Attention, RSO-building owners: Following last week's LA County rent cap adjustments, the LA Housing Department has unveiled significant proposed changes to the city's rent control policies. Here's what's on the table:
LA City Policy Changes:
- Maximum Annual Increases: Proposed reduction from 8% to 5%
- Minimum Increases: Potential decrease from 3% to 2%
- Utility Allowances: The 1% allowance for gas and electric coverage may be eliminated
- CPI Calculations: New formula excluding housing costs
- Starting July 2025: Hard cap of 2% on annual rent increases (down from current 4-6%)
Impact Analysis:
For Property Owners: The proposed changes present significant challenges for RSO property operations. With inflation affecting maintenance costs, insurance premiums, and property taxes, these tighter caps could impact your bottom line and property valuation strategies.
For Your Investment Strategy: While increased tenant stability might reduce turnover costs, the limited rent adjustment flexibility could affect your property's market positioning. This makes strategic planning more crucial than ever.
Action Steps for Q1 2025
1. Numbers You Need to Run Now
- Calculate your effective gross income under the new 2% cap scenario vs. current 4-6%
For a typical 10-unit building in LA, this could mean a $30,000-40,000 reduction in annual revenue potential
- Model insurance premium increases (trending 15-20% up in LA) against reduced rent growth
- Use tools like Stessa or Buildium for financial modeling
Key metric to watch: If your current NOI margin is below 35%, you'll need to identify at least 8-10% in operational savings
2. High-Impact, Cost-Effective Improvements
- Target common areas first - LED lighting upgrades have a quick payback time (14 months)
- Install smart water meters (typically $200-300/unit) to catch leaks early - average savings of $40/unit/month
- Consider bulk internet deals with Spectrum or AT&T ($35-45/unit vs. $65-85 retail)
Real example: One of my clients saved $12,000 annually on a 12-unit building through these changes alone
3. Strategic Tenant Retention Plan
- Launch a proactive maintenance program focusing on HVAC and plumbing
- Set up quarterly property walk-throughs (costs about $200 but saves thousands in deferred maintenance)
- Consider offering lease renewals 90 days out with modest improvements (like new faucets or light fixtures) to secure longer-term tenants
- Data point: Properties with 90+ day renewal offers see 23% higher retention rates
4. Insurance and Property Tax Strategy
- Get quotes from at least 3 new insurers; there can be a variance of 10-15% between carriers
- If you've owned your property for 5+ years: file for property tax reassessment; success rate is around 40% in current market
- Consider higher deductibles ($5,000 vs. $2,500); typical premium savings of 12-18%
Real example: Recent client saved $8,400 annually through insurance restructuring on a 16-unit building
These proposed rent control changes highlight the need for landlords to adapt their strategies. By proactively analyzing your finances, cutting unnecessary costs, and focusing on tenant retention, you can protect your profitability and keep your properties competitive. Start planning now to stay ahead of these shifts in regulation. For expert advice tailored to your specific needs, reach out to our team today—we’re here to help you succeed in this evolving market.
Taylor Avakian is a multifamily investment expert and the host of No Vacancy, a podcast dedicated to exploring the latest trends, strategies, and insights in the real estate market. As the founder of The Group CRE, Taylor specializes in helping landlords and investors navigate the complexities of multifamily ownership in Los Angeles