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.

Proposition 33: VOTE NO

Let me clear up misperceptions about Proposition 33: VOTE NO. It is a deeply flawed rent control initiative that will hurt both California's renters and housing providers. Despite some confusion I’ve seen and heard about what this measure would do, let me be crystal clear: Prop 33 would dismantle key protections under the 1995 Costa-Hawkins Rental Housing Act (passed by the California Legislature) and lead to harmful consequences for the housing market. 

Here’s why you should vote NO: 

(1) Prop 33 would cripple development of new rental properties: Prop 33 would allow rent control on properties built after 1995. Right now, Costa-Hawkins prevents rent control on newer buildings, so that developers continue to invest in creating rental housing. If Prop 33 passes, rent control could be imposed on all properties, even new construction. Why would any developer build in California if their units could be immediately subject to rent control? This will absolutely bring development of new rental properties to a screeching halt, worsening the housing crisis. How would this be good for anyone? 

(2) Prop 33 would eliminate fair rent adjustments after a tenant moves out: Under Prop 33, housing providers would no longer be able to raise rents to market rates after a tenant moves out. Currently, Costa Hawkins allows "vacancy decontrol" which permits rents to be reset to a market-rate when a tenant vacates a unit. This ensures housing providers can cover costs like renovating the unit, maintenance, and the rising costs of property taxes and insurance. Without this, providers will absolutely struggle to keep up with the increasing costs of maintaining their properties and keep up with inflation, leading to financial strain and fewer rental options as these housing providers decide to go out of business. How does that help tenants? 

(3) Prop 33 would hurt “mom and pop” property owners: Prop 33 would even allow rent control to be applied to single-family homes, which are currently protected under Costa-Hawkins. This move would further discourage single-family homeowners from renting out their properties, shrinking the already limited rental market and reducing housing options for families. I’ve personally talked to several rental homeowners who are fearful of Prop 33 passing and would sell these homes immediately - which would take these rental homes off the rental market. How’s that good for tenants? 

Prop 33 is literally a recipe for disaster. It will stifle new housing development, punish housing providers, and ultimately lead to fewer (not more) rental options for Californians. We are currently over 3 MILLION housing units short of what we need in California according to the California Department of Housing & Community Development. Let’s focus on fixing our severe housing shortage and on BUILDING MORE PLACES FOR PEOPLE TO LIVE. Please - vote NO on Prop 33.

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...

Quoted in a Sacbee article about the 2019 Sacramento real estate market forecast...

I was quoted in a Sacramento Bee article this weekend - Tony Bizjak interviewed a panel of Sacramento real estate experts including myself, appraiser Ryan Lundquist, and a few others to get our thoughts on the 2018 market and what we foresee for 2019.

I was not surprised to see that our answers were all fairly similar. And none of us predict that our market is in a "bubble" right now. That seems to be a popular question right now after increasing home prices for the last several years, since the bottom of the market in 2011.

I hate being asked the "are we in a bubble" question because I think most people associate the word bubble with what happened in the real estate market back in 2005-2007 when the real estate market literally exploded and the bottom dropped out of home prices. I do not believe we will experience a situation similar to that era anytime soon. The longer answer is a little more complicated. 

I think psychologically, a lot of people see that home values are approaching where they were in 2005 and fear a bubble. While it seems like yesterday, that was over 13 years ago! According to Trendgraphix, Sacramento County's median home price at the peak of the market in August 2005 reached $395,000. December 2018's Sacramento County median home price is $365,000. The reality is that the value of money changes over time, and when adjusted for CPI inflation, Sacramento's median home price would have to be approximately $507,000 today to be equivalent to the 2005 peak. When I earned my masters degree in public policy, the concept of adjusting for inflation and making values equal in today's dollars to be able to compare apples to apples was really beaten into us. I think this idea is absent a lot of analyses that I see.

Part of the run-up in prices from the previous peak was fueled by bad lending products like stated-income (non-qualifying) zero-down, interest only, or negative amortization loans. Those previous buyers hyper-extended themselves and could not actually afford those homes, and when the market declined many had to short sell or were foreclosed. We actually do not have those artificial lending products anymore, and buyers have to qualify for loans. Your average buyer today can not get a loan without verification of income, assets (for a 3-5% downpayment at a minimum), good credit, income and/or employment. Generally with unemployment rates low, interest rates still relatively low (and having dipped a little in the last month), and home prices still relatively affordable for California, I just do not foresee a bubble. And when the market does eventually decline -- because prices can not go up forever, and someday it will -- we will not have the same hyper-extension and level of buyer default that added gas to the fire before.

