The 5 W's of Renting Your Single Family Home or Condo (part 1)

What you should be thinking about before you decide to rent your single family home or condo.

  1. Who are you? 
    • A homeowner (including condos)
      • Buying a new home and wanting to rent your existing home as your first piece of rental property.
        • If you have enough equity (50% or more) then this could work. You have to be able to pay the bills for months on end in case of a lengthy vacancy or an eviction or be financially solvent enough to come with with at least $50,000 on a moment’s notice to make it worth doing this.
        • Probably need to have owned the home for 5-10 years or longer.
      • Relocating for work and looking to keep your home in SF so you can come back.
        • Also be aware that the only way to be sure you’re getting back into your house is with an owner move-in eviction. You’ll need to occupy the house for 36 months after the eviction is complete and pay relocation fees of $6,281 per person with a maximum of three people or a total of $18,843 and an extra $4,188 if any of the residents is elderly, disabled, or under 18 years of age. Total relocation could be as much as $23,031. If you are required to rent the unit within the first 36 months after the lease you’re legally required to offer it back to the evicted tenant at the same price they paid for it. For 24 months after the 36 months you’ll be prevented from renting the unit for anything more than the rent you charged the evicted tenant though you won’t be required to offer it to this tenant first.  
      • Leaving for an extended vacation (less than 12 months) and looking to make a little money on the side (DON’T DO IT!)
        • If you have a friend who would be willing to pay a reduced rent in exchange for “house sitting” for you then go for it. 
        • Don’t expect people to water your plants or feed your cat.
    • A family member of a homeowner (including condos)
      • Your parent or other family member has moved out of their home and you want to rent the house to gain cash flow
        • This can work but typically these homes need more renovations after 30-50 years of occupancy than the owner can afford or wishes to complete. 
        • Benefit of this can be that heirs can inherit the house, receive a step up in tax basis, and pay no capital gains taxes as a result of the sale.
        • Pro: most of the time the owner has significant equity in the property and as a result can afford to pay the bills (no mortgage, low property taxes) even if the house is vacant.
        • Con: if you can’t pay your other expenses (nursing home for Mom/Dad) without the rent then you should NOT be renting the house. Sell it as is and put the money somewhere safe.
    • Someone who inherited the property
      • Do you want to live there? 
        • Parent-to-child tax inheritance
      • Do you want to reinvest?
        • Sell now to take advantage of step up in basis. If you rent the property you might not be able to get it vacant and sell it for the highest price. Occupied properties typically sell for less than vacant properties.
      • Do you want to renovate before selling? Unless you’re a general contractor with access to labor and materials at cost you probably will be better off selling an older, beat up property as-is rather than taking the risk and spending the time and energy to renovate.
  2. What is the property?
    • Single-family homes
      • NOT subject to price controls so you can increase the rent to keep it at market when the lease term is up. You MAY NOT increase the rent to an above-market price to encourage your tenant to vacate without paying the statutory relocation fees specified by the Rent Ordinance.
      • ARE subject to just cause eviction requirements if the property is built before 1979, the date the Rent Ordinance was adopted into SF law. This means that you ARE NOT free to simply terminate a tenancy without proving that the tenant has violated the Rent Ordinance’s just cause provisions. Newer properties are exempt from this vacancy protection provision which allows the owner to simply terminate the tenancy with 60 days notice after a lease term is up without providing any specific reason.
      • If you have an in-law unit in your house DO NOT RENT IT to anyone. Penalties for renting illegal units can include refunding ALL RENT you’ve ever collected plus damages and punitive fees. You can be held personally liable.
      • If you have an in-law unit and it’s NOT LEGAL you shouldn’t legalize it. Your two-unit building is subject to the Rent Ordinance’s price restrictions but your legal single-family home is NOT subject to these protections. You could rent that legal in-law unit to a tenant and then have a very expensive eviction on your hands especially if the tenant has a behavior issue (nuisances/hoarding/disruptive noise issues/etc) and this person LIVES IN YOUR HOUSE in very close proximity to you!
    • Condos
      • HOA issues can be huge. Your neighbors can make your life a living hell by complaining about your tenants and assessing penalties and fees against YOU, the OWNER, for behavioral violations committed by your tenants.
      • You must include the HOA’s CC&Rs in the lease and specify that the tenant is responsible for abiding by all of the document’s terms.