Highlights of 2019 Tenant Protection Act – AB 1482
San Rafael – Effective January 1, 2020, the new statewide tenant protection act limits annual rent increases and prevents landlords from evicting tenants for anything other than just causes.
On the surface this law may seem unfair, but with good property management, the new law should allow the majority of landlords to operate properties without losses and continue to reap the benefits of rental property ownership.
The limits to annual rent increases are 5% of the current rent plus the local CPI inflation index or 10%, whichever is less. The most recent CPI index for Marin was 4.01% so the maximum annual increase would be 9%.
Assuming you raise rents once a year you may want to make sure you are aware of the current market rent for your property’s location and increase rent to maximum allowed until you are closer to the market rent. If you are a long term owner, with little or no debt service, you could be less aggressive and increase rents to cover any current annual inflation of your operating costs.
As any prudent rental property owner knows, it’s better to have a good tenant paying a little less than market rent than have a move out and the associated costs of re renting the unit.
The second part of the new law prevents landlords from evicting tenants for a limited number of “just causes.” The new law gives current landlords fairly wide latitude for evicting or giving tenants a legal 60 day notice to move. The landlord is allowed to notify the tenant to move if he or any family member intends to occupy the property, substantially remodels the rental or intends to take the unit off the rental market.
The new law does not affect rentals that are single family dwellings or condos, duplexes where the owner occupies one unit or properties built in the past 15 years.
1st Quarter 2020 Rents Marin County
| City | Bedrooms | Baths | Rents |
|---|---|---|---|
| Sausalito | 1 | 1 | $2600–$2800 |
| 2 | 1 | $3000–$3750 | |
| Tiburon | 1 | 1 | $2600–$3685 |
| 2 | 1 | $2950–$4700 | |
| Mill Valley | 1 | 1 | $1950–$2850 |
| 2 | 1 | $2575–$3300 | |
| Greenbrae | 1 | 1 | $2100–$2450 |
| 2 | 1 | $2900–$3250 | |
| San Rafael | 1 | 1 | $1750–$2350 |
| 2 | 1 | $2300–$3500 | |
| San Anselmo | 1 | 1 | $1750–$2499 |
| 2 | 1 | $2200–$3000 | |
| Novato | 1 | 1 | $1700–$2775 |
| 2 | 1 | $2350–$3300 |
Editor’s Letter – Winter 2020
Dear Apartment Owners and Investors,
The continuing pressure on Marin County apartment owners, with the passage of a statewide bill to put a cap on rent increases (AB 1482 discussed above) is making many local owners rethink their investment strategies. Although many local apartment owners have owned for many years, the threat of rent caps and a curtailment of rent profits, has caused a shift in thinking about real estate investments.
To mitigate risk I am suggesting to apartment owners to diversify the type of real estate investment going forward. For example, when one of my clients was in an exchange last year and apartment properties in Marin were scarce and overpriced, he ended up buying a well located office property in downtown Fairfax. The yield when the property became fully leased up was 6.75%.
The apartment properties we had been looking at were offered at a 4% CAP rate. Marin office properties are being offered at 5% CAP rates and have upside in rents, just like apartments. If you buy an office property with a number of smaller tenant spaces they fill faster as there is continuous demand from self-employed professionals that need a small office in Marin County.
The other popular alternative to apartment investing is purchasing a NNN leased property with a corporate guarantee by the lessee, who will most likely be a national or international retail brand. These properties are offered throughout the country and rates of return are usually 5.5%-6.85%, depending on the location and tenant.
I have had several Marin clients who have liquidated their entire apartment portfolios and elected to purchase NNN leased properties that have higher rates of return, no management headaches and long term leases.
If you are interested in learning more about these types of properties don’t hesitate to contact me and we can set up a meeting discuss how you can achieve your real estate investment goals.
Marin County Apartment Market Trends for 2020
- Low Inventory Continues – We had a slight uptick in the number of sales in 2019 but I don’t expect the low inventory situation to get better. Last year a number of properties were overpriced and did not sell.
- Interest Rates Dropping Again – We are back down to below 4% on rates for some investment properties but underwriting has tightened up on commercial and 5+ units, so it will take a hefty down payment (35%) to acquire these properties if you don’t do a 1031 exchange.
