California Rent Control Laws changed with the Tenant Protection Act of 2019 (AB-1482). This is an overview of changes to local rental control law in CA.

Everything You Need to Know About California’s Rent Control Laws

California Rent Control Laws changed with the Tenant Protection Act of 2019 (the bill also known as AB-1482). Read on for an overview of changes to local rental control law in the State of California. 

Enacted on January 1, 2020, California’s statewide rent control law made it illegal for residential landlords to raise rent more than 5%, plus the local rate of inflation in a year. Called the “Tenant Protection Act of 2019,” or AB 1482, the law is designed to prevent the most “egregious” rent increases in the state, especially as many renters have had extreme difficulty paying for housing in the midst of the COVID-19 pandemic.

California Governor Gavin Newsom remarked that with the implementation of the Act (AB 1482), the state will enjoy the “nation’s strongest statewide renter protections.” The statewide law is retroactive to March 15, 2019, and expires on January 1, 2030.

Note that the rental caps limit how much a landlord can increase a tenant’s rent, not the amount of the initial rental price. That amount is determined as it always has been: the homeowner and the tenant come to an agreement that is ratified through a signed lease. To help homeowners determine the optimum price embodied in that agreement, Belong offers a Pricing Optimization Model which takes into account a variety of factors, including market conditions and location.

Exemptions for the Statewide Rent Control Law

The Tenant Protection Act applies broadly to all housing, however there are some exemptions, including which can be found here. The statute does not apply to California condos, and single-family homes, unless they’re owned by a corporation or real estate investment trust. Local rent control ordinances currently in effect will still apply.

Duplexes, where the owner lives in one of the units, are also exempt. In addition, the law provides for these exemptions:

Housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner;

Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including an accessory dwelling unit or a junior accessory dwelling unit;

Units already subject to a local ordinance that is more protective than state law, and that requires “just cause” to terminate a tenancy (for example, the eviction protections of the San Francisco Rent Ordinance) – see below for a further description of “just cause;”  and

Residential real property that’s separately alienable from the title to any other dwelling unit – meaning, it can be sold separately from any other dwelling, as is typically the case with single-family residences and condominiums – as long as both A and B apply:


(A) The owner is not any of the following:

(i)  A real estate investment trust, as defined in Section 856 of the federal tax code;

(iii)  An LLC (limited liability company) where at least one member is a corporation

(B) The tenants have been given written notice that the residential property is exempt from this section.

Homeowners should note that the state law exempting buildings constructed in the last 15 years is a rolling date. Thus, units built in 2006 will be covered by the exemption in 2021, but not thereafter. Similarly, units built in 2007 will be covered up through 2022,  but not thereafter. And so on.

Updates to evictions and lease terminations: the “just cause” requirement

AB-1482 has a protection for tenants that prevents landlords from attempting to circumvent the law by evicting current tenants to set new, higher rents for future tenants. The law requires landlords to show “just cause,” such as failure to pay rent, when terminating a lease. Other examples of just cause include violating the terms of a lease agreement, assigning or subletting the premises, refusing to provide reasonable access, refusing to vacate, and committing a crime on the property.

The just cause protection applies to renters who have resided in the unit for 12 months or more. If another renter is added to the lease before an existing renter has continuously resided in the unit for 24 months, the just cause provisions only apply if everyone on the lease has continuously resided in the unit for 12 months or more, or if one of the renters has continuously resided in the unit for 24 months or more.

For those residents who’ve lived in a unit for at least a year, landlords must provide the tenant with an opportunity to cure the violation.

The law exempts certain housing types from the tenant protections (like the rent control provision), requiring a just cause showing prior to terminating a residential tenancy.

Furthermore, AB 1482 sets out some “no fault” just causes, which means that a homeowner can end a lease if the unit is removed from the rental market or is being provided to an immediate relative. Additional “no fault” just causes include: if the homeowner is substantially remodeling the unit; if it needs to be vacated to remedy habitability issues; or if the homeowner is responding to an administrative or court order. 

