Retirement, real estate and rent control
There are a lot of ways to retire.
One way is to work your whole life for an employer who has a pension plan. If you put in enough years (and remain employed), then after you reach a pre-set term of service, your employer’s plan kicks in, you stop working, and you have an income for life. Nice deal.
Another way to retire is to save enough money in a 401(k), IRA or other retirement plan through regular, consistent payroll deductions.
Another way is to build a business with sufficient value that you can sell it and live off of the sales proceeds for the rest of your life.
And another way is invest in stocks or bonds with sufficient value that you can support yourself in your golden years.
Retirement can even be funded through a skillful use of life insurance.
And another way of retiring is to invest in real estate. This can be a very successful approach to retirement, especially if you are fortunate enough to buy the real estate in a low market, followed by a market with substantial appreciation. A house, an apartment building, or a condominium can generate an ongoing cash flow through monthly rents. So a portfolio of successful, prudent real estate assets can result in a very attractive retirement plan.
But most investments have some kind of risk — and real estate is no exception. Real estate seems solid — because you can look at the building and you can look at the land and know that you have a hard asset to rely on. But real estate carries with it a multitude of risks — so the prudent investor knows that it’s important to buy your real estate with care — and that doing so often involves relying on opinions of professionals with expertise in real estate.
A discussion of all of the risks of real estate would take more space than is available in this article. But here’s a risk that many people might not ever consider in real estate — which is rent control.
Rent control statutes have been adopted by many cities throughout California. The idea of rent control is generally to limit the amount of rental increase that a landlord can charge a tenant. If a tenant voluntarily moves out, or if a tenant abandons a unit, or if a tenant is evicted for breaching the lease, then rent control statutes don’t usually limit the amount of rent that the landlord can charge the next tenant. But if a tenant abides by the terms of their lease, then rent control statutes will generally limit the rent increases which a landlord can charge from year to year.
Rent controls were first used in the United States at the end of World War I. In those early years, the United States Supreme Court held that rent control laws would only be constitutional if they were used in times of emergency, and all rent control laws had to be repealed by 1924 (except in New York, where they continued until 1929).
Rent control laws were next adopted in 1942 during World War II. These laws were part of an overall set of price control laws that continued until 1953.
It wasn’t until the 1970s that rent control laws were used in the United States (outside of New York) on a basis other than “wartime emergency.” The 1970s saw steep inflation and high demand in real estate markets, which translated into sharp increases in rental rates. Those factors, coupled with increased political activism of tenants, resulted in a widespread use of rent control laws in several areas of the country, and it was at this time that California began adopting rent control laws. At present, there are several Bay Area cities such as Berkeley and San Francisco that have rent control laws. A number of municipalities in Southern California also have rent control laws.
Robert B. Jacobs is a real estate and business law attorney, mediator and arbitrator in the Bay Area. He can be contacted at Bob7@RBJLaw. com. The foregoing article is not a complete discussion of the subject addressed, and should not be relied on. Readers with specific questions or issues should consult an attorney.