandmother had depression era mentality until she died. It got significantly worse with dementia, but she did a lot of weird things. The one that stands out to me most is that according to my mom, my grandmother kept ice cream until there was fuzz on it. Not sure how long that is, but it sounds like she was trying to get some value out of her investment. I think milennials are a bit of a split. Some are very financially conservative like my grandmother. (I had an old roommate that would eat food so old that it basically made her sick). There are others that have no idea what it takes to own a home, whether they want to or not, and are more or less living paycheck to paycheck,

Why do I mention all of this crazy stuff? I do it to demonstrate that we are in the 04-05 market which was the precipice point pre-recession where people were buying properties beyond what they could afford aka sub-prime lending and/or keeping up with the Jones's. That being said, we have a significantly different climate from that period. First and foremost is that lending is far more difficult now than it was then. This keeps people from purchasing properties beyond what is in their scope of affordability. Second, people fail to forget about the great recession and many people have been very hesitant throughout this entire cycle as a result. Third, many milennials want to purchase a property and never move and never keep up with the Jones's, which slows the process of purchasing a home. The other side effect of making a single life time purchase is that it also contributes to fewer transactions overall.

What does all of this mean? Demand has slowed as buyers are being significantly more choosey. However, I think a lot of investors miss the point that they could have lower property taxes. At first, that market was very slow. There has since been movement, but it's still very slow and very reduced. This in particular somewhat baffles me as I think reducing your property taxes is one of the most valuable aspects of calculating your on-going payments because that is the one aspect of the equation that is stationary.

So what's the takeaway? Increasing interest rates has significantly slowed the real estate market as evidenced by the volume of transactions. Affordability is characterized by interest rates. If you adjust for inflation, we are at 04-05 numbers and people are responding in a responsible way that did not occur during prior to the recession and contributed to its development. This does not mean that we are in a recession as much as we are responding in a financially appropriate manner given our current market. Although it might be frustrating, most investors can benefit from reduced property taxes and might even benefit from reduced interest rates down the road. We also ought to be proud of the market overall and how it's responding in a healthy way. Although it has slowed the market, it doesn't mean things are bad. 

Tuesday, September 25, 2018

Our Property Taxes Could Be Lower!!!

We've had quite a bit of hesitation out of sellers and buyers due to some of the limitations with Proposition 13. Proposition 13 more or less allows someone who is older than 55 to take their property tax base with them pending they purchase a property of equal or lesser value in either the same county or a cooperating county. Not all counties participate in proposition 13.

The large reason for the hesitation is that oftentimes this is a conversation for the empty nesters. Kids have graduated from high school, aren't home much if at all and the parents are now looking at one another asking what the next chapter of their lives is going to look like. They raised their kids in a great family friendly neighborhood, but have no need to be there anymore. So where do they go where they can enjoy themselves, but have a property for equal or lesser value in order to not multiply their current property tax base so significantly. For example, I have a client now who has been looking for their next move for years. They have not yet done anything though because everything that they like comes with a price tag, but more importantly, a property tax that never goes away. It's the Benjamin Franklin quote "in this world nothing can be said to be certain, except death and taxes." This resulted in a lot of stagnation in some of these real estate tiers.

That is until potentially next year. Proposition 5 uses a new formula to calculate your property taxes and can be used after the age of 55 with no frequency limitations. As of right now, Prop 13 can only be used once. The new math is as follows:

  • Upward adjustment Formula: (assessed value of their prior home) + [(the new home’s market value) - (the prior home's market value)]

  • Example: An individual sold her house for $1,500,000. The house had a tax-assessed value of $200,000. She bought a new house for $3,000,000. The tax-assessed value of the new house would be ($200,000) + [($3,000,000)-($1,500,000)] = $1,700,000.

  • Downward adjustment Formula: (assessed value of their prior home) × [(the new home’s market value) ÷ (the prior home's market value)]
  • Example: An individual sold his house for $2,500,000. The house had a tax-assessed value of $200,000. He bought a new house for $1,500,000. The tax-assessed value of the new house would be ($200,000) × [($1,500,000) ÷ ($2,500,000)] = $120,000.

There are still many questions surrounding Proposition 5 such as on move 3 or 4 after the age of 55, do you use the affected property tax base to calculate your new property tax or do you calculate fresh based on the home being sold and the home being purchased? Can you move out of your primary residence into some place on leased land and then buy a home for $10 million and cut the property taxes in half essentially? What happens if you buy a lot and build your dream home? We're not entirely sure. I'm sure there will be some trial and error.

If Proposition 5 gets passed, how do we suspect it will impact our real estate market? I can't help but think it would invigorate our market especially in these tiers where we see some stagnation. The other aspect of Proposition 5 is that it would be statewide rather than be dependent on participating counties. Overall though, I would suspect that we could see more inventory, but more significantly, a drastic uptick in the number of transactions because there would no longer be hesitations out of our empty nesters to move into their dream homes. Their property taxes will go up, but more than likely not by some multiple.

So why would someone not want to vote for this one given all of the activity it could generate? Theoretically, if homes are getting assessed at 1% of their purchase price and that's reducing the amount of taxes, do our schools suffer? I could see making a case for this, but I also think it gives new young families opportunity to purchase a home and re-assess a lot of these first home properties. I also think that it will slowly edge up a lot of these taxes as opposed to the drastic bumps that they could see. In other words, the volume of transactions could negate the reduced property taxes per individual property. Of course all of this is speculation, but it's hard not to put the pieces together in this format.