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California Real Estate Investing: What Is It Like to Be a California Landlord?

by Editor | ezLandlordForms

Ziad Najm is the owner of Cedar Real Estate in Orange County, California.

Throughout our country’ s history, the lure of California has always been strong. It was Horace Greeley who is believed to have advised young men seeking to make their fortune to head west. And, of course, at the end of that journey to the Pacific coast, lay the golden state of California.

But despite its past history as the land of opportunity, today’s California is no longer the Mecca it once was, thanks, in part, to the meltdown of the real estate market. This has also resulted in a number of significant changes in the way landlords market their rentals and choose their tenants.

The biggest change over the last 18 months to two years, according to Ziad Najm, real estate broker, property manager, and owner of Cedar Real Estate, Inc. in Orange County, is that “credit reports almost don’t matter.” Landlords still run credit reports and verify employment; but instead of giving equal weight to the data gathered from both sources, landlords now put the emphasis on income. If the applicant’s employment is verifiable and seems solid, but their credit report is only in the 500s, the landlord may choose to rent to them. However, that doesn’t mean that landlords ignore the information credit reports contain. They still evaluate the type and number of derogatory remarks on the credit report, and if the situations these remarks describe are serious enough, it might be the deciding factor against renting to the applicant.

Why did this change in attitude come about? Ziad says it’s because the rise in the number of short sales and foreclosures have wrecked many people’ s credit. When landlords were using credit reports to make decisions about renting, they couldn’t fill their vacancies even though they were priced right to market.

Landlords have also adopted a somewhat different strategy when it comes to signing a California lease with tenants who can’t verify their employment and income. If they have enough assets to offset their lack of income, a landlord may choose to rent to them. The other alternative is if they can put down from 3 to 6 months rent.

The actual rents that are being charged aren’t what they once were. Ziad noted that 2006 to 2007 was a boom time for landlords to get substantial increases. However, this was the beginning of the downturn, and by 2008, there was a buildup of the inventory of available rentals for longer amounts of time, and this caused rents to start to decrease. Today, a 2-bedroom condo with no garage in Orange County can run between $1350.00 to $1550.00. If you want 3 bedrooms, expect to pay between $2100.00 to $2300.00. But you can rent a single-family detached home in Mission Viejo for about $2500.00.

Orange County is fairly typical for the rest of the state in that there aren’t an excessive amount of vacancies. However, Inland Empire in Southern California hasn’t really been unable to attract renters and consequently, there are many vacancies there.

As for the future, Ziad doesn’t feel that there will be any real changes from the strategies that landlords are employing now. But there are also some other marketing ideas that are gaining in popularity. Landlords are shying away from newspaper ads and putting their ads on Craigslist. It cuts costs and reaches a wider audience. They are also going back to putting up “For Rent” signs on the property.

In addition, tenants are changing the way they approach renting. Families are consolidating and sharing a living space, and renting with a roommate is on the rise. Tenants are willing to divide a property up into smaller living spaces as long as it means saving money.

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