Where local rent control laws are already in place

The following California communities have local rent control laws on the books, meaning the statewide rent control rules won’t apply – other than for mobile homes:

In addition, several other communities have measures short of rent control, and we advise you to look at the provisions that apply:

Campbell (starting Ch 6.09 mediation only)

San Diego (98.0730 just cause eviction, only)

San Leandro (non-binding review & mediation only)

Plus, the unincorporated neighborhoods of Los Angeles County have local rent control laws.

Rent Control Ordinances in Large California Cities

In LA, the local rent control law only applies to buildings constructed prior to 1978. However, with the statewide rental control law, many thousands of newer units built between 1978 and 2005 will be required to comply with AB 1482.

The municipal code says that only one rent increase is allowed every 12 months based upon the regional CPI (Consumer Price Index). Effective July 1, 2020, the annual allowable increase is 3.0%. To be clear, in the City of Los Angeles, if a tenant resides in a building that was built before 1978, rent increases are to be capped under the provisions of the city’s rent control ordinance, and rent in that building can’t exceed a 5% increase (plus inflation). The rate by which landlords can up the rent is calculated as a percentage of the annual Consumer Price Index (CPI).

California Rent Control Laws: An Overview

Landlords have been painted as money hungry monsters keeping people from homeownership. Here's why we don't accept this crushing stereotype: people like you.

6 Invaluable Rules for Being a Landlord But Not a Jerk

Landlords have a bad reputation. There’s a stereotype of a money-hungry merciless landlord that has persisted for centuries, dehumanizing regular homeowners. In fact, the term has so much bad blood behind it that at Belong we don’t even like using it. Instead, we refer to landlords as the more human and accurate description of  homeowners. Equally, we prefer ‘residents’ to ‘tenants’. 

Because having a rental home is more than just property ownership. It’s a vital community service for people who need a place to call home. A growing number of Americans aren’t in a position to own a home or may even prefer the flexibility of renting when moving for work or looking for opportunities in a new city. 

Providing shelter to a person or family has a significant impact on their lives. While it can be financially lucrative, it also comes with a lot of responsibility. If you want to be the kind of homeowner who can be a landlord without being considered a jerk, there are ways to be kind and considerate without losing out financially.  

Here are 6 invaluable rules for being a successful ‘landlord’ but not a jerk:

Partner with companies who reflect your values

Rule #1: Don’t think the worst of people.

Even though you’re currently a homeowner, there was probably a point in your life when you were on the other side of things — when you were living in a rental. You may even be renting now while someone else is in the home you own. 

As a renter, did you (or do you) make yourself at home? Did you ever invite a friend over to see “the landlord’s house?” Or did you simply say “let’s have dinner at my place”? 

Belong thinks it’s important to keep that dynamic in mind — to remember that when you own a house or apartment on the rental market, you’re not leasing out a dead space. You’re inviting someone to make themselves at home.

Just as people say “nobody ever washed a rental car”, there is an untrue belief that renters won’t care for places they don’t own. Yet if you do your due diligence to find great people who want to live in your home and treat them as such, there’s a good chance they will have pride in your home. They may even leave it in even better condition than when they arrived. 

One of the most important rules to follow as a homeowner is to maintain good communication with your residents. Whether it's about a rent increase, a repair, or a dispute, keeping the lines of communication open and transparent can help you avoid misunderstandings and conflicts. 

Particularly if you self-manage a home, it’s important to create an environment of mutual respect. Be considerate of their privacy, and make sure to give them notice before entering the home. Don't harass them with endless phone calls or emails, and try to be understanding if they are experiencing financial difficulties or personal issues that may affect their ability to pay rent on time. That’s not to say you shouldn’t enforce the rules of the lease agreement, but be careful not to treat them with contempt simply because you own the place they call home. 

Another thing that gives landlords a bad reputation is the desire to let things slide. From dodgy paint jobs, ignoring dead plants in the yard or taking your time making repairs, there is no shortage of cost-cutting short cuts for homeowners. 

