Can a New Duplex Owner Terminate Month-to-Month Tenants in the City of Sacramento?

I recently spoke with an aspiring real estate investor who was considering purchasing a duplex in Midtown Sacramento. Both units were occupied by long-term tenants (long term = occupied the unit for more than one year) on month-to-month rental agreements. His plan sounded pretty straightforward: purchase the property, give the existing tenants notice, furnish the units and operate them as short-term rentals. Interesting idea. But there was an important wrinkle: Just because a tenant is month-to-month doesn't necessarily mean a new owner can simply give them notice and ask them to leave.

Buying the property doesn't eliminate or void the existing tenancy. And this is an especially important consideration when purchasing an occupied multi-family duplex, triplex or fourplex within the City of Sacramento due to their Tenant Protection Program. 

Buyers naturally spend a lot of time analyzing the real estate itself. What is the condition of the roof? How old is the HVAC? What are the operating expenses? Does the property need updating? But with an occupied investment property, the tenants and their tenure in the unit are every bit as important. I sometimes put it this way: you're not just buying the building. You're also buying the existing tenancies. And those tenancies can directly affect what you're able to do with the property after closing. 

But what if the tenants are month-to-month? This is where investors can get tripped up. It's easy to hear "month-to-month" and assume that means the tenancy can simply be terminated with appropriate notice. But rental units covered by the City of Sacramento's Tenant Protection Program can have just-cause eviction protections once a tenant has occupied the property for more than 12 months. In other words, the expiration of an original lease and conversion to a month-to-month rental agreement doesn't necessarily eliminate the tenant's protections. 

A landlord generally needs a legally recognized "just cause" to terminate a protected tenancy. Some qualifying "just cause" reasons involve actions by the tenant, such as failure to pay rent, certain breaches of the rental agreement, nuisance or criminal activity, or failure to provide lawful access. 

There are also certain circumstances that don't necessarily involve wrongdoing by the tenant. These are sometimes referred to as "no fault evictions" and can include an owner move-in, withdrawal of the unit from the rental market, or necessary and substantial repairs requiring temporary vacancy. But simply purchasing a property and preferring to have it vacant is not, by itself, the same thing as having a qualifying just cause. 

Why this matters to your investment strategy? Go back to the duplex this potential buyer was considering. His entire investment plan depended on terminating the existing tenancies and taking possession of both units after closing. That makes the status of those tenancies more than a minor due-diligence question. It's fundamental to whether his proposed investment strategy will work at all.

Maybe you want to buy a duplex and live in one side. Maybe you plan a significant renovation. Maybe you're buying a property for another family member to occupy. Or maybe, like this investor, your plans for the property are completely different from the current owner's use. Whatever the goal, if your plan requires an existing tenant to leave, you should understand whether you can legally accomplish that before you purchase the property.

This is also an area where I encourage clients to consult a qualified landlord-tenant attorney. As a Realtor, I can help identify the real estate issues we should investigate and obtain information about the existing tenancies, but determining whether a particular tenancy can legally be terminated is a legal question. 

And we're specifically talking about the City of Sacramento. Here's another detail that can easily cause confusion. The City of Sacramento's Tenant Protection Program applies within Sacramento city limits. That is a specific governmental jurisdiction. A property having "Sacramento, CA" in its mailing address does not necessarily mean it's located within the incorporated City of Sacramento. There are large areas around Sacramento that people commonly refer to as Sacramento, and that may even use Sacramento as their mailing city, that are actually located in unincorporated Sacramento County. That distinction matters because local ordinances can be different depending on which jurisdiction the property is actually located in. Some areas that are NOT in the city limits with a Sacramento mailing address include the Arden-Arcade area, Foothill Farms area, South Sacramento area, Rosemont area, most of the College Greens area, most of the Sierra Oaks area, etc.

So if you're considering purchasing an occupied rental property, don't make assumptions based solely on the mailing address or ZIP code. Verify the property's jurisdiction. And remember that properties outside Sacramento city limits may still be subject to California state landlord-tenant laws and other applicable protections. Being outside the City simply means that this particular City of Sacramento ordinance may not apply. 

But the moral of the story is to understand and be familiar with the basics before you buy. When evaluating an occupied multifamily property, I want to know more than the number of units and what the building looks like. How long has each tenant lived there? Are there written leases? Are they month-to-month? What documentation has the seller maintained? Are there agreements or notices that a buyer needs to know about? Is the property within Sacramento city limits? Is it subject to the City's Tenant Protection Program? Do other protections apply? And perhaps most importantly: Does your plan for the property depend on one or more of the existing tenants leaving? If the answer is yes, that's something to investigate early. There can be tremendous opportunities in Sacramento duplexes, triplexes and fourplexes. But with an occupied property, understanding exactly what you're buying means understanding both the real estate *and* the ramifications of the tenancies that come with it.

It is worth noting that this post is intended to provide general real estate information and is not legal or tax advice. California landlord-tenant law and local tenant protections are complex and can change. Buyers, sellers and property owners should consult a qualified landlord-tenant attorney regarding a particular property or tenancy.

Sacramento Landlords: When Holding a Single-Family or Small Multifamily Rental Stops Making Sense

It's January! The holidays are behind us. The calendar has flipped to a new year...and this week I found myself having a familiar conversation: a Sacramento multifamily property owner called me and wanted to talk through "if it still makes sense for me to own this rental property". For this person, the short answer was NO. And perhaps at some point I will list this property. 

