City of Eastvale to Real Estate Investors: FOAD

Investors Not Welcome Here!

My last post dealt at some length with Federal policy. But in many of my writings, presentations, and comments, I point out that the folks who are most likely to get all up in your business are municipalities.

Case in point: the city of Eastvale, CA, with some 57,000 residents, is contemplating telling real estate investors to FOAD. Of course, in the course of telling real estate investors to FOAD, the City of Eastvale is also telling homeowners to ESAD, with predictable results for the brokerage community.

What do I mean?

Well, the City Council is contemplating a new ordinance No. 2013-13 “Establishing a single-family residential rental registration, inspection and crime-free rental housing program.” Right up front, the City Council tells us whys and the wherefores:

The City of Eastvale (“City”) is experiencing an increase in the occurrence of substandard maintenance, unsafe conditions, illegal activity and public nuisances in single-family rental property, especially those properties rented by absentee landlords. As of August 1, 2013, there have been approximately twenty (20) single family properties in the City where the Riverside County Sheriff’s department has served warrants for indoor marijuana grow houses. These homes are not owner occupied; rather, they are rented by the owners to tenants either directly, or through property management companies. These conditions have precipitated the City Council to direct City staff in taking immediate and proactive action in an effort to curb these conditions and hold owners of single family residential property more accountable in the renting of their property within the City.

So, the City plans to force landlords to register each rental property. If the registration is made by someone who has more than one single-family rental, then a separate business registration certificate is needed for each such property registered.

Of course, there is no point to registration unless the government is going to do something with that information. And why yes, as a matter of fact, there is something the City will do with that info:

“After receiving a completed Residential Rental Registration form from an Owner, the City will conduct an exterior and interior inspection of the Residential Rental Dwelling Unity to identify violations of any Applicable Laws.”

But hey, they’re from the government and they’re here to help. The owner is responsible for notifying the tenant and providing access to the government inspector. Fail that, and the City can screw you in a myriad of ways. And of course, what’s the point of an inspection unless it’s done annually, right? So it shall be. Plus, inspections can be done if someone complains to the City about the property.

Critically, the City says there is no fiscal impact, “as this Program operates as a full cost recovery service.” That’s another way of saying that the Owner will be paying whatever registration fees he’ll need to pay to have the City inspector come out and look at his unit to make sure it’s in compliance. I suppose that would be the case even if the inspector comes out because some neighbor complains about the appearance of the yard.

Don’t register? The City will kindly register the property for you, in your name, and then bill you for the service. Get your registration revoked or rejected? Guess what? More fees for you, good sir.

Look, there are more things in the actual proposed ordinance. I’m uploading the relevant pages here: EASTVALE (PDF) If you’re interested in the thinking of municipal governments everywhere, take a look through it.

Rational Actors

If City Council is one end of the extreme when it comes to rational action, real estate investors tend to be on the other end of the extreme. That is to say, they’re pretty rational, numbers driven, and all about the dollars.

According to Yvonne Arnold, a REALTOR friend who works in the area, some 38% of all sales in Eastvale since January of 2013 have been all-cash. Many are mom-n-pop investors, and more than a few are Wall Street hedge fund funneling millions of dollars into housing. Most of those would be what City Council calls “absentee landlords”.

So… suppose you’re the investment manager for a $500 million housing fund. You were looking at purchasing say 200 properties in Eastvale. Or you could spend that same money to buy properties in say… oh, I don’t know… Houston.

You’re really going to go through this nonsense from the City of Eastvale?

Of course not.

What then is the impact on the real estate market in Eastvale as investors decide that the pain in the ass factor of dealing with paperwork, government regulators, government inspectors, not to mention the cost of registration fees, re-registration fees, inspection fees, paperwork fees, and whatever other fees are to pay for salaries of bureaucrats are simply not worth it?

38% of the market disappears overnight. Think that might impact home prices a touch?

Even if you’re not an investor, even if you’re just a homeowner in Eastvale, this ordinance means that should you one day decide to retire, put your family home up for rent (because you eventually plan to pass it to your kids as inheritance, but you want to live in Las Vegas gambling away the grandkid’s college savings), you just got screwed. For that matter, when that homeowner goes to sell that house, when 38% of the market went to friendlier jurisdictions like Arizona, Montana, Idaho, Texas, etc. etc…. good luck with your retirement, sir and madam.

This Is Why The Local Association Exists

I bring this up because I’ve been talking about the role of the Association of REALTORS for some time now. And within the industry, there’s been all sorts of talk and chatter about the value of the Association, about how people don’t give a crap about the Association except for access to the MLS, about how dues are too high for what the member gets from the Association, and so on ad nauseam.

But hey yo, THIS is why the Association exists. (Or at least, should exist.) If the Local Association doesn’t deal with ordinances like this one, then it has no business being around at all. And so-called REALTOR members of the local Association should in all fairness resign immediately if they’re not going to get fired up and deal with the Eastvales of the world.

I understand that TIGAR, the relevant local Association here, has already sent out a Call to Action on this issue. But look at this:

Screen Shot 2013-08-14 at 11.35.24 AM

Not a word on the homepage about this ordinance or the Call to Action. Big ad about paying your dues, talk about license renewal courses, zipForm Plus… despite the fact that not one of those things will prevent some 40% of the market from dropping out of Eastvale and any other municipality that passes obnoxious ordinances like this one.

It is high time for the culture to change. It’s time for the mission to be clear. It’s time for REALTORS to understand that the local Association has a key role to play in defending their community, their clients, and their pocketbooks. It’s time for local Associations to put government affairs front and center, because THAT is why you exist.

If not, if you’re one of those “Oh, I hate politics of any kind” people… understand that your silence means assent, and that it is doing harm. If that doesn’t matter to you, then again, do the right thing and resign from the Association of REALTORS whose preamble begins with “Under all is the land”.

Come with it now.

Rally ’round the family.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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