But when you show a lack of commitment, you are sending signals to your resident that you don’t care about the home, which begs the question: Why should they? When you demonstrate you love your home – by quickly and responsibly investing in its maintenance – you are encouraging “love it back” behavior.

What’s more, something wonderful happens when everyone in a community works together to maintain houses: the values increase. And there’s a great deal of data which shows the tragic opposite is true: neighborhoods decline in value when people stop caring.

Rule #4: Avoid discrimination and judgment.

It's illegal to discriminate against tenants based on their race, religion, gender, or other protected categories. Make sure to treat all applicants and residents equally and fairly, and don't make any assumptions or judgments based on their background or appearance. Be open to different lifestyles and cultures, and try to accommodate peoples’ needs and preferences as much as possible.

Rule #5: Be reasonable with rent increases

Rent increases are a common occurrence in the rental market, but it's important to be reasonable and considerate when raising the rent. Make sure to give your residents ample (and legally required) notice before raising the rent, and try to keep the increase within a reasonable range. 

If your residents are long-term and reliable, remember that huge price hikes could send them packing and cost you money with vacancies and looking for new people just like them. 

Read more about the best way to price your rental home to attract long-term residents in Los Angeles, San Diego, San Francisco Bay Area, Seattle or Miami. 

Rule #6: Partner with companies who reflect your values.

Self-managing a rental home is not for everyone. Those who take on the responsibility themselves often find it much harder to avoid inherent ‘jerkiness’ purely from the emotionally draining and time-consuming nature of property management. Try being nice when a furnace stops working at 11pm! 

Hiring a property manager isn’t always the quick-fix answer either. Think about the lengths that large hotel brands and vacation rental services like Airbnb go to make people feel comfortable and even “at home” when they’re staying with them. And yet traditional property management services — the very businesses who are supposed to be finding everyday living accommodation for people — do the complete opposite. 

Belong is changing that. Its human approach is turning the rental experience into a world-class hospitality service for both you and your residents. Unlike traditional property management services, Belong provides a complete end-to-end service with full transparency. Belong matches houses with residents that are looking for a long term place to live — somewhere to call home. 

Find out how Belong can both optimize your passive income opportunities and help you be a respected homeowner here. 

6 Invaluable Rules for Being a Landlord (But Not a Jerk)

Uncover the ins and outs of remotely managing an out-of-state property as a landlord.

Managing An Out-of-State Rental Property

Choosing to manage an out-of-state property as a landlord can provide unique upsides. However, managing a rental remotely from another location comes with some distinct challenges. With careful consideration and an understanding of property management solutions, landlords can be sure their out-of-state rental brings them fewer headaches and more success. 

Out of state rental property considerations 

The local real estate market will be a driving force in your decision to add a rental property to your portfolio. A vital location will be on a clear path for growth or future revitalization. 

You may also choose to evaluate other factors, including:

Local amenities like restaurants, trails, and parks 

As with any rental property, it’s critical to estimate the potential cash flow of each potential property. Accurate calculations will provide you with essential information to aid decision-making. 

Accurately calculating your potential cash flow for an out-of-state rental property requires going beyond simple calculations that take principal, interest, taxes, and hazard insurance into account. You may also need to account for mortgage insurance, repairs, maintenance, turnover, and capital expenditures. 

Do you enjoy the location and things the city or state offers? It’s helpful to consider areas that you might personally enjoy. You may be spending time there, especially when establishing your rental property. Choosing an appropriate location is also vital if you plan on using the home as a future vacation or retirement home. 

Carefully research the local laws regarding rental properties. Some states or cities may have specific provisions around tenant screening processes. You may also find guidelines around if and how you can decline tenant renewals, notices, and evictions. 

You may need to make changes to your lease agreement to ensure it’s consistent with local laws. If you’re unfamiliar with landlord-tenant laws, it may also be prudent to consult with an attorney familiar with local laws. While legal considerations may be initially tedious, careful due diligence will save you grief in the long run. 