I hear this most often from owners of single-family rental homes, and owners of small multifamily properties like duplexes, triplexes, and fourplexes. These guys are not institutional investors. They’re what we refer to commonly as "mom and pop investors" -- meaning regular people who bought with a long-term plan in mind: retirement income, cash flow, or long-term wealth building. And let's face it, for a long time, that plan has worked well. 

But heading into 2026, perhaps the calculus has shifted. 

• Maybe they talked to their CPA and some of the tax advantages of owning rental investment property have run their course. Depreciation is usually part of this conversation. Many long-term rental owners are nearing full depreciation, meaning the tax advantages that once made ownership especially appealing are starting to fade. When those benefits diminish, it often prompts a closer look at whether continuing to hold still makes sense. 
• Maybe they are considering retiring and riding off into the sunset in their RV and owning rental property in Sacramento is not something they want the responsibility for. Some landlords begin to wonder whether keeping that equity locked inside a rental property is still the best use of their capital. For landlords approaching retirement there is often a shifting desire for liquidity and simplicity. Selling a rental property can provide funds to support retirement, reduce risk, and eliminate the day-to-day responsibilities that come with being a landlord. 
• Maybe they already live outside of the area and coordinating repairs and keeping up with tenant issues from a distance is too much to manage. Absentee owners, in particular, may decide it’s time to cash in, simplify their lives, and redeploy the proceeds toward other investments, lifestyle goals, or greater financial flexibility. 
• Maybe a tenant has stopped paying rent and they are faced with an expensive eviction, and just do not want to deal anymore. Or perhaps a tenant has provided notice to vacate, and it proves to be an opportune time to sell rather than re-rent the property. 
• Maybe they want to help their adult kids buy their first home, and selling the old rental property is the perfect vehicle for a tax deferred 1031 Exchange. A lot of my clients are considering how to help their adult kids become homeowners and maybe give them the inheritance a little early. 
• Maybe expenses like insurance premiums are increasing, or there are some anticipated large repair expenses looming due to some deferred maintenance. A new roof, a new HVAC, a new sewer line, dryrot or termites...these can be big ticket items if a housing provider does not have liquid reserves set aside. 
• Maybe they aren't excited with the direction the California legislature is going with tenant protections and the ever-evolving regulatory landscape, and they are over it. In the last few years, California has enacted AB1482 rent caps and just cause eviction, has limited the amount a landlord can charge as a rental deposit, and has now required landlords to provide refrigerators and stoves as a condition of habitability. 
• Maybe they never intended to be a landlord in the first place! They inherited the property, or maybe couldn't get the price they wanted when they moved out of the property and decided to rent it out. 

You get the idea. 

Every year I have these conversations with property owners looking to go out of the rental business. That naturally leads to questions about opportunity cost. What am I currently not doing that I could be doing if the equity in this property were liquid, or if I weren't tied down? In the Sacramento market, single-family rentals and 2–4 unit properties continue to attract strong buyer interest. Buyers include owner-occupants planning to live in one unit and rent the others, as well as long-term investors looking for stable, well-located assets. Properties with solid fundamentals remain in demand. 

Reach out and I am happy to talk it through with you, analyze your income and expenses, the rental market and scenario, and to give you a sense of what your property might be worth.

City Council for the City of West Sacramento approves a temporary moratorium on residential and commercial tenant evictions relating to hardships caused by COVID-19

A few days ago, on March 18, 2020, the City of West Sacramento's City Council adopted its own temporary moratorium on residential and commercial tenant evictions, provided those tenants suffer loss of wages or loss of revenue relating to COVID-19. This is not a free pass for tenants to skip rent. Tenants who can afford rent SHOULD PAY THE RENT. This ordinance allows financially affected tenants to defer rent payments until after the public health emergency period is over. The hope is that the tenants should be able to return to work at that time, or should be able to reopen non-essential businesses that were required to close.

Details of the new ordinance:

• Effective Immediately, but not retroactively applied if tenant was already delinquent in rent
• Moratorium applies to evictions due to nonpayment of rent due to COVID-19
• For residential tenants, either: 
• The tenant is sick with COVID-19 or has to care for a member of the household who has COVID 19; 
• The tenant experienced a lay-off, loss of hours, or other income reduction due to COVID-19; 
• The tenant complied with a recommendation from a government agency to stay at home, self-quarantine, or avoid congregating with others; or 
• Tenant had to miss work to care for a home-bound school-age child. 
• For commercial tenants, either: 
• Commercial tenant’s business was required to close in compliance with a recommendation from a government agency; 
• Commercial tenant experienced a substantial loss of business resulting from a state, federal or local emergency declaration; 
• Commercial business owner is sick with COVID-19 or has to care for a member of the household who has COVID-19.
• Tenant must do all of the following: 
• Notify landlord in writing before rent is due that the tenant has a valid reason for delayed payment 
• Provide verifiable documentation of a covered reason 
• Pays the portion of rent owed that the tenant is able to pay based on the amount of income received. For example, if the tenant owes $1,500 in rent and the tenant suffered a $500 wage loss in March, the tenant would pay the landlord $1,000 for April rent. 
• Rent is due to landlord at the conclusion of the moratorium:
• Residential and commercial tenants who were afforded eviction protection under this Ordinance shall have up to 120 days after this Ordinance terminates to pay their landlord all unpaid rent. 
• During that 120-day period, the protections against eviction found in this Ordinance apply for such tenants.
• Landlord and Tenant may voluntarily agree to an alternate timeline for payment of rent due in arrears. 

