Benefits are Bountiful for Landlords

Robert Griswold | Steven R. Kellman | Ted Smith
24-May-1998 Sunday

This column on issues confronting renters and landlords is written by Certified Property Manager Robert Griswold, host of "Real Estate Today!" (KOGO Radio, AM 600, 1 p.m. Saturdays) and by attorneys Steven R. Kellman, director of the Tenants' Legal Center, and Ted Smith, principal in a law firm representing landlords.

Q: Besides the tax implications, what are some of the basic reasons for owning rental property?

A: Griswold: There are many benefits to owning rental property.

First, for most owners, real estate allows for diversification of investment. That argument may seem weaker at a time when the stock market and mutual funds continue to record excellent returns, but over the long haul real estate is an important element of any investment strategy.

Another good reason is pride of ownership, an intangible but still important reason.

And, although rental property owners until recently may have forgotten this: There also can be appreciation!

Historically, real estate has also been an excellent hedge against inflation. Of course, don't forget about the equity buildup as part of any retirement income or estate planning strategy.

A discussion of real estate as an investment must include the tax benefits accruing to most investors. Typically, these include depreciation deductions that provide for tax deferral and (for certain investors) the potential to use a limited amount of losses to shelter other earned income.

The new tax law provides for an investment strategy to generate tax-free income by actually moving into a rental property for a minimum of two years before selling at a gain.

Smith: As an attorney representing landlords in the eviction process, I'm always reminding clients not to get too frustrated with the legal aspects of rental property ownership.

Although California's eviction laws are fraught with legal traps for the unwary, you won't be faced with this problem too often, provided you're doing adequate screening of prospective tenants.

I'm convinced that the tax and wealth-building concepts of rental property ownership far outweigh the occasional legal hassles.

Q: Recently our one-year fixed term lease was due to expire and we had some casual conversations with the owner about staying. She wanted us to sign a new one-year lease and we wanted to convert to a month-to-month tenancy.

Four days before the end of the lease term, the owner sent us written notice of a $500 per month rental increase since we refused to sign a new one-year lease.

We were shocked and immediately contacted the owner, who informed us that she needed the security of having a long-term tenant. She stated once again that we could keep our old rental rate if we would just commit to the one-year lease.

We were firm in our position as well and went ahead and paid the additional $500 along with our written 30-day notice.

We are no longer there, but this just doesn't seem right. Can the owner do this?

A: Smith: There's good news and bad news.

First, the bad news: The landlord had given you a lease for a fixed term of one year. There is no legal requirement that the lease be extended. Unless arrangements are made to continue, you may have to vacate the premises at the end of the lease.

Furthermore, once the lease expires, the landlord has the right to raise the rent, and there is no legal upper limit on the amount of that increase.

The landlord's verbal promises to you may be worth some weight in court, but you're going to have a tough row to hoe to try to prove a binding oral agreement not to raise the rent.

Now, for some good news. That $500 rent increase four days before the expiration of the term? It's not valid for another 30 days. You can legally pay the old rate for the month immediately following the expiration of the lease. Once the 30 days from receipt of a written notice of the increase elapse, you'll have to pay the increased rate or vacate the premises.

Kellman: Your actions may not have been in your own best interests. The long-term lease usually confers more benefits to the tenant than the landlord. Many landlord attorneys will recommend only month-to-month tenancies to their clients for just that reason.

In a lease, the tenant gains important protection against the 30-day notice to evict which may be served any time in a month-to-month tenancy, but not in a lease.

Also, the rent cannot be raised during the lease period when the rent is fixed in the lease for the term.

Not so with a month-to-month tenancy where the rent may be raised at any time and for any amount (with certain exceptions like subsidized housing and mobile homes).

In this market, with rents on the rise, a lease with a fixed rent would be ideal for a tenant.

IF YOU'RE A TENANT OR LANDLORD, the authors stand ready to answer your questions in this column, although letters cannot be answered individually. Write them at: Rental Roundtable, Homes Section, San Diego Union-Tribune, P.O. Box 191, San Diego, CA, 92112. Or you may e-mail them at rgriswold@retodayradio.com

Back to 1998 Rental Roundtable Index

Robert Griswold and the Real Estate Today! radio show strongly support the intent and the letter of all federal and state fair housing laws. As a reminder to all owners and managers of real estate, note that all real estate advertised is subject to the Federal Fair Housing Act, which makes it illegal to advertise "any preference, limitation, discrimination because of race, color, national origin or ancestry, religion, sex, physical disability, or familial status, or intention to make any such preference, limitation or discrimination." Additional state and/or local fair housing laws may also apply. Be sure to inform all persons that all dwellings offered or advertised are on an equal opportunity basis.

FHEO Logo

Revised and Updated - Wednesday, April 26, 2006

Robert S. Griswold, CRE, CPM, CCIM, PCAM, GRI, ARM
Griswold Corporate Center
Griswold Real Estate Management, Inc.
5703 Oberlin Drive, Suite 300
San Diego, CA 92121-1743
Phone: (858) 597-6100
Fax: (858) 597-6161
Email: rgriswold.ret@retodayradio.com