How to make an out of state rental property easier to manage 

Set clear tenant responsibilities and expectations 

Communicate expectations with potential tenants and ensure that your lease agreement outlines any important details. For example, if your tenant is responsible for lawn care, be sure that you define and set guidelines around this responsibility. 

Your proximity to your out-of-state rental property may dictate how you manage maintenance, emergency repairs, and vacancies. What aspects of these processes need to be communicated with your tenant or included in your lease agreement?

Your out-of-state rental property will inevitably need maintenance and repairs. If and when the A/C unit goes out in the middle of August, you don’t want to be searching high and low for a local, trustworthy repair company. 

Consider doing preliminary research and compiling a list of local resources before you may need them. You can check sites like Nextdoor for reviews and recommendations. Finding a reliable handyperson for your out-of-state rental property will save you lots of time and money in the long run. 

Defined systems, processes, and automation tools will make managing an out-of-state rental property immensely easier.

If this is your first time using automation tools, consider outlining all of the processes associated with your property: 

You can choose the tools that are best suited to your specific needs. You may need to try different solutions or combine multiple tools to find the best combination for your rental property. 

Build relationships with your out of state rental property’s HOA

While you may not be the one living in your out-of-state rental property, it’s to your advantage to cultivate a relationship with the local HOA, if there is one. Failing to develop a good relationship can result in unexpected assessments, fines, and violations. 

To maintain a harmonious relationship, be sure that you are familiar with HOA guidelines and align your lease agreement with those guidelines. Always be sure to pay HOA dues promptly and address any violations in a timely and respectful manner. 

Ease the burden of managing an out-of-state rental property by using property management software, hiring a property management company, or individual property manager. 

Generally, property management services or software includes:

Choosing the right property management solution will help you find better tenants, experience fewer vacancies, and streamline your rental management. A property management solution will eliminate any hassle and help shift the burden of managing an out-of-state rental property. 

Using property management software can be a great start, especially if you have lots of experience managing rental properties. While the software will likely be the least expensive property management solution, it still requires you to execute many tasks. Carefully research potential software and look for a specific solution for your circumstances. 

Learn how to manage a rental property remotely as we uncover the ins and outs of managing an out-of-state property as a landlord.

We ranked the best accounting software for landlords to stay on top of your rental income.

Accounting Software for Landlords, Ranked

The financial benefits of managing a rental property for landlords are numerous. Still, you can only actualize them with careful accounting habits and tools. 

Real estate accounting needs to incorporate four key three key aspects:

These are all the costs associated with managing your rental property. Look for an accounting tool that will automatically track your expenses.

This category includes all the money you make from your rental property. 

Not all accounting tools will provide robust reporting options, but careful financial analysis is critical for a successful rental property.   

How to choose the right tool to manage your rentals

Landlords will need to consider their specific needs to determine which accounting software is best for their needs. 

Take inventory of your rental property portfolio 

Each rental property accounting software is designed for a specific type of landlord. There are less expensive options if you manage the finances for just one or two rental properties. However, suppose you are managing a large number of rental properties. In that case, you'll need to look for accounting software specifically designed for that need. 

Consider your CPA or tax preparation preferences 

If you currently or plan to work with a CPA or tax preparer, it can be helpful to seek their advice on which accounting software they prefer. Most tax and accounting professionals will be familiar with general accounting tools like Quickbooks or Quicken. If your CPA works with other landlords, they may have unique insights into specific platforms and any downsides or benefits. 

Make a list and look for specific features

Are there specific tools or features that your accounting software needs to have? It's helpful to make a list of these functions before you start your search to ensure that your chosen software has those features.

Separate chart of accounts for rent/deposits 

Multiple payment options such as ACH and credit cards

Types of accounting software for landlords 

Landlords can choose from several different types of accounting software. Standard options fall into a few distinct categories. 

If you're financially savvy or particularly good with spreadsheets, you may be able to use Google Sheets or Excel in place of traditional accounting software. Many free accounting templates can help you get started with this option. We don't recommend DIY accounting software for landlords unless you feel 100% comfortable managing and troubleshooting any issues. 