This ordinance is an emergency measure that is in effect immediately through at least May 31st.

It is very similar to the eviction moratorium ordinance enacted by the City of Sacramento.

Here is a link to the ordinance language

Here is a link to a FAQ about the eviction moratorium.

Here is a link to the Delay of Rent Notification Form.

Sacramento City Council approves a temporary moratorium on tenant evictions relating to hardships caused by COVID-19

Our local elected leaders, responding to calls from tenant advocates to provide relief to renters experiencing hardship related to our current public health situation, enacted an ordinance aimed at preventing renter displacement.

Last night, the Sacramento City Council approved a temporary moratorium on tenant evictions relating specifically to COVID-19. Keep in mind, this applies to all residential rental units within the city limits of the City of Sacramento.

Details of the new ordinance:

• Effective Immediately, but not retroactively applied if tenant was already delinquent in rent
• Moratorium applies to evictions due to nonpayment of rent due to COVID-19
• Tenant was sick or caring for COVID-19 family member 
• Tenant experience layoff or other income reduction associated with COVID-19 
• Tenant’s compliance with a recommendation from a government agency to stay home, self-quarantine, or avoid congregating 
• Tenant needed to miss work to care for a home-bound school-aged child 
• Tenant must do all of the following: 
• Notify landlord in writing before rent is due that the tenant has a valid reason for delayed payment 
• Provide verifiable documentation of a covered reason 
• Pay the portion of rent the tenant is able to pay 
• Tenant has 120 days after the termination of the Sacramento County public health emergency order to pay landlord all unpaid rent. 
• Landlord and Tenant may voluntarily agree to an alternate timeline for payment of rent due in arrears. 

Here is a link to a Delay in Payment Notification Form provided by the City of Sacramento.

The County of Sacramento has not taken similar action as of now, nor have the other cities within Sacramento County.

As of January 1, 2020: SB 329 prohibits discrimination based on a tenant's source of income - which now includes Section 8 Housing Choice Vouchers

A new law took just effect on January 1st, 2020 that has not received as much publicity as other new laws aimed at tenant protection -- and that is SB 329 (Mitchell). This new law prohibits a landlord from rejecting potential tenants based on their use of a Housing Choice Voucher (often referred to as Section 8).

Up until now, landlords could choose not to work with Section 8, which is a federal housing subsidy program for low-income people. Landlords could advertise rental property declaring up front that they would not accept Housing Choice Vouchers. But no more.

Discrimination based on a tenant's "source of income" has already been a violation of the California Fair Employment and Housing Act, however housing vouchers were previously not considered to be part of a tenant's source of income since the subsidy is paid from an agency to the landlord directly. SB 329 changes the definition of source of income to include Housing Choice Vouchers (HCV).

So landlords -- you MUST NOT advertise that you will not accept Housing Choice Vouchers. This is now illegal. You may still have other application standards, such as a minimum credit score requirement, a requirement for no prior court evictions, etc. but you must be sure that you uniformly apply these standards with all prospective applicant tenants. Many properties will have a higher market rent than the maximum allowable rent for the property type and zip code. So while in some cases it is likely the property will not be a viable candidate for a voucher recipient, you still may not advertise blanket rejection of HCVs.

For full disclosure, I myself am a landlord and one of our tenants is a HCV recipient. This tenant has now rented from us for about 3.5 years and has been a great tenant. Jumping through the initial hoops of the HCV program was a real pain. It can take several weeks or months prior to the tenant's occupancy of a property to get through all the layers of paperwork, inspections, and repairs to make a property eligible for occupancy. There are also subsequent property inspections and interim paperwork requirements as well. But, the HCV rent payment magically appears in our bank account at the beginning of each month, and our tenant has never been late paying her small part of the rent that is proportional to her monthly income.

Overall for myself I'd characterize it as a positive experience, and I personally am so glad that we can offer some housing stability to a family who needs it...although I am personally generally not a fan of the government forcing mandatory compliance with its onerous programs. But I do urge landlords to keep an open mind with the HCV programs and just be prepared for a lot of up-front flexibility. I do believe the agencies who administer the HCV programs have done what they can to streamline the processes. In Sacramento County the program is administered by the Sacramento Housing and Redevelopment Agency (SHRA).

I can only hope there are not obvious unintended consequences of this legislation, such as application requirements for rented properties getting much more stringent -- like minimum credit scores increasing for everyone, for example. That overall will make it more difficult for renters to secure housing.

In addition to City of Sacramento's rent control ordinance, for more fun, now we have statewide rent control in California as AB1482 is signed into law...

I have been holding off pushing the "publish" button on this post until California's Governor Gavin Newsom actually signed AB1482 into law, and since he finally did so yesterday, here you go.

California now has a statewide rent control and just cause for eviction. And nearly simultaneously as I wrote about a few weeks ago, the City of Sacramento passed a local rent control ordinance that is essentially rolling out at the same time.

