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Residential Landlords and Mold – Senate Bill 655

Moldy Wall

A Moldy Wall – by Matti Mattila*

Senate Bill 655 Housing Standards Mold

Senate Bill 655 was signed into law on October 9, 2015 and went into effect on January 1, 2016. This law adds mold to the list of habitability issues that a tenant can use in defense of an eviction case.

How is mold defined under SB 655? “Mold” means a microscopic organism or fungi that can grow in damp conditions in the interior of a building.
The California Apartment Association boasts that this law protects both the landlord and the tenant. The tenant is protected from the harmful effects of exposure to mold over an extended period of time.

The landlord is protected from eviction defense attorneys using “mold” as a last minute defense in an unlawful detainer proceedings. To qualify as a habitability issue, the mold must be visible, the landlord must have been notified of its presence, and it must NOT be attributable to the tenants misuse or neglect.

Dealing with Mold in a Rental

From the California Association of Realtors­­® (CAR) Q&A on the law:
QUESTION: “If the landlord suspects that the tenant’s failure to keep the property clean and sanitary has contributed substantially to the mold problem, should the landlord nonetheless repair the mold problem?”

ANSWER: “Yes. Even where it’s clear that the tenant’s own negligent actions have led to the mold problem, the conservative course of action from a risk management perspective, is to act quickly to repair the problem. Afterwards, if it’s clear that the tenant had caused the problem, the landlord may bill the tenant for the cost.

Recall that a landlord has a duty to maintain the habitability of the property. This obligation is found under common law, by statute, and often in the terms of the lease agreement. Failure of the landlord to maintain the property in a habitable condition may allow the tenant various legal remedies such as rent withholding, termination of the rental agreement, discounted rent and other rights and damages. Because the risk of liability is high, it’s prudent to take a cautious approach by remediating first, and assessing costs afterwards.”

CAR® Form on Mold

The California Association of Realtors® provides a standard form, “Lease/Rental Mold and Ventilation Addendum”, for dealing with mold issues when you are leasing a unit. You can use it to address some of these issues when a new tenant takes occupancy.

You should always address tenant issues with your legal counsel to get their advice on matters pertaining to law.

Further Reading on SB 655:

*Photo Credit: Moldy Wall by Matti Mattila Used with Creative Commons License 2.0

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What it Costs to Have a Vacant Rental

A dilapidated and vacant house

A dilapidated house. Taken by Nicholas A. Tonelli *

I recently heard two stories about investment property owners that left their property vacant for an extended period of time. Investors refer to the lack of income from a property as Lost Rent.

One landlord owned a rental home in Concord, California. The home had been sitting vacant while the owner was determining what to do with it. The owner let it remain vacant for a period of 20 months. The house would rent for $2,200 per month. Over that period of time the owner’s lost rent was almost $44,000. This doesn’t include the costs that the owner paid for property taxes, insurance, and the like.

I heard from another real estate broker about a property that he was going to list. The property had sat vacant for 10 years. The broker estimated that the owner’s lost rent was over $250,000 over that 10 year period. This doesn’t include the HOA fees, taxes, and insurance costs of maintaining a property.

Apparently both of these owners had the means to make the payments and could cover the costs without the income from the properties. But realizing that the lost income could have generated a return for the investor can’t feel good.

Vacant buildings are likely to suffer greater wear and tear if left vacant. With no occupant to see leaks, notice pests, or dissuade vandalism, vacant homes are more likely to suffer rapid deterioration.

The moral of the story: A vacant property has huge opportunity costs in lost rent to the owner as is more likely to deteriorate.

*Photo Credit: Nicholas A. Tonelli used by Creative Commons License 2.0

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Bay Area Apartment Rents Slower Increase

The San Francisco Business Times published an article this week about the slowing growth of Bay Area apartment rents. According to the article apartment rents in San Francisco grew by 9.9% in 2012. Apartment rents in the East Bay increased by 6.9%. A leading apartment advisor predicts that growth will be 3.2% in San Francisco and 3.3% in the East Bay.