Many landlords may choose to use accounting software that hasn't been developed specifically for real estate. Accounting software like Quickbooks, Freshbooks, or Quicken can be a solid choice for landlords already familiar with these tools. 

These types of software won't have features specific to rental property, particularly for rent collection. Still, they can be suitable for landlords with solid processes and procedures. 

Free rental property accounting software exists, but they're only suitable for certain landlords. We've found that they don't always include critical features and can expose you to potential financial errors. We've included a review of one popular free software to see how it stacks up against the competition. 

One of the best ways to stay on top of your accounting (without the need for expensive software), is to partner with a good property manager. Property management provides support not only for accounting needs, but also tenant placement, screening, maintenance, and more. Working with a property manager significantly reduces the time spent completing administrative tasks and saves money in the long run.

Many modern property management companies offer an app or landlord portal that streamlines communication and tracks repair requests. It should also manage all of your rental receipts and incomings/outgoings, making your finances simple to find at tax time.

We've included information in our ranking for each software's pricing. However, it's important to note that each software has a different pricing structure and that these prices are subject to change.  

Landlords should carefully consider different pricing aspects, including free trials, potential software set-up fees, required monthly minimums, upgrade, and add-on charges.

Best 2022 Rental Property Accounting Software 

ZenLord Pro is free software that offers rent collection, accounting & bookkeeping, a work order system, tenant communication, free screenings, and lease agreements. 

Pros: Users like that the software can generate tenant applications and leases. While the platform is basic, it should address the needs of landlords with just one or a few properties. 

Cons: You may only be able to add information for one bank to your account. For some, this could cause some difficulties. 

Pricing: ZenLord Pro is one of very few free accounting software choices for landlords. They also offer two upgraded versions with additional features that run $7 and $9 per month. 

Customer review: "Overall: I solved late rent. That is the biggest concern for me. It made sure my tenants knew that we were watching payments and we would know before rent was due if they were good to clear the payment. Communication through the website/text platform is great: I like the feature where it gives you a balance update. So you know if your tenant is good for the rent. Maintenance platform is useful for scheduling repairs. The UX design needs some work, but it's something that can be changed easily. Still super easy to use…" - Nishul P.

Quickbooks - Best Accounting-only Software

We ranked the best accounting software and financial solutions for landlords to stay on top of your rental income.

Maximize Your Rental Income

Before deciding to manage your own rental property, ask yourself these three questions on if you're ready to be a landlord and property manager.

3 Questions To Help You Assess If You Can Be A Property Manager

Self-managing a home on the rental market is usually taken on by people looking to save money on property management fees, taking the full share of the rental income. But making the decision to self-manage a rental property isn’t as straightforward as some may think. 

From finding and screening the right tenants to responding to maintenance requests and the dreaded business of collecting rent, self-managing a property can be time-consuming and sometimes frustrating work. 

That said, some people are born to be property managers. They have superior organizational skills and the kind of people-pleasing personality that makes the job less stressful. Others will find themselves overwhelmed by the amount of paperwork and weekend phone calls that self-management often involves. 

If you’re not sure, these three simple questions can tell if you should take the plunge.

There is no denying that taking care of every aspect of your property ratchets up one’s stress levels. The pressure ranges from what happens when the rent isn’t paid on time – which is often a reality –  to what happens if the washing machine hose breaks and the basement is flooded. Or the furnace stops working on the coldest day of the year.

It’s bad enough if a crisis happens when nearby, but what happens if bad news strikes at the worst possible time (as it usually does) like when you’re on vacation? 

Some people can deal with all that, and take it in stride. But if none of this sounds appealing to you, you might want to consider outsourcing these responsibilities to professionals like Belong, who will take it all on for you. 

Other stress-busting services include guaranteeing the rent (no guesswork on when you’re getting paid) and a 24/7 concierge service on the Belong app for both you and your residents. We even offer innovative finance options that let you spread the cost of things like emergency repairs over the term of your lease, so you’re not faced with any stressful surprises. 