I am not looking forward to the confusion these two parallel rent control programs will cause in and around Sacramento. The provisions in both are similar, yet different. And while I am not an attorney, I imagine that within the city limits of Sacramento where the terms overlap, the higher level of tenant protection will prevail.

AB1482 statewide rent cap limits annual rent increases to 5% + regional CPI (inflation adjustment), applies to newer construction on a rolling 15-year basis, and after tenancy for one year provides for relocation assistance in the amount of one month's rent to terminate a tenancy (this is known as just cause for eviction).

So for example, within the city limits of Sacramento, while single family homes are exempt from the local rent control ordinance, because the statewide rent control applies single family homes owned by larger investors (LLC's owned by corporations, or individuals who own more than 10 properties), some single family homes in the city may be rent controlled by the new state law. Additionally, the state rent cap allowable increase percentage is actually LOWER than the city's...so I imagine the lower of the two will be what goes.

So basically, it's complicated. If you care to read it, here is the bill language for AB1482, as well as the ordinance for the City of Sacramento.

In addition, landlords will be required to provide their tenants a disclosure about their rights under the new ordinance by January 1, 2020. The California Association of REALTORS is coming out with a standard form for this, and I imagine the California Apartment Association will too, among other rental housing organizations...if you have a professional property manager you should inquire to make sure they are ready to be in compliance with this requirement. And if you self-manage your properties, you should perhaps get some legal advice.

If you are thinking about selling an investment property or any tenant occupied property, please connect with me so we can strategize the best way to move forward in compliance with these rent control ordinances.

Regardless of your stance on rent control policies, these are here to stay for a while. The state law sunsets December 31st, 2030, which is more than a decade away...

City of Sacramento passed a rent control ordinance -- here are the basics...

The City of Sacramento passed a new rent control ordinance last month that will be rolling out very soon. I think there may be confusion among local landlords and tenants alike as this is implemented. This ONLY applies within the city limits of Sacramento, which is a very specific area...there are areas within the unincorporated county of Sacramento where the ordinance will not apply, and there are many residents of those areas who do not realize the difference between city and county jurisdiction. Here is a map of the affected areas:

I think confusion will be highest in areas with Sacramento addresses that are outside of the city limits. For example parts of town such as the Arden / Arcade areas, some parts of Natomas, areas near the Oak Park neighborhood, Rosemont, South Sacramento, Foothill Farms, etc all have Sacramento addresses but are actually located in the unincorporated county though are adjacent to the city limits. Those areas are not affected by this rent control ordinance.

If you have trouble sleeping, you can read the full text of the adopted ordinance here. Here are the highlights of the new ordinance that will be in effect in the coming week:

• Allowable annual rent increase is set at 6% + CPI (inflation adjustment), hard cap not to exceed 10%
• Base rent is set at what the landlord charged as of July 1, 2019
• Only 1 rent increase allowed every 12 months
• Single family homes are exempt
• All units built after February 1, 1995 are exempt
• Just cause for eviction. After 1 year of occupancy, owners may only terminate tenancy for cause (like failure to pay rent or illegal activity), OR may only terminate tenancy with 120-day notice for the following reasons:
• To make substantial repairs (must offer tenant first right to return) 
• Landlord or immediate family moves into the unit 
• Landlord withdraws all of the units in the building from the rental market for at least one year.

The ordinance will sunset on December 31, 2024 unless extended.

For added fun, there is a statewide rent cap bill, AB1482, making its way through the legislature right now. It will be interesting to see if there is the political will to make rent control a statewide policy. We shall know on that one in the next month.

If you are thinking about selling a rental or investment property in the city limits of Sacramento that falls within the jurisdiction of these rent control ordinances, please reach out to me right away so we can strategize how to sell the property in compliance with the ordinance.

Need a new water heater? A new one may not fit in the existing space....

As I was meeting a new seller client a few weeks ago and walking through her house for the first time, I noticed her water heater appeared that it was at the end of its useful life. Seriously, it looked like it had boiled over! She is fortunate though; since her water heater is not confined inside a closet, and instead just sits against a wall in her garage, she will not have to make many modifications when she has the water heater replaced.

Due to new requirements of the National Appliance Energy Conservation Act (NAECA), after April 16, 2015 all water heaters manufactured in the United States must meet higher energy efficiency standards. As a result, these new models of water heaters generally have wider tanks and some different technology components.

What does this mean for you? If you have to replace a water heater that is located in a closet, your closet may not be large enough to accommodate your new water heater. Added costs may include retrofitting or expanding the closet, or even relocating your water heater somewhere else inside your home. Or perhaps you may opt to install a tankless water heater instead, which takes up less space?

As you are planning and budgeting for household repairs, increased costs from the new standards may be something to consider.

I was featured on the news...Squatters are becoming more common in Sacramento...

It seems like "squatters" have become an issue again. For several years during the housing crash, as many homes sat vacant they were prone to vandalism and break-in. It was not uncommon to encounter people squatting in homes. When values started to go up again and there were not as many vacant properties, it seemed like squatters became less of a problem. Fast forward to today, and squatters seem to be an issue again.

What is a squatter? A squatter is someone who unlawfully enters into a property and stays there without permission from the owner. It is a crime of opportunity, as well as the fact I do think that with the proliferation of smart phone devices squatters can search MLS for vacant property to target.