What I think we do need to be aware of is that incomes have not risen commensurately with sales prices, and we are likely approaching a saturation point where affordability becomes an issue. I believe that this is what will lead to stagnation of home values in Sacramento. But not a bursting bubble. There was an article this week in Comstock's Magazine that is a pretty good read that reviews the history of past real estate cycles. It is interesting to note that in past market cycles, the bottom did not drop out of prices the way it did during the Great Recession. Anyway, I am off to a super busy 2019 and I look forward to a solid year of helping both home buyers and sellers.

A great start to 2019 - honored by the Sacramento Association of Realtors for my work in real estate advocacy...

It's nice to be recognized for my efforts, and last night at the officer and directors installation event at the Sacramento Association of Realtors I received an award for my efforts in political affairs. I imagine this is due in large part to helping orchestrate association's the "Yes on 5, No on 10" campaign locally during the election cycle, among other activities I help with as a member of the board of directors for the California Association of Realtors. I do not think many people are aware, but the Realtors associations are among the only advocates for private property rights and homeownership. I love being involved in our advocacy endeavors. Onward!

Quoted in a Robb Report article today about the new California mandate for new construction homes to have solar panels...

I was quoted in a Robb Report article today about the new California mandate for new construction homes to be built equipped with solar panels. Renewable energy sources and energy efficiency are great things, and California is definitely leading the way and setting a new standard in the US.

All policies have impacts though, and when California generally also leads the nation with the highest median home prices (statewide median home price is over $550,000 and $365,000 in Sacramento as of November 2018), imposing a requirement to install expensive solar panels on every new construction home in the state could lead to higher home prices as builders look to recoup the extra costs of solar arrays.

The market may very well be able to handle a $10,000 - $15,000 increase in a new home's price. However, If the market cannot handle price increases from the additional costs of solar on new homes (e.g. fewer people buy those homes - perhaps buying less expensive resale homes instead, new home prices decrease, etc.) it may drive builders out of the state to build elsewhere. There are other states with fewer of these mandates, and Texas, Arizona, and Idaho for example are all experiencing building booms. We shall see in the coming years if this has an impact on the volume of new housing construction in California. 

Quoted in a Sacramento Bee article about million dollar homes in Sacramento...

I’m quoted in the Sacramento Bee this week in an article about Sacramento being #13 in the nation for homes valued over $1M. Spoiler alert: about half the cities ahead of Sacramento on the list are in CA. And the number of million dollar homes equates to only 1.7% of our housing inventory - meaning 98.3% of inventory here is under $1M.

Relative to the rest of California, the Sacramento region is still remarkably affordable. The California statewide median home price as of last month is $600,860 per the California Association of Realtors. The median home price in Sacramento County is $375,000. There are California counties where the median price is well over $1,000,000 (Alameda, Marin, San Francisco, San Mateo, Santa Clara, etc.). And even in the greater Sacramento area, homes in Sacramento are more affordable than Placer County at $499,650, Yolo County at $476,500, Nevada County at $404,000, El Dorado County at $552,000, and Solano County at $451,000.

The monthly costs of renting a home versus buying a home in Sacramento - how do they compare?

I have kicked off the beginning of the last few years with blog posts about the costs of renting versus buying a home in Sacramento. It's not a big secret that apartment and single family home rents in Sacramento are increasing. According to a recent article from the Sacramento Bee, rents in Sacramento from mid-2016 to mid-2017 increased on average 9.9%.

Last year, many of my clients stated one of their reasons for buying a home was, among many other things, so they could take more control over their monthly housing expenses. Many figured that if they remained renters, they would potentially have to deal with regular rent increases, and if they purchased their home the monthly mortgage would be a fixed expense. Additionally in many cases, the cost of purchasing a home is actually less than the cost of rent.

So today, as I have before, I thought I would break down a few home purchase scenarios by zip code. 

• The rental rate data I refer to is the average for a 3-bedroom single family home according to Rent-o-Meter, which compiles rental data from around the United States from a variety of sources. I also note the "80% range". So keep in mind there are lower rents in the range, as well as higher rents, however those are probably "outliers" and that range captures the majority of where rents fall.
• The median home price data I refer to is from November 2017 (most recent data available) per Trendgraphix, which compiles Metrolist MLS home sales data.
• For estimating the monthly payment, I am using today's market interest rates - which according to Freddie Mac, the average rate for last week in the nation for a 30-year fixed mortgage was 3.99% (rounded up to 4%). The monthly payment will be the "fully loaded" payment with principal, interest, property taxes and homeowners insurance (and mortgage insurance if applicable).
  
