One Los Angeles Landlord’s Story: Bidding Goodbye to L.A.
One Los Angeles Landlord’s Story: Bidding Goodbye to L.A.
By Anonymous Apartment Association Member
In 2009, my wife and I were in our 50's and, at the time, we realized that at the rate we were saving, we would never be able to retire from our full-time jobs. So, we took every dollar we had to our name, borrowed against our single family home to the maximum allowed by the Federal Housing Administration (FHA), and in 2010, we put everything we could raise “down” as a deposit on an apartment building in the City of Los Angeles.
We ended up taking out the maximum allowable, 65% loan on our home to cover the balance of the purchase price of the apartment building. Although we were in the middle of the “great” recession at that time, and our friends and advisors told us we were “nuts” to invest in a rental property, we knew we would never be able to work forever and we hoped that this income property investment would generate income for the remainder of our lives.
For the first two years that we owned our rental property, we worked on the building every single weekend and on many evenings. We still had full time jobs during weekdays, which allowed us to put every dollar of rental income back into the building. This included gutting a roach infested apartment by hand and rebuilding the kitchen from bare walls. We even did the repairs, painting and gardening ourselves. We advertised, and then showed our vacant apartments to prospective tenants. In our first year, 2010, we had to offer one free month’s rent to get our tenants to agree to sign a minimum, one-year lease agreement. There were no government programs in place as a safety net to limit losses - only rent control limiting increases. We had two long-term tenants who were paying far below market rent rates, and they were well aware of the bargain they were receiving and they were determined to never, ever, leave. They're still living there.
By the third year we were able to start saving some money, and over the next 5 years thereafter, we had been able to save $75,000 held in our bank. But, in 2017, the City of Los Angeles passed a law requiring that we earthquake retrofit our building. That retrofitting cost us about $75,000, and our bank account was again back to zero after five years of hard work and sacrifice.
At long last, starting in 2018, our building began to produce sufficient income so that we could one day plan for retirement from our fulltime, weekday jobs. This temporary prosperity; however, ended in March 2020 when Los Angeles City and Los Angeles County leaders froze rent increases, at that time, indefinitely. Yet, despite a rent increase freeze, the City of Los Angeles imposed huge increases in annual Systematic Code Enforcement (SCEP) inspection fees, waste hauling, and other business taxes while we experienced increases in utilities (e.g., water and electric), property taxes, insurance and many other costs.
During 2021, we had several tenants move out, and despite many weeks of advertising, we could not find new tenants who would pay more than the amount our previous tenants had been paying. In fact, two of the existing tenants told us that rents had recently declined in the area, and they would move out if we didn't reduce rent. As a result, we offered each of the two tenants a free month of rent to entice them to remain at their current rental rates. I thought to myself, “rent control regulations impose limits on annual increases, yet who pays the bills when rents decline?” We eventually did fill our empty apartment units - to tenants who made more money than we did!
I could write several pages about the U.S. Housing and Urban Development Department’s Section 8 program (which threatened to withhold - and ultimately keep - their rent unless we repainted a bathroom and replace carpeting) and the SCEP program (one inspector tested all the smoke detectors and passed them, but the next one demanded that we replace each of the smoke detectors in the building because they allegedly looked "old" to him). To make matters worse, the trash monopoly (RecycLA) that had tripled our waste hauling rates, and these are costs we cannot pass through to our tenants who generated the trash – instead, the RecycLA program generates millions of dollars in annual franchise fees for the City from waste hauling companies who overcharge property owners.
I could also write about our tenants. There was one tenant who rolled his motorcycle into his living room to change his oil without an oil pan, and oil leaked onto the new carpet. There was the one tenant who snuck in a dog and then produced an "emotional support animal" certificate. Another tenant claimed on his application to be a non-smoker but left burn marks all over the kitchen floor. Then there was a tenant who locked himself out, so he kicked in his front door to enter and then insisted that we repair the door alleging that the damaged door was caused by a burglar who didn't take anything. We also had a woman tenant who declined a promotion and raise at here work because a higher income would put her above the amount needed to qualify for a Section 8 rental voucher and she refused to give up "free" money. We even had an applicant who claimed to work at a major employer but gave the cell phone number of her girlfriend to confirm her employment status, or an applicant who insisted we allow her to pay here rent in cash because she was afraid of getting a bank account so the government could track her income.
Despite these many challenges, my wife and I took very, very good care of our apartment building and were responsive to the needs of our tenants. We upgraded all the plumbing from galvanized pipes to copper pipes, replaced the old, worn wood front doors with beautiful fiberglass doors with lead glass, replaced carpeting in all but one unit (lately vinyl plank flooring is “in”), installed new garbage disposals and air conditioners, upgraded the heating, replaced most of the drain pipes, installed a security gate and video security system, and installed a new commercial washer and dryer. We also remodeled most of the kitchens at the building.
We would have loved to continue providing rental housing in the City of Los Angeles, but finally, last year, after 12 years, we had enough. We were earning less than 4% profit on our investment property, so we sold it and our home, moved out of the Los Angeles area, and put the sale proceeds into out of state properties where we are now earning a 20% more return, and no longer have management responsibilities. No more of the 3 T’s: Toilets, Tenants and Trash.
The anti-landlord sentiment held by our Los Angeles City Council is palpable. I don't understand why this is so. Rental housing providers are not in the business of evictions - it costs far too much to clean, paint and renovate an empty apartment unit. The City's regulatory policies and increased “across the board” costs have resulted in increased rents and housing shortages, and are not the fault of rental housing providers, but the fault of the City’s four plus decade old policies. Yet the City, County and State just keep passing more and more destructive laws that have a multitude of unintended consequences. Why can't our leaders recognize this fact? When will they ever learn?
Year’s ago, I remember calling then Assemblymember Paul Koretz’s office and complaining about the constantly increasing City costs while, at the same time, prohibiting any of these costs from being passed through to tenants. Koretz’s staff member bluntly responded at that time he didn't care, and he hoped we would lose enough money so that we [rental housing providers] would be forced to sell our properties - so that the City "could pick up the building at a fire sale" and "take over providing housing." Well, the City's idea of providing low-income housing is a $700,000+ per unit home (using Proposition HHH funds). The City never did make an offer for our building, which ultimately sold for under $400,000 per unit.
My wife and I wish the remaining landlords in Los Angeles the best of luck. While we couldn't deal with the absurd rules and regulations coming from our government leaders, we hope you'll be able to. Renters count on property owners to provide housing despite the multiple layers of barriers and roadblocks coming from our own government to prevent us from housing the members of our community.
This article was written by a former, long-term Apartment Association of Greater Los Angeles member who has now exited the rent housing business in the Los Angeles Area. The author has asked to remain anonymous.