I encountered squatters at one of my vacant Midtown Sacramento duplex listings a few months ago. I approached the property to install a carbon monoxide detector, and noticed a shopping cart near the front porch. As I got closer I could hear voices inside and footsteps echoing off the hardwood floors. I immediately called the police. Before the 9-1-1 operator could take my information, a police car drove by and I flagged him down. Luckily those squatters did little damage and probably had not been there too long.

I just represented buyers on another Curtis Park triplex property that was broken into and torn apart by squatters. That property was the subject of an ABC Channel 10 news story by John Bartell. You can watch the news story here. Luckily I was able to negotiate a price reduction on the property once we got a full understanding of the extent of the damage, which in this case was extensive. All three HVAC units were stolen. Holes were punched in the walls. All of the copper plumbing and wiring was removed. It was bad.

How can you as a home seller prevent squatters? I highly suggest if you have a vacant property that you give it the appearance that it is occupied. Park a car in the driveway, or ask a neighbor to do so. Make sure your windows have blinds or curtains so people can not see inside. Put a lamp with a plug-in light timer in a few rooms that is set to go on and off during the evening. Keep the grass and landscape trimmed. Make sure you suspend mail so your mailbox does not overflow. Same with the newspaper. Set your alarm and spring for month-to-month monitoring services. Make sure your neighbors are aware the property is vacant and let them know to alert you to any suspicious activity.

A little vigilance goes a long way.

New Duplex Listing - 2522-2524 Q Street, Sacramento, CA 95816

Newly renovated midtown Sacramento duplex! Large 1 bedroom / 1 bathroom in the front, larger 2 bedroom / 1 bathroom on the side/rear, huge parcel with detached 3-car garage with rear alley access. Recently updated with new roof, new stucco, and fresh interior paint. You will love the charming units with lots of storage, cute kitchens, washer/dryer hook-ups,  wood floors, central heat and window a/c, and nice spacious lay-outs. This is the investment property you have been looking for. High-demand location, close to public transportation, downtown Sacramento, restaurants and shopping. Don't wait! Offered at $425,000. For more photos and detail, visit 2522-2524 Q Street, Sacramento, CA 95816.

Selling a Sacramento investment property is a lot different than selling your own home. Part II; Disclosure...

A few weeks ago I wrote about how selling an investment property is a lot different than selling your own home. An investment property is any rental property - for example, a duplex, triplex or fourplex, or a single family home or condo. There are many of key differences and things to consider when selling these properties. Last week, I wrote mainly about how to work with your tenants so they help rather than hinder the investment property listing and selling process.

Today I would like to follow up on all that by talking about another one of the things that the sellers of investment property need to consider: the fact that you don't live in the property, and you may not know much about the property to disclose to a buyer.

I always give my sellers a full packet of disclosure documents to fill out before the property goes on the market. First, you should note that there is a check-box on the Real Estate Transfer Disclosure Statement where you can note if you are, or are not, occupying the property. You would check the "not" box. Second, I will tell you that it is a good idea to overtly state in your disclosures that you have never lived in the property as your primary residence, or that you have not lived in the property in ____ years. A good place to do this is the Seller Property Questionnaire. On the 4th page there is an "Other" Section where this statement can go.

Hopefully as a landlord, you have been keeping accurate maintenance records for the property. The big-ticket things you probably know and can disclose -- for example, you probably know approximately when you replaced the roof, or that you replaced the dishwasher before the current tenant moved in, that you have a company spray for bugs every other month, etc. And you should note those dates and details in your disclosures. If you have contractor receipts, it is best to include copies of them with your disclosures as well.

But what about the non-big-ticket things? This information can be of equal importance to a buyer, but as the seller you may not be aware of the property's certain idiosyncrasies that only someone who lives in the house will. Like the fact there are 4 constantly barking dogs next door, there is street sweeper that makes lots of noise every Tuesday morning at 4am, that vagrants rummage through the trash cans at night, that the bathtub has a slow drain, that airplanes fly overhead sometimes, that the neighbor grows marijuana in the backyard, or that the downstairs tenant can hear the footsteps of the upstairs tenant...or that the tenant you think is low maintenance and never complains just didn't choose to tell you that the water heater is leaking, that the bathroom exhaust fan stopped working, etc.

Remember my last post about communication with your tenants when it comes time to sell? This is the perfect time to schedule a walk-through of the unit -- not only to talk about showings and introduce your Realtor, but also to ask your tenant if there are any little things like this you may want to disclose. If during your walk-through, you discover the water heater is leaking, that is a good opportunity to get it repaired before the property goes on the market, and then be sure to disclose that the repair was made. Ask your tenants about potential nuisances and disclose them. Something like "Per tenant, neighboring dogs bark at night" should be adequate.

One thing I also highly recommend is augmenting your disclosures with some professional inspections. For example, it is a really good idea to get a termite inspection before the property goes on the market, and either make the recommended repairs for a clearance, or just use the written report itself as a disclosure.

It's definitely in the seller's best interest to make disclosures as transparent and accurate as possible. Inadequate disclosures can lead to buyer frustration and potential issues with the new owner down the line...

Read my previous post on this topic: How to work with tenants when selling an investment property.

Selling a Sacramento investment property is a lot different than selling your own home. Part I; Working with your tenants...

