Just roll with the punches. I will seriously consider liquidating my RE if Costa Hawkins is repealed and rent control applies to SFH.
1 Like
you could always buy in Austin! I hear they have a great climate there. And, Iām not thinking of their weather.
1 Like
Rent control will only make sfhs more valuable. There is already a shortage it will just make the shortage more acute. Definitely could affect the value of multi family. But didnāt hurt SF values.
3 Likes
So why not 1031 your SC rentals over to Austin? Some people on forum swear by the numbers in Austin.
Texas? No wayā¦ the next step would be to get out of residential.
Coincidentally, I started working on a small shopping center purchase last month. 40k sqft building space on 2.5 acres right here; looking at the financial summary feels like back in 2003 when I bought my first rental (not my first RE purchase ever, but the first one that was intended to be rented). On paper everything looks great, but itās new territory for me. Buying a rental SFR was much easier as I had already bought 2x for personal occupancy.
So, Iām dragging my feet.
Iām a big believer in California, and Iāve been in Texas for business, a few timesā¦ letās just say, spending time in Houston made me a bigger believer in California.
3 Likes
My only reservation for commercial is that they are more susceptible to technology disruption than residential. Everybody needs a roof over their heads. Not everyone has to shop at a mall.
On the other hand everyone needs to eat. Maybe commercials with a restaurant focus would be good? Just a random thought.
1 Like
Retail is very risky. You are basically in business with your tenants. Pick them wisely and get a percentage of their profits.
1 Like
This particular center has a mix of office space, service (nail salon etc) and retail.
14 units total, only 2 of them retail sales - liquor store and Dollar store 
I knowā¦ as I type it, I just realize it. 2 eateries.The rest is service industryā¦ tax preparation, small gym, andā¦ drum rollā¦ the County has an office in it.
To paraphrase your wordsā¦ everyone needs to eat, and everyone needs the government!
Now think of that. The County giving me residential rent control, and then they enact something similar so that I cannot raise their own rent either. Hilarious!
1 Like
Evict the county as soon as you buy it. Tell them to build there own building. Then they will find out how hard it isā¦
3 Likes
So, I opened up the document and read once more. Itās 4 actually retail sales. Every tenant has a lease with a start date, end date, and additional details like scheduled increases and renewal options. Except the County. They do not have an end date. They do pay the largest $/sqft, they occupy 6000 sqft and their rent is more than 25% of the gross rent.
It might not be possible to evict the County. Nor might it be reasonable.
I like your suggestion though. Good spirit! I probably wonāt buy this property. Iām not ready. The agent most likely has it in contract already anyway.
2 Likes
Everybody needs to eat. Everybody needs the government. Nobody needs to drink but most do. Looks like this mall has a pretty good mix.
I have never seen liquor stores gone out of business.
1 Like
Can you elaborate more on this? I have been to Austin, Houston, and Dallas several times for business as well ā certainly a different lifestyle. Wide open spaces, pickāemāup trucks, firearms, gotta drive everywhere, etc ā¦ but what made you a bigger believer in CA (honestly want to know since āconventional wisdomā is the opposite.)
What an astute observation. FWIW, I was looking at a small commercial strip mall on Pico Blvd just east of Century City and West of Mid City in LA a while ago. Among the disclosures I was reading was a warning that the pre-existing liquor store was apparently a magnet for unsavory types ā lots of police action from unsavory types dealing drugs, creating disturbances, etcā¦ all in front of the liquor storeās parking lot. I passed on the project.
Indeed, this a good way to blunt (but not eliminate) the impact of rent control. The law firm that I use to draft my leasing contracts is well versed in protecting landlords in the city of SFH, and their āstarting case standard leasesā are all like this ā separate parking fee, separate āuse of laundry servicesā fee, etc etc etc ā¦ as well as water fees, electricity fees, trash fees ā¦ all because these fees can be raised without being subject to rent control.
This past weekend I happened across an open house for a 2 bedroom 1 bath apartment for rent in lower nob hill for $2900. I was intrigued - that is a very cheap price! Once I entered the building ---- it was a virtual cesspool of desperation and despair. The entry foyer to the building was dark and dingy. A dilapidated old sofa lay in the corner. The carpets probably hadnāt been cleaned since the Johnson administration. The unit itself ---- wonky new pergo floors, kitchen was craptastic ā and was 8āx14ā combined with the dining area, and the rooms were like 8āx10ā. It was all just crap.
After talking to the landlord, I knew why. She has had the building for many decades, but two of her tenants has been in the building for 50+ years. Thatās half a century of being subsidized by the landlord. Can you imagine what those tenants must be paying for rent after 50+ years? At least the last 30 must be under rent control!!! Perhaps a few hundred dollars per month? I talked some more with the building manager ---- of course, steam heat and water and trash are all paid for by the landlord. Sigh.
1 Like
It sounds like residential is going the way of the NNN commercial lease. I wonder if you can pass on insurance and property tax increases the way NNN does.
Retail requires a high cap rate. Much less reliable tenants. Much higher maintenance costs. The parking lot alone is a bearā¦ must be at least $40k month rentā¦ big money means big problems. Need a healthy maintenance reserve
3 Likes
What cap rate would you require for a shopping center in Santa Cruz or East San Jose? With a liquor and Dollar store but no payday lender ā¦ yet!
Cap rates for commercial (non-RE) in bay area are abysmal. Too much money chasing too little inventory Spent a lot of time looking at it last year and gave up. itās (cap rate) only a little higher then RE but a lot more risk
2 Likes
10 cap
Depending on financing and market rents. Retail is week nationwide. Think of all the shopping centers going under.
1 Like
You need a strip club in there with that caliber of tenants.
1 Like