Short-Term Rental Policies

The Natalie dance video collection is taking forever to upload! While we wait, let’s cover the short-term rental policies in North County:

Unpermitted short-term rental units have accounted for most of the reported code compliance violations throughout the North County coastal region, based on a review of records from each city that cover 2018 to midway through 2023.

As platforms such as Airbnb and Vrbo remain popular, short-term rental regulations have been a priority along the coast from Del Mar to Oceanside. With concerns ranging from disturbances to neighbors to housing units that are essentially erased from the market as a statewide housing crisis persists, here is how cities have been addressing short-term rentals:

Encinitas

Approximately 45 percent of the 263 reported violations recorded by city staff over that five-year span were for illegal short-term rentals. Last year, the City Council approved an ordinance that limited short-term rental permits for non-hosted properties to no more than 2.5 percent of the city’s total housing units. “The rules that we have in place currently make it somewhat painful for cheaters,” Encinitas Mayor Tony Kranz said. “So if people engage in short-term rentals that are not permitted, it’s very likely they’re going to get caught and the fines we have make it a little more painful.”

Another common description for reported violations was “lack of best efforts,” which was a catchall term that the city used for multiple complaints at a single address. City officials now use more specific terms.

Other reported violations recorded by code compliance included illegal use of a short-term rental as a wedding venue, loud music, excessive noise, excessive number of vehicles and permit not displayed. Encinitas also works with an outside company that helps track Airbnb and other listings within the community, which the city uses to monitor potential permit violations.

https://www.encinitasca.gov/government/departments/development-services/policy-planning-housing/policy-planning/short-term-rentals

Solana Beach

Council members have been discussing updates to the city’s short-term rental ordinance, which is almost 20 years old. Mayor Lesa Heebner said they will consider potential changes later this month or in October. According to city staff, there have been about 250 to 350 STR permits issued each year, equal to about 5 percent of the housing stock in Solana Beach.

The city had 37 reported code compliance violations from 2018 to June 2023, most involving permit issues. “The intent here is to solicit as much feedback as we can get to understand what should be done,” Solana Beach Deputy Mayor David Zito said earlier this year.

Del Mar

The Del Mar City Council is discussing a short-term rental ordinance this month. The city has been beset over the past several years with legal challenges, battles with the California Coastal Commission and delays from the COVID-19 pandemic that have prevented passage of a permanent set of regulations. The current law is a temporary forbearance policy that allows properties to operate as short-term rentals if they can prove they were in operation before April 2016.

According to city records, reported violations of illegal short-term rentals typically lead to a process of verifying whether the unit really was being used as an STR, and, if so, whether the unit qualifies under the forbearance policy.

“There has been a long-term tradition of having short-term rentals and vacation rentals,” City Councilmember Dave Druker said during a July meeting. “We want to make sure as we create these ordinances that we understand that is what’s happened in the past. My assumption is that we’re not going to turn around and say that short-term rentals are not allowed, period.”

Carlsbad

Carlsbad allows short-term rentals only within the coastal zone, based on regulations approved by the City Council that took effect in 2015.

About 84 percent of the 666 reported violations involved illegal short-term rentals, either unpermitted within the coastal zone or operating in the non-coastal zone where they are banned.

https://www.carlsbadca.gov/departments/community-development/short-term-vacation-rentals

https://enewspaper.sandiegouniontribune.com/desktop/sdut/default.aspx?edid=9359018f-0e27-4d46-add9-4596f8146430#

New-Age Huckster

It’s amazing he has gotten away with this for so long….

“It’s a wake-up call to the middle class,” a booming voice assures listeners during the intro to Grant Cardone’s weekly podcast, This Is Not Your Daddy’s Economy. For listeners, Cardone has become the apotheosis of financial influencers: waking up the middle class and heralding a new economy for its chosen sons and daughters. Brash and populist, he promises anyone who listens that they too can ascend into the realms of passive income by following his real estate playbook.

An ostentatious Louisiana-born salesman with a penchant for down-home relationship advice, Cardone is a practicing Scientologist who casts himself as a plucky opponent to mainstream financial institutions. He rose to fame as a cold-calling guru, building a large online following with videos and courses that promised to reveal the secrets of salesmanship. He subsequently became a fixture on reality TV shows such as Turnaround King and Undercover Billionaire. He now operates a conference circuit that straddles the line between dumbed-down business school and a clumsy revival meeting (Donald Trump was a recent guest speaker). In Cardone’s videos on YouTube and Instagram, he champions a swaggering, somewhat cruel form of hustle culture aimed at a generation struggling to make sense of its economic misfortune.

