The global pandemic has had a range of effects on investors of all types. For real estate investors with rental properties, eviction bans have forced landlords to keep tenants even when they have been unable to pay. At the end of June, California extended the eviction moratorium through September 30, 2021. With strong pressure to extend the moratorium through the end of the year, it’s possible that this three-month extension may not be the final one, posing uncertainty for investors considering the California market.
Let’s take a look at what this might mean for real estate investors in California.
What does California’s eviction moratorium law say?
Assembly Bill 832 extends the previous eviction moratorium that was set to expire on June 30, 2021. The law includes the following provisions that impact both landlords and tenants:
- Cities and counties cannot adopt new eviction moratoria until after March 2022.
- Owners will be paid 100 percent of past and future rent, which is an increase from the 80 percent that was in the previous legislation.
- Tenants who have declared hardship have until the end of September to pay 25 percent of the rent they owe.
- Rental owners must apply for rent relief before proceeding with an eviction.
Tenant activists had pushed for the extension to go through the end of the year, so it’s possible there will be more activity around this issue in the coming months. It’s also important to remember that the law prevents landlords from evicting tenants, but it does not absolve tenants of their responsibility to pay rent. Starting in November, landlords can take tenants to small claims court.
The bill also added another $2.6 billion of relief funds to the existing $2.6 billion, making $5.2 billion available in rental relief funds. There is an estimated $3,5 billion in rent debt in California across 807,000 households, so at this point, it seems possible that all landlords could get fully paid. While there is no guarantee that future landlords will enjoy the same protection, it bodes well for real estate investors entering the rental market in California.
What considerations should California real estate investors make?
With the exception of existing local mandates, the bill ensures consistency across the state with no new local eviction bans allowed. This levels the playing field across the state and eliminates at least one factor for real estate investors when determining where to buy property.
The bill includes assistance for small landlords, so there are some protections on both sides. It’s also worth noting that the law includes some provisions for existing landlords that don’t extend to owners who purchased the property after a certain date, so take a close look at the legislation before making a decision.
In the current climate, proper tenant screening is key for reducing the risk of unpaid rent. If you do decide to invest in a California rental property, take the time to closely screen potential tenants. Although you can’t predict the future, you can reduce risk through careful selection.
Should you invest in California real estate?
Like most types of investments, the decision to invest in California real estate depends on your timeline and tolerance for risk. If you buy now and hold on to the property for the long term, the property is likely to appreciate—especially in California where the appreciation rate is historically high compared to other states. On the other hand, if you don’t have a high tolerance for risk or don’t have enough cash to sustain multiple months of nonpayment, it might make sense to wait before investing in real estate in any market.
With the new provision to cover 100 percent of rents owed, landlords will likely eventually get paid. This is a good indicator of how the state might address similar issues in the future, but it still might be too risky for some investors. Carefully consider your financial position before making an investment decision.
With historically low rates and rising inflation, now might be a good time to jump on good real estate deals. Real estate has historically been a great hedge against inflation. Keep an eye out for pending foreclosures; there might be good opportunities as moratoriums end.
Start your investment path with Socotra Capital.
If you decide that California real estate is a smart investment, Socotra Capital can provide the cash you need to close deals fast. Unlike conventional banks that take at least a month to close, we can help you seal the deal in a matter of days. We can also provide the funds you need to make improvements so you can flip the property or hold on to it for long-term rental income.
To learn more about how it works, read The Borrower's Guide: Fix-and-Flip Hard Money Loans.