 Learn More: Discover Belong PRO, the best alternative to Property Management in Seattle, Redmond, Oakland, and many more cities across California, Florida and Washington State.

Be honest, are you disciplined and rigorous about record keeping? Can you quickly lay your hands on receipts and warranties? Or is a shoebox your idea of what a filing system should look like?

We ask that question because managing your own property involves tons of record-keeping.  Everything from the initial applications, to the credit checks, to the legal lease agreement, to repairs and maintenance, all need to be maintained in an organized fashion. You’ll need it for the day-to-day management of your property; in case there are any legal issues along the way that require substantiation; and of course, for the preparation of your tax returns.

For some, that’s second nature, but for others it’s a challenge. Belong doesn’t just maintain those records for you, but they are part of your digital account with us, and are instantly accessible. 

See why thousands of US homeowners are ditching outdated Property Management in San Francisco, San Diego, Los Angeles, Tampa, Jacksonville, Concord, Berkeley, Orlando and more.

Question #3: How important is your free time?

There’s a reason that property management is a full-time job for thousands of people across the country: it takes time. A lot of it. There are always unexpected things that come up, which are likely to require time and effort to research and manage, such as vetting all of your rental applications or finding contractors to manage repairs at a moment’s notice. 

If you want to make property management your job, self-management could be for you. But if you’re working or would prefer to spend your time on activities that matter to you, consider outsourcing to those who will dedicate their days to looking after your home and residents. 

There is an easier alternative to self-managing a rental property

Whether you’re new to the rental market or burnt out on self-managing your rental home, Belong can help. 

Belong PRO is a residential network offering unique services to both homeowners and their residents. From not charging fees for the essentials to guaranteeing rent, Belong will partner with you to achieve financial freedom. And you'll never need to lift a finger. Learn more and find out if your home is eligible (even if you’re mid-lease!) at belong.com/homeowners.

Is being a rental propert owner a good source of passive income? Learn the ins and outs of earning income through a rental property investment.

Your Guide To Earning Passive Income On A Rental Property

At Belong, we get a lot of questions about how you can generate passive income from a rental property. People want to know if real estate is a good passive investment; how they can make money passively in real estate; and what the tax rate is on passive rental income. The questions eventually ladder up to, “How can I make $1,000 a month passively in real estate” – or, if you’re talking to someone who’s really ambitious, “Can owning rental properties make me rich?”

That people have these questions makes sense to us, for two reasons:

Reason One: If the income generated from your rental property qualifies as passive, you don’t have to pay as much tax on it. And who doesn’t want to make more money by doing less work? 

Reason Two: The answers to these questions can, at times, be hopelessly convoluted. So even if someone’s told you a thousand times how to calculate the tax rate on passively earned income from a rental property, unless you’re an accountant, you probably still aren’t sure. 

When it comes to questions relating to tax code, we always recommend that you consult with your lawyer or accountant: nonetheless, we’ll do our best to answer that question – and the other ones listed above. 

But first, before we drill down into the nitty-gritty, let’s start with the basic question: how do you define passive income? 

Passive Income is defined as income generated from an enterprise in which you are not actively involved. That can be a limited partnership, or a business in which you are a silent investor or partner, or a rental property.

It’s important to keep in mind though that property may or may not qualify as passive income – and the distinction between passive and active may not be what you think. It’s a complex subject, if not somewhat of a minefield. Because the way the IRS views passive is not that black-and-white, we urge you to learn the basics – knowledge is power – and speak with a tax advisor.  

In fact, there are specific criteria for what constitutes “passive” income, and significant tax implications as well. In what follows we provide a “summary” of what passive income means (and please note that is a big set of quotation marks around the word!).

Investopedia is a reliable source of insights on this subject; they identify three broad categories of income: active, passive, and portfolio.  This goes beyond real estate, but to drill down there, they write that: “Passive income is earnings derived from a rental property, limited partnership, or another enterprise in which a person is not actively involved. As with active income, passive income is usually taxable, but it is often treated differently by the IRS.”