Recently I have received a lot of inquiries to list and sell small "investment properties." What's an investment property? An investment property is any rental property - for example, a duplex, triplex or fourplex, or a single family home or condo.

Since property values in Sacramento have increased in the last few years since the bottom of the real estate market, it seems that folks are looking to cash in their chips. The element that is most interesting to me is that most (not all) of the investment property sellers I am speaking with are looking to sell because they don't like being landlords, and rather than roll their equity or sales proceeds into a bigger better investment property via a tax deferred 1031 Exchange, they are just looking to cash out.

Selling an investment property is a lot different than selling your own home. First and foremost, somebody else, a tenant, is likely living in the property. Second, since you don't live there, you may not know much about the property. Third, there are things like deposits, maintenance expenses, utilities, repairs, and rental income to factor into the equation. And fourth, often times the monthly rental income the property produces is an important element in determining value -- not just the property as compared to the sales prices of other recent sales of comparable properties.

Over the next few weeks I will write about the different considerations investment property owners face when selling...

Let's talk about tenants first. A tenant can really make or break your property's sale. An uncooperative tenant can cost a seller thousands of dollars in a sale. For example, are they tidy or messy? Some tenants treat rental property like their own home, are clean and take pride in its appearance, maybe do minor maintenance themselves, and let their landlords know if something is broken and needs fixing. On the other side, I've seen some tenants who are borderline hoarders, their units smell bad, there are dirty clothes and moldy food everywhere, and they haven't cleaned the bathroom in a few years. A new buyer looks at those issues and immediately thinks in terms of potential cleaning and repair costs, and may pass on the property all together or hit you up for a lower price or concessions for repairs. Another thing to consider when selling a property with a tenant: are they going to be cooperative with allowing showings, or not? Some tenants are very understanding, want to make a good impression on their possible future landlord and accommodate showings and access to the property for inspections. Other tenants will feel threatened by the possibility of a new landlord, feel afraid they will be kicked out of their home, and not make the effort to make the unit available on their own accord. Some tenants will insist to be present for showings and sabotage the potential buyer’s impression of the property.

So what do you do when you have a tenant who falls into the problem category? I find the best approach with tenants is complete and total transparency -- do not hide the fact you are planning to sell. Nothing creates more tenant hostility than a landlord who lists a property and the first notice a tenant gets is a seeing a “for sale” sign in the front yard. Communicate with them. Let them know that you want/need to sell and that you want to make the process as easy as possible. Ask to make an appointment with them and meet at their unit - this allows you the chance to talk, and allows you to see the unit. If the unit is messy, offer to have it professionally cleaned for them. Most tenants will jump at the chance to have their unit cleaned for free. If you can afford it, you might offer to incentivise the tenant by offering a temporary reduction in rent in exchange for cooperation with showings while the property is for sale. If you do that, be sure to do it in writing with very clear parameters. Be sure to introduce your Realtor to the tenants and make sure they know how to contact each other. Set clear parameters for arranging showings and access -- like “by appointment with 24 hours notice.” If you need to arrange extended access to a buyer for inspections, maybe offer them some movie tickets in exchange for being away 3-4 hours.

Most tenants do want to help you succeed in your sale and make a smooth transition to the new owner...next week I will talk about disclosures for a rental property since you don’t have first hand knowledge of the potential idiosyncrasies about the property...

California AB 1404: Neighbors and adjoining landowners must now share the cost of fencing...

Have you ever heard the expression that "good fences make good neighbors"? Well thanks to California Assembly Bill 1404, starting January 1, 2014, good neighbors will now legally have to share the expense of good fences.

The legislation makes the assumption that adjoining property owners share an equal benefit from any fence dividing their properties, and unless otherwise agreed to in writing, are  equally responsible for the reasonable costs of construction, maintenance, or replacement of the fence. So if one neighbor decides repair, build, etc. a fence, there is a process to notify the neighbors. A property owner must give each affected adjoining owner a 30-day prior written notice of any intent to incur costs for a division fence. The notice must include the following:

1. A notice of the presumption of equal responsibility for the reasonable costs of construction, maintenance, or necessary replacement of the fence; 
2. A description of the nature of the problem with the shared fence; 
3. The proposed solution for the problem; 
4. The estimated construction or maintenance costs to address the problem; 
5. The proposed cost sharing approach; and
6. The proposed timeline for addressing the problem.

Sounds reasonable, right? So if you have a house and the fence is in need of being rebuilt, just send your neighbor a letter with all of that info. Building a regular 6-foot pine or redwood fence with 4x4 posts and 2x4 rails? Sounds like what typical fences are made of in the Sacramento area...BUT, what if your neighbor wants to build an expensive masonry wall with a mural that's 10x the cost of a regular wood fence, and they want you to pay half??

An adjoining property owner can dispute the assumptions mentioned above by demonstrating by a imposing equal responsibility for that kind of fence would be unjust. To determine whether equal responsibility for the reasonable costs would be unjust, a court will consider the following:

1. Whether the financial burden on one property owner is substantially disproportionate to the benefit conferred upon that property owner by the fence;
2. Whether the costs of the fence would exceed the difference in the value of the property before and after its installation;
3. Whether the financial burden to one property owner would impose an undue financial hardship given that party's financial circumstances as demonstrated by reasonable proof;
4. The reasonableness of a particular construction or maintenance project, including the extent to which the costs appear to be unnecessary, excessive, or the result of one landowner's personal aesthetic, architectural, or other preferences, and;
5. Any other equitable factors appropriate under the circumstances. 

