Let’s face it, being a landlord in Southern California isn't what it used to be. Whether you bought your rental property years ago, just made your property purchase recently or you just inheritance a house, the reality of managing tenants, making repairs, rising property taxes and ever-changing landlord laws in Southern California can wear you down fast. It’s easy to reach a point where you say, "I’m just over it!"
If that’s where you are right now, burned out, unsure of what to do next and essentially just done, this guide is for you. Here are the best options available to Southern California landlords who are ready for a change.
1. Hire a Property Management Company
Not ready to sell, but don’t want to deal with tenants anymore? A licensed property management company can take over the day-to-day headaches to take a few responsibilities off your plate. Property managers typically handle tenant screening, lease agreements, rent/deposit collection, repairs, evictions and more. Another great advantage of using a property manager is that they are usually up-to-date on the latest landlord/tenant laws, which should help keep you out of legal trouble.
You can usually expect to pay a property manager 8%-12% of the monthly rent, with some possible additional fees.This option is great if you want to keep most of your rental income, but regain your time and sanity.
Pros: Less stress, no tenant interaction, still earn rental income
Cons: Fees eat into profits, you’re still on the hook financially if something goes wrong
2. Sell Your Home with a Real Estate Agent
If you want to cash out and you’re not in a hurry, selling through a real estate agent on the open market can be an option. Although selling with an agent will usually get you the highest selling price, selling with an agent has a few caveats attached that some people would prefer to avoid…
- Real estate agents charge commission as high as 6%, so make sure you’re going to be able to sell the property for a high enough price to cover the commission.
- Sellers may face additional costs, such as closing costs, staging, repairs and other fees.
- Your agent will usually want to hold open houses in order to help sell the home. In addition, other agents will usually have the ability to show your home to their clients who aren’t able to make the open houses. That means that strangers will be touring your home while you’re not there.
- If the home is in poor condition or needs repairs, you may need to pay for those out of pocket before you put it on the market.
- During the escrow process, your house may be subject to inspections and the buyers may request that you make repairs based on those inspections.
- The seller will need to enter into a written agreement with the listing agent agreeing to work exclusively with that agent for a set amount of time.
- If the property is tenant-occupied, you will either have to evict the tenants or sell the property with tenants in place, which can reduce the sales price.
- Depending on how much the property has increased in value since it was originally purchased, you may have to pay capital gains taxes.
Pros: Potentially get a higher selling price
Cons: Longer timeline, out-of-pocket prep costs, agent commissions, inspections, open houses
3. Sell As-Is to a Cash Buyer or Investor
So you don’t want to deal with cleaning, repairs, evictions or commissions? You can sell your property as-is to an experienced Southern California cash buyer or investor. Although you might get a lower selling price than you would on the open market, selling your home as-is to an investor eliminates the long list of cons noted in the previous section. This is one of the fastest and least stressful ways to walk away from your house with money in your pocket.
As with the previous option, depending on how much the property has increased in value since it was originally purchased, you may have to pay capital gains taxes.
Selling as-is to a cash buyer or investor is especially popular in San Diego County, Orange County, Riverside County, Los Angeles County, Ventura County and Santa Barbara County.
Pros: Fast, easy, low-stress, fewer expenses, can leave tenants in place
Cons: You might not get full market value
4. Turn Your Property Into a Short-Term or Mid-Term Rental
If your property is in a vacation-friendly area, which can be found all over Southern California, converting it into a short-term vacation rental (Airbnb, VRBO) could boost your income without locking you into long-term leases. You could also turn it into a mid-term rental targeting traveling nurses, corporate housing and relocating employees.
Short-term and mid-term rentals will usually require that you furnish the property and maybe even add a few more perks that vacationers would expect in the case of a short-term rental. You’ll also have to come up with procedures for cleaning after each guest leaves and preparing for each incoming guest. This might mean you’ll have to hire a short-term or mid-term rental property manager, which could cost you 15%-30% of rental income for short-term and 8%-12% of rental income for mid-term.
Another potential hiccup you might encounter with a short-term rental are changes in local government rules that may require permits or otherwise restrict your ability to rent out to short-term tenants in the future. Some cities do not allow short-term rentals at all. Mid-term rentals incur far fewer restrictions than short term rentals, but the per-night income is usually a bit lower as well.
Pros: Higher per-night income potential, more control over the property
Cons: More hands-on and expensive to manage, potential legal restrictions
5. Use a 1031 Exchange to Reinvest Elsewhere
A 1031 exchange lets you sell your current property and defer paying any capital gains taxes owed as long as you reinvest the proceeds into another investment property. Using a 1031 exchange is a great way to continue to invest, but to do so in a different property. Investors utilize this method when they want to upgrade to a property with more upside potential, fewer management requirements, better location or a different asset class (multi-family, commercial, single family, etc.).
If you go the 1031 exchange route, be sure to work with a qualified intermediary and know the strict rules and deadlines involved to make sure your transaction qualifies.
Pros: Tax benefits, opportunity to improve or simplify your portfolio
Cons: Tight timelines, more complex process
6. Develop an Exit Plan for an Eventual Sale
Not quite ready to sell today? That’s okay—just don’t stay stuck. Create a plan that lets you exit on your terms. This will give you time to prepare and keep you from burning out further.
- If you have tenants, work on winding down their lease and getting them out of the property. You will always get a better sale price if the property is vacant.
- Complete key repairs that boost resale value. Any items that could inhibit a future sale or could improve your property value more than the cost of the improvement, should be undertaken if you can afford it.
- Line up an investor buyer now for a delayed close. Some investors are flexible with their timelines and they might even let you stay in the home for a period of time after the sale. Don’t be afraid to ask for these types of concessions from your buyer.
- Prepare for a 1031 exchange later this year. Part of the 1031 exchange process involves choosing a qualified intermediary and identifying the property into which you wish to exchange. Get started on it now so you’re ready to sell in the future.
Pros: Maximum control, flexibility, eventually reaching your goal
Cons: Delays action, still dealing with the stress short-term
Final Thoughts: You Deserve an Easy Way Out
If you're exhausted by the stress, risk and pressure of being a landlord in Southern California, you don’t have to keep going just because you've made it this far. Whether you want to maximize your return, minimize your stress or just hand over the keys and be done, there is a way out that fits your goals.
Amy and Dave Buy Homes specializes in helping landlords in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties get out of their properties quickly, easily and with as little stress as possible. Reach out to us and let’s find the best option for your situation.
You don’t have to be a landlord forever. Let’s get you to the next chapter—on your terms.
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