Don’t Let a Fear of Eviction Stop You from Buying Investment Property
In the uncertain landscape of the West Coast rental market, it’s not surprising that narratives based more on fear than fact have emerged. One prevalent narrative that a growing number of landlords believe is that evictions are now more common than in recent years. This perception is in part caused by media coverage focusing on California renters’ rights and the complexities of the eviction process in San Francisco. It’s undeniable that the rental market has seen a big transformation in recent years, but are evictions really on the rise?
Eviction Rates in San Francisco
San Francisco serves as a lens for examining this issue in West Coast markets for two primary reasons — the city is currently experiencing a historic housing crunch as the tech industry migrates into its environs en masse, and its rental board is required by law to issue an annual evictions report. Thus, observers have access to one of the most consistent official data sets for evictions in a single city, and that data comes from a city for which one might anecdotally expect eviction activity to be particularly high as landlords “crack down” on established tenants to make room for wealthier transplants to the city. But, how well does the popular narrative fit with reality?
To answer this, it’s necessary to look at the total number of evictions for recent periods. According to the San Francisco Renter’s Board, 2,376 eviction notices were reported in 2015, compared to 2,120 in 2014. These figures can be further compared to eviction rates of the more distant past — the most relevant comparisons to make are to the years just prior to the housing crash. The San Francisco Renter’s Board reported 1,621 total eviction notices in 2006and 1,476 in 2007. Those numbers are roughly in line with the numbers for every year in the first decade of the millennium — there were 1,587 eviction notices reported in 2003 and 1,446 in 2004.
Putting the Numbers in Perspective
Viewed alone, the numbers above seem to indicate that evictions increased substantially over the 10-year period from 2005 to 2015, jumping by as much as 40 percent depending on the specific years being compared. However, in most cases, the year-to-year statistics are within 15 percent of one another.
It’s also crucial to note that the overall population of the city rose sharply during the same 10 years. From 2005 to 2013 (the most recent year with confirmed data), San Francisco’s population grew from roughly 770,500 residents to more than 830,000 — a nearly 9 percent increase — and the “Great Tech Migration” into the city hadn’t even begun yet. Current government estimates say that approximately 865,000 people reside in San Francisco as of 2016, marking an 11 percent increase over the last 10 years.
When put into that perspective, one sees that while the eviction rate has certainly taken a jump in the last two years, it’s a relatively small one. Overall, eviction rates in San Francisco have largely stayed commensurate with its population, even during the biggest housing crisis the country has ever seen and in the midst of the tech migration.
But, what about the Ellis Act, which has become something of a poster child for the very idea of a “tenants vs. landlords” brawl? As it turns out, the peak days for playing the Ellis Act card are long gone. In 2003, 177 landlords issued Ellis Act eviction notices in San Francisco, followed by 282 issued in 2004 and 276 in 2005. By comparison, only 154 such notices were issued in 2015, with 113 issued in 2014 and only 64 in 2011.
So, like much of the fear mongering surrounding this issue, the popular narrative doesn’t hold up under examination. Stories of landlords rampaging across the landscape misusing the Ellis Act to free up space for richer tenants are unfounded, yet efforts to convince landlords that having to inevitably initiate an eviction abound.
In any given year, only around half of evictions are tied to tenant-generated issues such as failure to pay rent or breach of the landlord agreement. The other 50 percent are caused by non-tenant concerns, such as landlords needing to move tenants out to do necessary repairs or taking a residence off the rental market to move a relative in.
How Landlords Can Protect Themselves From Contentious Evictions
Fortunately, landlords can effectively protect themselves against nonpaying or in-breach tenants by performing due diligence when renting to new tenants. The best way to avoid having to initiate eviction proceedings for these things is to do a thorough background check on prospective lessees. A landlord credit check is a must to ensure a prospective tenant has a responsible payment history, but a landlord reference letter to ensure the tenant behaved well in previous residences could also be required as a safety net.
Investment Due Diligence To protect their rights, prospective landlords should keep diligent records from the very moment they consider buying rental property. Clear and comprehensive documentation goes a long way toward protecting a landlord in the event that an eviction becomes necessary.
To reduce liability to the fullest extent, landlords should secure good eviction insurance and consider using an LLC rather than their personal name. Doing so prevents personal finances from getting caught up in a dispute over tenant rights or eviction and ensures the rental livelihood can continue into the future. While evictions have definitely not become much more common than they used to be, it’s always advisable to follow best practices as a landlord.