There are some exclusions to this law -- it does not apply to a city, county, political subdivision, public body, or public agency.  This new law is known as California Civil Code section 841.

New Legislation: Assembly Bill 92 will affect investors doing 1031 Exchanges and purchasing property in other states...

Are you an investor looking to do a tax deferred 1031 Exchange for a property in the state of CA for a property outside of the state of CA? Read on...

Thanks to California Assembly Bill 92, starting January 1, 2014 if a taxpayer who sells an investment property in California and purchases via a 1031 Exchange a "like-kind" investment property located outside of California, that taxpayer must file an "information return" with the CA Franchise Tax Board (FTB) for that taxable year and every year thereafter in which the gain or less from the exchange has not been recognized. If a taxpayer fails to file such information return and tax returns, the FTB may propose to assess the amount of tax, interest and penalties due by estimating net income from any available information, including the amount of gain.

Essentially what the state of California is trying to do is be sure to collect any tax owed in the future. If an investor does a 1031 Exchange, tax on any gain from the sale of the property is merely deferred. Tax will still be owed at some point in the future, and the state wants to make sure it is in a position to collect it.

So, you should ALWAYS consult a CPA or qualified tax professional before engaging in something like a 1031 Exchange, and if you are considering purchasing a replacement property outside of California, you will need to be sure to comply with this new law. I wonder if the burden of doing this year after year will be worth the tax deferment for state tax?

Are you a "Move-Up" Buyer? How to sell your current Sacramento home and buy another one...

With home values on the rise again in the Sacramento area, I have gotten several inquiries in the last 12 months from folks who want to sell their current home and purchase another one. WHAT!? This is a huge change from the demographic of the Sacramento home buyer in 2006 - 2011. That Sacramento home buyer was typically either an investor or a first time home buyer...but what we Realtors refer to as "move-up buyers" had been scarce. Let me tell you -- move up buyers are back, and have been back for a while now.

Many Sacramento area homeowners have some newly discovered equity. Sacramento home values have increased 30%+ in the last year and a half, and many folks who had the luxury of waiting out the market, who didn't have a financial hardship, and have patiently made their mortgage payments during the roller coaster Sacramento real estate market are ready to sell. Many folks are selling that starter home and moving into something bigger and better, out to the suburbs, or perhaps in a better school district, closer to work, etc. Many are now "empty nesters" and selling the home they raised their children in, and would like to downsize, or move back out of the suburbs into the central city. Whatever the case, now has turned into an opportune time for many to sell their homes.

So how do you pull this off exactly?

Well, some people who want to do the sell-and-buy tango are lucky enough not to absolutely have to sell their home in order to buy another. If you are in the position to be able to purchase your "replacement home" before you sell your home -- this is an enviable position to be in. This requires some strong financial positioning...you will need to be able to qualify to obtain your new loan, while maintaining your current house payment and other debts. You will need to have your downpayment funds in hand, and have sufficient income to make all of your payments under the lender's "debt-to-income ratio" guidelines. So this is relatively simple -- get pre-approved for your loan, find an agent to assist you, purchase your home, move, and then list your other home for sale. Or keep it as a rental (though many people don't want to be landlords). You have the luxury of waiting until the right house comes on the market and buying it. If this is you -- congratulations! But you will be in the vast minority of "move-up buyers."

If you are the other 95%, you will need to sell your current Sacramento home in order to qualify and have the downpayment to purchase your new replacement home. I have helped several sellers/buyers with this lately. And you have some options...and decisions to make.

Option A: Make a "contingent offer" on your replacement home, then simultaneously list your current home. Finalize the new purchase and sale concurrently.

Option B: Sell your home, do a "rentback" and then purchase your replacement home.

Option C: Sell your home, find a temporary home, and then purchase your replacement home.

Rather than write a novel here, over the next week or so I will write individual posts to elaborate on Options A, B, and C. Each has many pro's and con's, certain contractual implications, and certain financial ramifications that sellers should be keenly aware of. So stay tuned...and if you have questions, feel free to ask them. You can comment here, call or email me.

November 19, 2013: How to make a "Contingent Offer" on a Sacramento home. AKA, how to concurrently sell and buy a new home...

Fair Housing Laws: be careful how you describe and market a home for sale...

I have been asked a lot lately by my seller clients - how will you target specific market segments when you market my property? Ok, maybe they don't ask exactly like that, and I'm inserting my Realtor-ease into this post...I might hear from a seller, for example, "I think my property would be great for a family...Or this would be great for a single person...Or this would be great for a member of the church down the street...etc. How will you market my property to {fill in the blank}?"

The answer is - very carefully and deliberately as so not to violate federal law! Questions like this can set off alarm bells for me when I hear them, even from the most well-intentioned people. Certainly I can and do market my listings in ways that will reach different audiences, but using direct marketing language where these "groups" are concerned is a big no-no! Directing advertising toward a specific group, in theory, automatically excludes other groups, and therein lies the violation of Fair Housing laws. It surprises me how often I see direct marketing language used by other agents, or folks trying to FSBO. An example of this language might be "great family home" or "waking distance to the park" or "perfect for parishoners of the Catholic church," etc. Per US Department of Justice website, Civil Rights Division, Fair Housing Act:

Refer to Sec. 804. [42 U.S.C. 3604] "As made applicable by section 803 of this title and except as exempted by sections 803(b) and 807 of this title, it shall be unlawful--

(c) To make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation, or discrimination."

