Are you thinking about selling your home in San Francisco, but when you check on Redfin and Zillow you aren’t seeing the estimate for the price you hoped for? Or maybe you spoke to a Realtor® and they broke the not-so-good news to you that you’d be getting less money than you want. So you ask yourself should I rent or sell my home?
You’re not alone. I have similar conversations with potential sellers almost every week.
So, do you have a plan B? What about renting out your place now and then selling it when the market is better?
Well, there are some crucial things to know about San Francisco’s rental market before you jump in. Whether you are just getting started or you are a seasoned landlord in another state, it’s important to understand these challenges.
San Francisco has some of the strongest rent control laws in the country, limiting how much you can increase rent and setting strict guidelines for evictions. The level of rent control varies depending on the type of property, with single-family homes having less strict controls compared to multi-unit buildings. Understanding these laws is essential to avoid legal issues, which we will jump into in a bit.
Rent control also affects eviction rules. Properties under stricter rent control have stricter eviction controls, making it more challenging to remove tenants even for valid reasons. Which leads us to….
Eviction control applies to all properties in San Francisco but with some properties, it can be stricter. These are the same properties that have stricter rent control that we talked about above.
One little known fact – and it’s actually a pretty recent update – is that leases can’t be shorter than 12 months in San Francisco. So that means if you wanted to rent out your house for, let’s say a season, that’s not allowed.
And, this is important! The lease is not over at 12 months – it automatically renews to a month-to-month lease after that. And, tenants have the right to stay as long as they pay rent. Depending on what kind of property you have, you might have the option to raise the rent after 12 months to what’s deemed a reasonable rate. You can’t raise rent solely to evict a tenant. In certain properties you can increase the rent a very small amount each year, which is determined by the city. Some tenants stay in rent-controlled properties for years or decades.
I did a webinar with attorney Scott Friedman about San Francisco tenant laws. He suggested that if you are planning on selling your house in say, a year, to be explicit in writing the lease that there will be a significant rent increase after 12 months. For example, “Rent is $4000/month, but in 12 months, rent will increase to $7000/month because I intend to sell the property.” He feels like that is a fair way to structure a lease, as you are setting your intentions upfront and in advance, and therefore, you are not going to be renting to someone who is planning on setting down roots and staying a long time.
Obviously, timing your home sale is crucial. So here’s a scenario: Say your tenant gives notice in October but you don’t want to put your house up for sale over the holidays. What do you do then? Some people may say, “Well, I’ll just Airbnb my property.” Unfortunately in San Francisco, there are laws around this. That leads us to…
In San Francisco, Airbnb rentals are limited to 60 days per year unless you have a permit and live in the property. So you can rent out part of your house with a permit for an indefinite amount of time but you can’t not live in your house and just Airbnb it for more than 60 days.
At this point you may be thinking, “I’ll just sell my property with my tenants living in it.”
Sure, that’s an option, but, read on….
Properties typically sell for 20-30% less when tenant-occupied. There’s two reasons why:
Because staging is crucial for maximizing sale price, tenant-occupied properties often don’t show as well. If you are selling your property, and you take a look at competing properties, you are going to see properties staged and dressed to the nines. I’d say about 95% of properties on the market are staged. Buyers often perceive unstaged properties as less desirable. Staging really does work to help your property sell at a higher value. It can be hard for potential buyers to see past unstaged properties.
The other challenge of selling with a tenant is their cooperation with showings. You need to give tenants 24 hours’ notice for access, and they need to respond in order for you to get into the property. Delays in showing the property can have a significant impact. In San Francisco, homes on the market for more than a couple of weeks typically sell for a lower price. Timing and lack of access can be detrimental to the sale price.
Renting is complex. For example, I don’t think you can’t even discuss tenant leaving without serving them the proper paperwork. Free legal services for tenants, while set up with the best intentions to prevent landlords from taking advantage of tenants, can result in horror stories for unprepared landlords. This makes even the most seasoned landlords look elsewhere.
Like I mentioned, San Francisco is a very tenant-friendly city, making lawsuits a high risk, especially if you’re not working with a professional. Just a note: I don’t rent out homes and I’m not an attorney, so If you need lawyer or rental agent referrals, let me know.
This stat surprised me – Over 80% of San Franciscans have pets! It can be difficult to ban pets in your rentals. Even if you don’t allow pets, tenants may have emotional support animals and you have to allow them. Of course this is a real need, but people have been known to take advantage of this.
Let’s talk about pitfall number six: screening tenants. I often hear people saying, “Ruth, I just want to rent to a really nice family for my great three-bedroom, two-bath home.”
Well, first off, tenants are not allowed to be screened based on family class, race, color, national origin, sex, familiar status, disability, religion, sexual orientation, age, gender identification, gender expression, veteran or military status, or citizenship. The list goes on. You can get yourself into trouble very quickly, so be careful with your screening.
It’s important to know that 80% of renters are actually roommates, meaning if you have a three-bedroom, two-bath, your chance of having it rented out to three different people is quite high.
Trained professionals have legal ways of screening tenants, helping you understand your goals, and achieving them. There are also services available, for a fee, that can help you manage the property, from changing light bulbs to dealing with tenant calls. While these services add to costs, they can assist you in property management.
As you can see, San Francisco has numerous laws and regulations, including safety standards and paperwork. If you plan on renting out your property, you may want to onsider joining groups like the San Francisco Apartment Association for access to necessary paperwork and webinars.
If you’re looking for more information about real estate in and around San Francisco, check out our Youtube videos. We cover everything from neighborhood reviews to market data. If there’s a real estate topic you’d like to know more about, let us know! And if you’re thinking about buying or selling a home, we’d love to be your go-to real estate resource. Please contact us if you need help.