So if you own a rental property, does that mean your income automatically qualifies as passive, and you benefit from any tax implications of that classification? Not necessarily.  If you are a real estate professional, your income is not passive. If you aren’t a real estate professional, but end up doing the work of one – if, for example, you act as a broker for the property – the income is no longer passive.  Further, if the IRS deems you as “materially participating” in the management of a property, the income will typically not qualify as passive.

While the below is not exhaustive – here is a link to the material participation test – if you don’t meet these standards, chances are your income is NOT passive; note that number three is a criterion which involves not just your role, but how it compares to the roles others might be playing in the process.  In other words, the 500-hour rule may not apply if there is no one contributing more hours than you are.

If you’ve dedicated more than 500 hours to a business or activity from which you’re profiting

If your participation in an activity has been “substantially all” of the participation for that tax year

If you’ve participated up to 100 hours and that is at least as much as any other person involved in the activity

If it turns out your income is indeed passive – and you have losses - there are specific passive activity rules that you need to be aware of.

The reason it’s so important to understand the details of passive income is that anyone who owns a property – or is considering buying one – might underestimate the amount of time they need to spend managing property.  Which means their tax situation can creep from passive to active before they know it.

That’s why we urge you to speak with an accountant, tax planner, or financial advisor to determine whether your current – or projected future behavior – would characterize your rental income as passive or active.

Why invest in passive income opportunities?

Now that we’ve covered some of the basics of what qualifies as passive income, you may be wondering if direct investment in residential real estate is the best way for you to participate in what has historically been one of the most reliable asset classes.  

Here’s an article from Forbes – one of many on the subject – which is headlined “Why Real Estate Builds Wealth More Consistently Than Other Asset Classes.” 

If you already own residential property – whether you’ve owned it for a while, bought it for investment, or inherited it – then you will need to determine if you meet the standards for passive income we discussed, or whether you want to hire an expert help (we’ll get to what that entails and why Belong is playing that role for so many enlightened homeowners).  Or, of course, you can decide you don’t want to remain an investor in real estate, sell the property for profit,  and invest the proceeds in another asset class.

Other ways to achieve passive real estate income

Direct ownership of real estate is just one of many ways to invest in that asset class. Recently there has been a great deal of “fintech” innovation that enables you to buy fractional ownership in residential or commercial properties. Examples of these platforms that seek to “democratize” real estate investing include Fundrise; here’s a link to Investopedia’s best crowdfunding sites of 2022. In addition to taking none of your time, and being able to step in for as little as $10 – and invest more at your discretion – these platforms also provide the value of diversifying your risk across multiple properties.

REITs – or real estate investment trusts – are another passive investment opportunity which some prefer over crowdfunding.  Here’s a useful article from Seeking Alpha that lays out the reasons why so many investors find REITs to be an attractive opportunity.

Either way, we urge you to do your due diligence; there are no guarantees and as this piece elucidates, there are inherent, structural issues with crowdfunding platforms which are worthy of your consideration and attention.

Next up in our passive income journey: some important information about the role Belong can play.

If you’ve made it this far, no doubt you’ve discerned that “passive” income isn’t necessarily all that passive, according to both the dictionary definition of the word, and according to the IRS’ definition.

Even if the income is generated through a REIT or a crowdfunded real estate investment, a lot of work goes into the decision making process; you have to research the sector the REIT focused on, and also (of course) the REIT itself its past performance and its ratings according to sites like Morningstar and MarketWatch. It’s also important to read any relevant analysis available through Motley Fool and Seeking Alpha. 

The more you read about the REITs in general – and the specific REITs you’re thinking about investing in – the more insight you’ll get into other key indicators you should be looking at.  Triple net leases, for example, speak to the stability of the rental flow – and, by extension, the stability of the REIT itself. Occupancy rates are another indicator that speaks to the stability of a REIT. This article in Forbes by REIT expert Brad Thomas will provide you with some insight into what he looks at before he invests.