Saying something like "great family home" discriminates against single or unmarried people. "Walking distance to the park" discriminates against folks who are are physically handicapped and can't walk. "Perfect for parishoners of the Catholic church" discriminates against folks of other religions. Alternative language might be "great 4 bedroom home" or "close proximity to the park" or "you will love all of the nearby local amenities such as shopping, places of worship, schools, etc."

So be aware of these laws and careful when choosing the words to market a home. The US Department of Housing and Urban Development (HUD) has some Fair Housing Q&A's on their website, as does the US Department of Justice.

Want to sell your investment multi-unit Sacramento property? I may have buyers for you...

Are you considering listing your Sacramento investment property (like a duplex, triplex, fourplex, or 5+ unit property) for sale? I have a couple different clients who are listing properties in other geographic areas and starting 1031 exchanges with the intent to buy investment property in Sacramento. These are all-cash buyers. And no, I'm not talking about some big hedge fund looking to buy up half of Sacramento...these are just regular people looking to make a few key investments in Sacramento real estate.

What is a 1031 Exchange? A properly structured 1031 Exchange allows an investor to sell a property, to reinvest the sales proceeds in a new property purchase and to defer all of the capital gain taxes. There are some timelines to "identify" the replacement property to be purchased that will be coming up in the near future. So timing is a critical issue.

So if you have an investment property you are considering selling -- call me. I am working with a few different investor buyers who will be participating in these tax deferred exchanges soon that need to identify their replacement purchases soon. Budgets for these purchases depend on a few factors but could be anywhere from $200,000 - $1,000,000, and they could purchase one or more properties.

Maydestone Apartments - restoration is in full swing!

A few months ago, my sweetie and I were eating breakfast on a Sunday morning and picked up a copy of Midtown Monthly...we were looking through it for some ideas as far as what to do for the rest of the day when we stumbled across an article about the renovation of The Maydestone Apartment Building.

Now I have lived in Sacramento my entire life, and had driven past the old, boarded up Maydestone building on 15th and J Streets a million times, but had never known anything about it. We were so intrigued by the article, we decided to take a little field trip downtown to check it out.

So a little history...The Maydestone was originally built in 1912 as a 32-unit apartment building, each unit complete with its own kitchen, bathroom, and a pull-out beds - a luxury in that era. As Sacramento was rapidly expanding, the demand was high for affordable housing that was located within a short distance to the center of the city.

Fast forward to the 21st century...The Maydestone was boarded up in 2003 after a fire on Halloween night. It has been sitting as a vacant eyesore for the past 7+ years.

Fast forward to today...The Maydestone is being restored to the Mission-Revival style beauty it once was with the help of grants and loans from the Sacramento Housing and Redevelopment Agency. The existing four levels of apartments are being restored and the basement is to being converted into a community center for the residents. They are also making the building highly energy efficient, and it will be LEED certified. There will be 32 units total ranging from small studios to 1-bedroom units. The project architect and the developer are working hard to ensure that the building maintains its original character.

So - the next time you are downtown, swing by The Maydestone! You can peak inside and see for yourself...

Ask Erin: Can I do a short sale on my rental home?

Can I do a short sale on my rental home? I get asked this question all the time by folks who own investment properties, and contrary to what many people think - the answer is yes, you can do a short sale on an investment property (aka, non-primary residence, rental homes, rental duplexes, etc). Oh really, you ask in disbelief? Yes really. I have closed several short sales under these circumstances....and I have several of them underway right now.

Do the dynamics of these short sales change at all? A little. Mainly because occasionally tenants occupy these homes and we have to delicately deal with showings, the existing lease agreement terms, and a few other things. Or if the house is vacant, we may want to strategize the best way to keep the house secure and free from vandalism or burglary.

In terms of how a short sale lender or bank looks at these short sales, again they are still looking at potential seller hardship, loss of market value of the property, and the lender's total losses. Short sale sellers of investment property should ask themselves:

• Is the monthly rent covering the costs of the mortgage payment, in addition to other monthly operating expenses (like certain utilities, property taxes, maintenance, etc)?
• How big is my deficit every month, given the best case scenario of 100% occupancy? In other words, how much money am I loosing each month given the fact my tenants always pay their rent on time, and the house is always rented)?
  
• Has the property been vandalized by the current or former tenants? Is it 'rentable' in its current condition?
• Have you been unable to rent the house due to high area vacancy rates or other neighborhood factors?
  
• Were you an "accidental landlord?" In other words, for example did two people who owned homes individually get married, causing you to need to rent one of the homes in order to live together? Or perhaps did you inherit the home? Did you purchase the home for your college-age kids to live in, and now they have graduated and moved out? Did you co-sign for someone who now can not pay the mortgage?
  
• Did you suffer some other loss of income (loss of employment, pay reduction, etc.) and now have to choose between keeping your current, primary residence and letting your rental property go?

There are many reasons to short sale investment or rental property. If you are contemplating a short sale for your Sacramento area investment or rental property, I welcome your call to see if we are a fit to work together.