Rent Control Rehab for the Well-Heeled

For those who don't need it, rent control can become an addiction, resulting from too many years of a sweet deal. It can leave the real estate muscles paralyzed and the investment portfolio sick. "Penny wise" might have a "pound foolish" problem.

Don't get me wrong. I'm not talking about those who live in rent-controlled apartments because they cannot afford to move; I'm referring to the thousands of well-heeled ones. The affluent --with greater job stability—move less frequently than the needy, thus retain the treasured units. Those who can least afford it must re-rent at higher rates. 

I stumbled upon this "housing disorder" as a Los Angeles Realtor, when encountering dozens of well-to-do Westsiders tucked away in dilapidated rent-controlled apartments, determined to stay for the appealing price tags. Landlords have no incentive to make improvements when they collect rents below market-rate.

It didn't matter that these tenants had higher incomes than their landlords, qualified three times over for a loan, or possessed the down payment to purchase rentals of their own. It didn't even matter that they were losing thousands of dollars in tax write-offs and hundreds of thousands in equity. They were proud bingo winners, and under no circumstances would they sacrifice that for a bigger pot. 

Three years ago, I almost convinced Anne to buy. She was living in a $509 per month rental in West L.A., having assumed a new identity in order to dupe the building's owner. He still thought Gwendolyn--who lived there prior to James, Henry, Erica and now Anne —was the tenant. Most L.A. landlords cannot raise the rent more than three percent a year until the unit becomes vacant; and some tenants succeed in pretending they are someone else just to keep the price low.

Anne refused to buy the $280,000 townhouse in Burbank we had selected for her purchase. First, it was in the Valley, and many Westsiders have convulsions about investing "over the hill." Secondly, she planned to put tenants in her new place, but worried that they couldn't be trusted.

"Now why would you think that, Gwendolyn? Sorry, I mean Anne."

That townhouse is now worth $550,000, a loss of $270,000 in equity, and her apartment—where she remains a psychological prisoner--has saved her a grand total of $18,000. 

To date, Lindy is the only "rent control client" who has closed an escrow with me. In 1993, she agreed to abandon her unit in Santa Monica in order to buy a six bedroom, tennis court estate for $600,000. To afford the mortgage, she rented rooms, transforming the property into a virtual dormitory. The income sustained her unemployed status until 2004 when she sold the property for $1.8 million.

Property values have risen an average of 425% in California since 1980 and 115% in Los Angeles since 2000. If you have the means, escape the "perpetual tenant syndrome" and enter the rent control rehab program before it's too late.

Got property?

Comments

[John K]

Past performance is not a guarantee of future performace.
Or something like that.

Statistics lie. Or something like that. Salespeople lie too.

The prices in 1993 were down a lot from the heights of the late 1980s. The country was in a recession, and everything was selling at a nice, low price. Factor that into these very optimistic numbers.

The question is: does the high price today represent a real increase in value, or is it just a side effect of the tech bubble crash turning stock owners into real-estate buyers? How to factors like population increases and the overall economy affect housing prices?

Personally, I'm hoping that the condo building in LA keeps going at a good clip, until the market's saturated, then the whole thing takes a big fat dump. Then, the prices will really drop, and a lot of people can move out of their old apartments and into relatively new condos. Some millionaires will lose their shirts, too, as an added bonus. Can't win em all.

[LYDIA]

What is your 12 step program for rent control addiction? I want to BUYYYY!

[Kelly]

i can suggest those people try to rent in los angeles ca real estate http://www.4rentinla.com. it's comfortable to use and you can check lot of thing online, such as, you can see what anemmities you would get.

[Sylvie]

Nobody with a brain actually thinks this price escalation is sustainable this years RE numbers bear that out. Sure,there are alot of good paying jobs but they do not represent the majority of middle income earners that makes up the buying market. My opinion is these so called affluent non-buyers would rather live spartan than take on a suicide I/O, ARM's) loan. You know the type that MB, brokers have been pushing the last five years? Which by the way get sold off to poor investors on wall street. If one wants to retire decently you cannot spend 50% or more of income just for a place to hang your clothes. It's not wise.. California has a big disconnect with home prices and real income which by the way has been stagnant for too many years. It won't fly not everybody can afford a half million dollar home. The economy is going to contract and possible recession because of all of the speculative activity especially in LA it's been reported nationwide so LA is not special! Correct the market prices and you'll have less buyer resistance it's that simple!