Crucially, Cardone has been able to make money not just by imparting financial advice but by exploiting his fan base to build a $4 billion residential real estate portfolio. “We are becoming a renter nation,” Cardone explains in a video from 2020. He’s not wrong. But Cardone’s business model relies on increasing rents and squeezing tenants to maintain his debt-laden portfolio.

A newly filed class-action lawsuit against Cardone, however, threatens to unravel his empire. Last month, lawyers filed a suit alleging that he had misled small-time investors who’d put money into one of his recent Cardone Capital real estate funds. Whether Cardone has been cynically leveraging his followers is up to a court to decide. But the image Grant Cardone has fostered through his real estate ventures is as much about what it’s like to be an eccentric internet celebrity as it is about America’s unwieldy and ever-precarious property market—and the potential toxic admixture of the two.

Read the full article here:

https://newrepublic.com/article/172775/grant-cardone-hustle-culture-real-estate

City of San Diego Tenant Protection

San Diego renters can breathe a sigh of relief knowing they are a little bit more secure as the city’s new eviction moratorium is now in place for renters who are up-to-date on their rent payments and abiding by the terms of their leases.

“San Diego cannot afford to have one more person enter into homelessness and this is a way to prevent that,” said San Diego City Council President Sean Elo-Rivera, who championed this measure.

The new rules that went into effect Sunday prevent landlords from removing tenants for ‘no fault’ reasons.

“Despite having paid their rent on time,” said Elo-Rivera. “Despite having abided by the terms of their lease, they were still being evicted because the rental market in San Diego is such that landlords know that if they do a bit of an upgrade and some minor renovations, they can jack up rent substantially.”

Under the moratorium, if a landlord or family member wants to move into the unit, they need to provide the tenant with 90 days-notice.  If they want to take the property off the rental market, they now must provide six months-notice.

“What we have done though is ensure that there’s fewer exceptions to the rules and when someone is going to be evicted, that they’re given enough time to get their life together,” said Elo-Rivera.

However, some people feel like the moratorium is unnecessary.

“It feels a little bit like a solution looking for a problem,” said Lucinda Lilley, president of the Southern California Rental Housing Association, which expressed opposition when the measure was approved by the San Diego City Council in April.

“I don’t think that it’s been properly vetted,” said Lilley. “I don’t think that there is any data that shows that it is necessary.”

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Flipper Tax Proposed

The owner-occupiers are the crazy bidders, not the investors, so this will have no impact on the current frenzy:

House flippers could be taxed 25 percent of their profit under the California Speculation Act, a bill introduced by Assemblymember Chris Ward, D-San Diego. Assembly Bill 1771 aims to discourage real estate speculation that Ward said drives up home prices as equity investors outbid individual home buyers.

“We’ve heard of people getting into their first home getting beat by cash offers” from investors, Ward said at a news conference Wednesday at the San Diego County Administration Center.

Those investors typically resell the properties soon afterward at inflated prices, stoking competition for limited housing and driving up market prices for comparable homes, he said.

The bill, introduced last week, would impose a 25 percent tax on the profits from a home resold within three years after it’s bought. After the third year, that rate would drop to 20 percent, and decline each year afterward until it is eliminated after seven years.

Most California homeowners keep their property for 10 to 16 years, Ward stated, so it would not affect most people buying a home for personal use.

Certain categories of buyers, such as first-time and military homeowners, would be exempt from the taxes.

Taxes collected from short-term sales would be distributed to cities, schools and affordable housing funds, Ward said.

The goal is to create a disincentive for equity investors, freeing up homes to people buying for personal use. “When investors fall out of the buying pool, that will give regular home buyers a chance to buy a home,” Ward said.

Housing prices rose about 20 percent statewide in 2021, Ward said.

In San Diego, they jumped 26 percent last year, earning the region the distinction as the nation’s least affordable metro area , with housing prices outpacing income.

Meanwhile, the share of homes purchased by investors instead of families has increased in recent years, the bill stated.

First-time homeowner Trisha Cortez spoke during the news conference, describing her recent experience house-hunting in the San Diego area. A health care worker with good credit, she said she was easily able to secure a loan but the home search was a grueling process until she bought a condo in Talmadge.

“I regularly offered above asking prices, but cash buyers would swoop in and take the property,” she said. “I’ve been denied 33 times before getting a home.”