For those of you who are looking to invest in a rental property (which, given the nature of Belong, is probably most of you), preliminary work will involve a geographic and demographic analysis of the city or town and the neighborhood you’re looking to invest in, along with a thorough examination of the rental markets in those areas, in order to determine whether there is enough demand to safely enter the marketplace.  We’ll do a deeper dive into this process in the next section, but needless to say it’s one of those things that’s easier said than done.

After you’ve purchased the home, prepared it for the marketplace, and found someone to occupy it, you have to take care of all the problems, big and small, that crop up with the property.  Which, as we’ve discussed many times elsewhere on this blog, consumes a huge amount of time and energy. Complicating the situation is the fact that you can only spend so much time on the task if you want the income to qualify as passive: in case you need a refresher re-read the previous section for more information on the 500-hour rule.

Is being a rental property owner a good source of passive income?

At Belong we pride ourselves on transparency and honesty, so we won’t pussyfoot around the fact that there are other forms of passive income that can indeed be more profitable.  Dividends from a stock investment, for example. Or if you’re a silent investor in a company that takes off and transforms into an Uber-sized unicorn. 

But unicorns are called that because they are one in a million – or even one in a billion, if you take into account the number of start-ups that barely get off the ground. 

Investing in a rental property might not be as sexy as being an angel investor in some hot new idea, but it’s far less risky, if done properly.  Plus, even if the yearly returns are more modest, you get to participate in the appreciation accrued by the property, if and when you decide to sell it down the line. 

All this means that the research you’re doing at this stage is that much more important.  You want to make sure that the property you’re looking at is in a strong, growing market: not only will that help you maximize the money you make from renting it, but also it means that, when you eventually sell the place, the investment will have gone up that much more. 

Also keep in mind that unless you work with outside business help, like Belong or a property manager, the income you generate from your rental property probably won’t even qualify as passive.  So in addition to having to deal with the time and energy-sucking elements of life as a landlord, you don’t get to participate in a big part of the upside!

How much money can I make from a rental property?

This is a difficult question to answer, as it involves a lot of contingencies we can’t really account for. For example, where in the world is the rental property in question? Obviously if you have two-bedroom apartment in the middle of Silverlake you can charge a lot more rent than if you have a studio apartment in Pomona. You don’t need to be a tax attorney or an accountant to figure out that you stand to make a lot more money for the two-bedroom apartment in the more desirable part of the world. 

On the other hand, you probably do need to be a tax attorney or an accountant to figure out how to calculate the taxes you need to pay on the income generated from either of these properties.  The IRS allows people who own rental properties to deduct the amount of depreciation that occurs to the home on a yearly basis: the laws are fairly convoluted, and we advise you talk to a professional in order to gain a better grasp on this material, but the basic gist of it is that you are able to deduct a certain amount of money based on the amount that you paid for the property itself on a yearly basis.  You are also able to take deductions based on expenses the IRS deems “ordinary and necessary:” for example, money spent on repairs and utilities and homeowner’s insurance is deductible. 

There’s a baseline amount of depreciation that occurs on a yearly basis for the first 27.5 years that you own a rental property.  Again, we strongly encourage you to consult with a professional, but the way to calculate this number is by subtracting the cost of the land that the property is on from the amount that was spent on the property itself, and dividing that number by 27.5: that number is the baseline amount you can deduct on a yearly basis to account for depreciation.  That number can be supplemented by money spent on upkeep and improvements to the property, which includes anything from structural improvements to landscaping costs.  

The more you’re able to deduct, the less tax you have to pay – and the more money you can make from your rental property. 

How to ensure income remains truly 'passive'

Is being a rental property owner a good source of passive income? Learn the ins and outs of earning income through a rental property investment.

Your Guide to Earning Passive Income on a Rental Property

We are announcing a $5M Series Seed led by Jeff Jordan at a16z, a $10M Series A led by Jeff Richards at GGV Capital

Announcing Belong's $5M Series Seed, $10M Series A and $40M Series B from a16z, GGV and Battery Ventures

Today is an important day for Belong and all of us personally.

Welcome to The Playroom