Home Ownership and Supply

I believe two factors are contributing to the slow down in rental growth. First, we have seen the residential real estate market take off and a lot of buyers have gotten off the sidelines and are buying homes. This means that a lot of renters are moving to be homeowners. Second, a number of new rental projects are being constructed. Both of these items are increasing the supply and causing rental rates to slow.

Bay Area Apartment Owners

Existing apartment owners have benefited from the increased rents (the exception may be in rent-controlled areas like San Francisco, Oakland, & Berkeley). Cash flow is up and sales of apartments are at record low cap rates.

What does the tapering of rent growth and the increase in interest rates mean? Well, it probably means that the market is reaching the peak of the value cycle. Interest rate increases mean that buyers will have to pay less for properties to cover rising financing costs.

If you have questions about your apartment complex, please give me a call at (925) 385-8798.

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Is a Property Manager Right for Your Investment?

Property managers are very important to passive investment property owners, to out of town property owners, and property owners with multiple real estate investments.

Passive owners, as opposed to active owners, generally don’t want to deal with the three “T”s of real estate investment ownership; toilets, tenants, and trash. Passive real estate owners are not the “hands on” investor. They allow others to manage the day to day activities while there investment produces income for them.Condominiums or Apartments

What do property managers do?

A property manager, manages property. They provide oversight and administration so that a property meets the investment objectives of the owner.

A good manager will find and screen tenants, maintain an investment property, collect rents, evict non-paying tenants, and pay bills related to the real estate under management. They perform almost all of the tasks that an owner would normally handle.

How are property managers paid?

Most property managers receive a percentage of the gross income from a rental property. This can range from 2% to 10% of gross operating income depending on the standards for a geographic area. In some cases a property management company may charge a flat fee for individual rental homes.

How does a property manager help a real estate investor?

Daily Management Issues

Property managers can add value to owners that are unable or unwilling to handle the day-to-day activities of a property personally.

Thanks to the Second Law of Thermodynamics we know that things break down. Pipes and water heaters break, toilets and drains clog, and roofs can leak. A property management company takes these calls rather than the landlord. This leaves the landlord free to pursue other interests and invest in other projects.

Local Management

An owner with real estate in a another city or state will find it valuable to have a local management company collect the rents, screen tenants, and perform routine property maintenance. A real estate manager can help establish competitive lease rates from their local market knowledge.

Efficiency

Investment property owners with multiple properties may benefit from the efficiency a real estate manager can offer. An investor could continue working a 9-5 job while still reaping the benefits of owning multiple real estate investments, without having to deal with management responsibilities.

Legal  Knowledge

The legalities of being a landlord vary from city to city. Rent control and tenant rights, if mishandled, can open a property owner to risk of a lawsuit. A knowledgeable property manger will keep a property in compliance with local, state, and federal laws.

Caveat Emptor: Buyer Beware!

Not all property managers are equal.

Unfortunately, property managers are tempted by greed like the rest of us. Some real estate managers may have unscrupulous arrangements with outside contractors that charge property owners above market rates for repairs, then pay a kickback to the real estate manager for using their service. Investors should “trust their gut” and go with managers that they feel are honest and trustworthy.

An investor should make sure that a property management company adequately maintains properties. Checking a few of their properties to see how well they maintain properties is a good idea.

When selecting a property management company ask for references or client testimonials.

The Institute of Real Estate Management (IREM) is a source for education, resources, and membership for real estate management professionals. IREM allows owners to search for IREM members.

(Photo: Front_Corner_Perspective_Landscape by Chad Jones)

has been the source for education, resources, information, and membership for real estate management professionals for more than 75 years.

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Welcome to Maclennan Investment Group, Inc., your East Bay Area real estate investment advisors. Maclennan Investment Group assists buyers and sellers of real estate maximize the investment potential of their real estate assets. Learn More about us.
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