  
  Carmichael - 95608
  Median single family home price: $374,000
  Average rent for a 3 bedroom home: $1,784 (80% range $1,395 - $2,195)
  30-Year Fixed VA Loan (zero downpayment): $2,237
  30-Year Fixed FHA Loan (3.5% downpayment): $2,419
  30-Year Fixed Conventional Loan (10% downpayment): $2,233
  30-Year Fixed Conventional Loan (20% downpayment): $1,895
  
  Citrus Heights - 95610
  Median single family home price: $325,000
  Average rent for a 3 bedroom home: $1,756 (80% range $1,450 - $2,100)
  30-Year Fixed VA Loan (zero downpayment): $1,944
  30-Year Fixed FHA Loan (3.5% downpayment): $2,111
  30-Year Fixed Conventional Loan (10% downpayment): $1,931
  30-Year Fixed Conventional Loan (20% downpayment): $1,647
  
  Orangevale - 95662
  Median single family home price: $368,000
  Average rent for a 3 bedroom home: $1,792 (80% range $1,525 - $2,000)
  30-Year Fixed VA Loan (zero downpayment): $2,202
  30-Year Fixed FHA Loan (3.5% downpayment): $2,382
  30-Year Fixed Conventional Loan (10% downpayment): $2,187
  30-Year Fixed Conventional Loan (20% downpayment): $1,865
  
  Elk Grove - 95758
  Median single family home price: $380,000
  Average rent for a 3 bedroom home: $1,724 (80% range $1,550 - $1,950)
  30-Year Fixed VA Loan (zero downpayment): $2,273
  30-Year Fixed FHA Loan (3.5% downpayment): $2,457
  30-Year Fixed Conventional Loan (10% downpayment): $2,258
  30-Year Fixed Conventional Loan (20% downpayment): $1,926
  
  Land Park / Curtis Park - 95818
  Median single family home price: $486,000
  Average rent for a 3 bedroom home: $2,313 (80% range $1,725 - $3,000)
  30-Year Fixed VA Loan (zero downpayment): $2,907
  30-Year Fixed FHA Loan (3.5% downpayment): $3,124
  30-Year Fixed Conventional Loan (10% downpayment): $2,888
  30-Year Fixed Conventional Loan (20% downpayment): $2,463
  
  Tahoe Park / Tallac Village / Colonial Heights - 95820
  Median single family home price: $260,000
  Average rent for a 3 bedroom home: $1,568 (80% range $1,295 - $2,000)
  30-Year Fixed VA Loan (zero downpayment): $1,555
  30-Year Fixed FHA Loan (3.5% downpayment): $1,702
  30-Year Fixed Conventional Loan (10% downpayment): $1,545
  30-Year Fixed Conventional Loan (20% downpayment): $1,318
  
  Rosemont / College Greens - 95826
  Median single family home price: $325,000
  Average rent for a 3 bedroom home: $1,652 (80% range $1,450 - $1,900)
  30-Year Fixed VA Loan (zero downpayment): $1,944
  30-Year Fixed FHA Loan (3.5% downpayment): $2,111
  30-Year Fixed Conventional Loan (10% downpayment): $1,931
  30-Year Fixed Conventional Loan (20% downpayment): $1,647
  
  Pocket / Greenhaven - 95831
  Median single family home price: $406,000
  Average rent for a 3 bedroom home: $1,835 (80% range $1,550 - $2,213)
  30-Year Fixed VA Loan (zero downpayment): $2,429
  30-Year Fixed FHA Loan (3.5% downpayment): $2,620
  30-Year Fixed Conventional Loan (10% downpayment): $2,413
  30-Year Fixed Conventional Loan (20% downpayment): $2,058
  
  Arden / Arden Park / Sierra Oaks - 95864
  Median single family home price: $460,000
  Average rent for a 3 bedroom home: $1,775 (range $1,395 - $2,695)
  30-Year Fixed VA Loan (zero downpayment): $2,752
  30-Year Fixed FHA Loan (3.5% downpayment): $2,960
  30-Year Fixed Conventional Loan (10% downpayment): $2,743
  30-Year Fixed Conventional Loan (20% downpayment): $2,331
  
  These numbers are just a baseline to give you an idea of housing affordability in certain areas, and where it might make sense to purchase versus continue to rent. There are other tangible and intangible benefits to homeownership as well. For example, you may be able to deduct mortgage interest, property tax, and other expenses on your annual income tax return (consult your CPA). Additionally as a homeowner, you will have the freedom to decorate as you choose, plant a garden, remodel, and customize your home in other ways that might not make sense as a renter. I picked these zip codes at random...if there is another area that interests you, I would be happy to provide information specific to your situation.

Featured in Comstock's Magazine Online Edition today...

I was featured in Comstock's Magazine's online edition today...this is a teaser for a couple of articles my buyer clients and I are quoted in that will run later this month. I was asked these two questions -- (1) What is the biggest change in your industry in the past year?, and (2) What do you see as the biggest change on the horizon in the year to come?

No, I didn't say anything snarky about the Cubs 2016 World Series victory and how the Giants pitching acquisitions will help them in 2017. To read the piece, click here.