Rent Control

[ShepardHumphries]

As my wife and I age, we are looking for places to put capital that will produce somewhat passive income. We are most familiar with real estate, however I have an awful and worrisome itch of a concern. I worry that something like the following could happen, and I wonder how one might protect against it?

We buy a condo in Anytown for $400k cash, and hope for a 5% annual ROI. Let's imagine we are renting the unit for $2k/mo. Let's also imagine that our living expenses are $2k/mo. All is well.

Then, local government goons decide to implement Rent Control. We are "allowed" to continue our lease at $2k/mo until the end of the lease term, however the awesome tenants and we agree that with inflation and the increased $100/mo HOA fee, that we need to raise rent to $2,150/mo. Oops, it dawns on us that we are not allowed to raise rent by $150/mo, and that instead government bureaucrats have crunched numbers and that an increase of only $27.48 is "fair" and "equitable." Oh well, my wife and I can eat cheaper food and get rid of our gym memberships.

Next year, free market rent should be $2,500/mo, and our personal expenses are now $2,600/mo. Damn it!

Ok, ok, I know the above "100% of eggs in one risky basket" is silly, but it is just an example to illustrate a concern. Some ways that I have contemplated a landlord might protect themselves against the tyranny of Rent Control include:

1. Select a place where the political bias is more free-market, like small-town Idaho versus The Bay area.
2. Base rent on something other than the USD, like some sort of index or precious metal or similar. (Rent is 1.2 otz AU/Mo.)
3. Set rent ridiculously high, like $10k/mo in my example, and offer discounts via wink wink (discount this year is $8k /mo, next year $7,850/mo discount etc...
4. Don't even do residential real estate, and instead do a REIT, storage units etc...
5. ?
6. ?

What else do you know? What would be a great #5 and #6?

Have any of you experienced rent control suddenly coming to your area? Was there any way for landlords to be grandfathered into being exempt? How?

What else should I be asking that I am not?

(The image is of the view from the deck of a rental condo we have in Fountain Hills, AZ, if any of y'all are headed out to stalk MJ, hit us up...lol)

 

Don't like ads? Remove them while supporting the forum: Subscribe to Fastlane Insiders.

[gpetukhov]

1) Cash for Keys for the Tenants - offer money to leave which allows to set the rent at a higher level
2) Don't invest in Democratic Cities - as those are currently the only places that practise rent control
3) You could invest in the suburbs of those cities that don't have rent control
4) Focus on short term rentals or triple net real estate instead

 

[BizyDad]

As my wife and I age, we are looking for places to put capital that will produce somewhat passive income. We are most familiar with real estate, however I have an awful and worrisome itch of a concern. I worry that something like the following could happen, and I wonder how one might protect against it?

We buy a condo in Anytown for $400k cash, and hope for a 5% annual ROI. Let's imagine we are renting the unit for $2k/mo. Let's also imagine that our living expenses are $2k/mo. All is well.

Then, local government goons decide to implement Rent Control. We are "allowed" to continue our lease at $2k/mo until the end of the lease term, however the awesome tenants and we agree that with inflation and the increased $100/mo HOA fee, that we need to raise rent to $2,150/mo. Oops, it dawns on us that we are not allowed to raise rent by $150/mo, and that instead government bureaucrats have crunched numbers and that an increase of only $27.48 is "fair" and "equitable." Oh well, my wife and I can eat cheaper food and get rid of our gym memberships.

Next year, free market rent should be $2,500/mo, and our personal expenses are now $2,600/mo. Damn it!

Ok, ok, I know the above "100% of eggs in one risky basket" is silly, but it is just an example to illustrate a concern. Some ways that I have contemplated a landlord might protect themselves against the tyranny of Rent Control include:

1. Select a place where the political bias is more free-market, like small-town Idaho versus The Bay area.
2. Base rent on something other than the USD, like some sort of index or precious metal or similar. (Rent is 1.2 otz AU/Mo.)
3. Set rent ridiculously high, like $10k/mo in my example, and offer discounts via wink wink (discount this year is $8k /mo, next year $7,850/mo discount etc...
4. Don't even do residential real estate, and instead do a REIT, storage units etc...
5. ?
6. ?

What else do you know? What would be a great #5 and #6?

Have any of you experienced rent control suddenly coming to your area? Was there any way for landlords to be grandfathered into being exempt? How?

What else should I be asking that I am not?

(The image is of the view from the deck of a rental condo we have in Fountain Hills, AZ, if any of y'all are headed out to stalk MJ, hit us up...lol)

Respectfully, this sounds like much ado about nothing.

Because you can sell at any point.

If you don't like the rumors about rent control, boom house on the market. You're out of there.

No need for you and your wife to tighten your belts...

Something to be aware of. Yes.
Something to try and mitigate. Yes.

But certainly not something that should be stopping you from executing on your plan.

Lastly, even if rent control comes to your city, it doesn't mean it comes to your property. So point #5, rent in more affluent neighborhoods. "Rent control" usually comes to poorer sections of a city.