- More Balanced Market – Sellers are more willing to negotiate price and maintenance credits with buyers now that the multiple offer days are over. I advise buyers to be aggressive in bargaining and you just might be pleasantly surprised with the result.
Marin County Apartment Sales 2019
MARIN COUNTY APARTMENT SOLD 2019 – 3-4 UNITS
| City | # of Units | Price | COE | CAP RATE |
|---|---|---|---|---|
| 1615 W Sir Francis Drake, Fairfax | 3 | $725,000 | 7/23 | 4.00 |
| 530 Ethel, Mill Valley | 4 | $2,015,000 | 9/17 | 4.00 |
| 1132 Second St., Novato | 3 | $1,175,000 | 7/23 | 5.34 |
| 1129 3rd St., Novato | 4 | $1,556,000 | 7/18 | 2.73 |
| 197 San Andreas, Novato | 4 | $1,175,000 | 1/19 | 3.90 |
| 1107 San Anselmo Ave., San Anselmo | 4 | $1,200,000 | 8/1 | 5.55 |
| 7260 Sir Francis Drake Blvd., Lagunitas | 3 | $615,000 | 8/27 | 6.8 |
| 171 Novato St., San Rafael | 4 | $1,025,000 | 12/12 | |
| 19 Ross St., San Rafael | 4 | $1,318,000 | 7/26 | 5.14 |
| 8 Laurel Place, San Rafael | 4 | $1,591,950 | 2/17 | 4.72 |
| 84 Rodeo Ave., Sausalito | 3 | $1,645,000 | 3/12 | 5.00 |
| 501 Bonita, Sausalito | 3 | $2,325,000 | 12/31 | |
| 2 Lower Crescent, Sausalito | 3 | $2,550,000 | 7/25 | 3.53 |
MARIN COUNTY APARTMENT SOLD 2019 – 5+ UNITS
| Address | # of Units | Price | COE | CAP RATE |
|---|---|---|---|---|
| 11 Hillside, Kentfield | 5 | $2,900,000 | 3.43 | |
| 108 Ross Ave., San Anselmo | 13 | $8,400,000 | 11/22 | 4.12 |
| 110 Mariposa, San Anselmo | 3 | $2,400,000 | 11/22 | 4.12 |
| 111 Ross Avenue, San Anselmo | 4 | $2,400,000 | 11/22 | 4.12 |
| 1586 Sir Francis Drake, San Anselmo | 11 | $2,850,000 | ||
| 390-406 Woodland, San Rafael | 8 | $2,360,000 | 10/25 | 5.12 |
| 10 Shelley Dr., Mill Valley | 10 | $4,347,887 | 10/16 | |
| 1780-1790 Sir Francis Drake, Fairfax | 16 | $6,000,000 | 9/19 | 4.16 |
| 707 Diablo, Novato | 24 | $8,305,000 | 9/06 | 3.76 |
| 285 Woodland, San Rafael | 20 | $7,100,000 | 8/16 | 3.26 |
| 28 Ross St., San Rafael | 7 | $2,100,000 | 8/07 | 4.10 |
| 1315 Lincoln, San Rafael | 16 | $5,150,000 | 6/19 | 3.93 |
| 21 Belle Ave., San Anselmo | 7 | $2,680,000 | 6/12 | 4.29 |
| 19 Belle Ave., San Anselmo | 10 | $5,000,000 | 7/11 | 3.93 |
| 415 Mission, San Rafael | 5 | $1,910,000 | 5/17 | 5.15 |
| 1 Creekside Way, Mill Valley | 24 | $18,000,000 | 4/26 | 3.22 |
| 105-106 Sycamore, San Anselmo | 24 | $9,100,000 | 3/22 | 4.00 |
| 106 Union St., San Rafael | 5 | $1,925,000 | 3/22 | 4.78 |
| 255 Channing Way, San Rafael | 14 | $5,610,000 | 2/28 | 4.70 |
| 1033 6th St., Novato | 9 | $2,630,000 | 2/05 | 5.73 |
| 214 Villa Garden Drive, Mill Valley | 41 | $14,725,000 | 1/10 | 3.25 |
| 40 Shoreline, Mill Valley | 6 | $3,200,000 | 12/31 | 3.97 |