Housing production is falling far behind demand, said University of San Diego economics professor Alan Gin. The region needs about 17,000 new homes per year, but over the past three years it has produced just about half that — 8,216 homes constructed in 2019; 9,472 built in 2020 and 9,358 in 2021, he said.

Other real estate experts said that’s the real issue. Despite efforts to curb real estate speculation, there will be no relief for home buyers until more housing is built, said Lori Pfeiler, CEO of the Building Industry Association of San Diego County.

“While we appreciate Chris’ objective, ultimately this is a supply issue,” Pfeiler said. “We don’t have enough homes for sale, inventory is low and anyone thinking of selling their home just won’t sell their home; they’ll figure out how to hold onto it.”

Pfeiler said lowering fees and reducing regulatory barriers to housing construction would be more effective at curbing prices.

Gin said that San Diego is such a desirable location that housing speculation would likely continue even with greater home production.

Gary London, a real estate economist and senior principal with London Moeder Advisors, warned that while the bill may ease pressure on buyers, it would limit options for sellers. He said most institutional investors target mid-price housing rather than luxury homes, so the sellers most impacted would be middle-income homeowners rather than the wealthy.

“I don’t like it, because it’s effectively an attack on the property rights of sellers,” he said.

Pfeiler also said the bill could inadvertently reduce geographic and economic mobility by restricting people from selling a home because of a job change or other economic necessity, she said.

“Chris is looking for bold ways to help us with the housing crisis, but on many, many fronts this will constrain supply and constrain people’s choices about what job they take and where they locate,” she said.

Ward said that the bill may be amended to exclude primary residences, so people buying homes for their own full-time use would not be taxed.

“We will continue to look for those buckets of people who should be exempted,” he said. “The intent of this bill is not to penalize everybody but to dissuade activity that is driving up prices for everybody.”

Link to Article

Carlsbad Condo Debate

The UT has published two articles about the these goofy-looking condos in North Carlsbad that supporters are saying that they need to be saved, in spite of the new owners purchasing each individual condo separately and abiding by city zoning and planning:

Excerpt from the first UT article:

Modern architecture fans hope to save a small, but distinctive condominium building known for its whimsical appearance near Carlsbad’s Magee Park.

The 40-year-old building, sometimes called the Victor Condo, on Garfield Street is one of the first examples of a postmodern style often called “Blendo” created by San Diego architects Ted Smith and Kathleen McCormick.

“Victor Condo is clearly of cultural significance and a fine example of a pivotal historic time in Carlsbad’s build-environment growth from a small coastal community to a vibrant city worthy of vibrant architecture,” said Peter Jensen, a writer and editor at Sunset Magazine and San Diego Home/Garden magazine for 40 years.

As “affordable yet stylishly significant (not to mention excitingly livable) dwellings” the buildings are an example of late 20th century innovation in an area that too often relies on cookie-cutter architecture,” Jensen said in comments on a petition to save the structure.

“We believe the building qualifies as a design on the vanguard of an important architectural movement,” states the petition posted by San Diego architect Patrick Cordelle, who works with Smith and McCormick.

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Second Homes – Tax Benefits

A primer on second homes vs rentals:

Before buying a second home, it’s smart to know how owning a second property could impact your taxes. There are many second home tax benefits to consider, but they’ll vary based on how the IRS classifies the property — as a second home, an investment property, or a little of both. Here are the main differences:

A second home:

  • Is occupied by the owner at least 14 days out of the year
  • Is rented to others 14 days or fewer out of the year

An investment property:

  • Is occupied by the owner fewer than 14 days out of the year
  • Is rented to others more than 14 days out of the year

A mixed-use property:

  • Is occupied by the owner more than 14 days out of the year
  • Is rented to others more than 14 days out of the year

Second home tax benefits

As long as you occupy your second home for more than 14 days a year, you may qualify for these second home tax breaks: 

Mortgage interest deduction

Single filers and married couples filing jointly can deduct mortgage interest up to a total of $750,000 from all properties they own, including a principal residence and their second homes. This is subject to change in 2025, when the Tax Cuts and Jobs Act is scheduled to expire. At that time it is expected that the $1 million limit will return.

Property tax deduction

You can deduct property taxes on all the properties you own, with a maximum deduction of up to $10,000 per tax return, or $5,000 if married filing separately. Keep in mind that this is included in the deduction for state and local income taxes (SALT), so you might reach that $10,000 quickly with your principal residence and be unable to deduct property taxes from a second home.

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No Changes to 1031 (Yet)

There may be changes some day, but not now – and probably not any in the near future.

Important news from Washington, DC this week indicates a positive outlook for 1031 exchanges to survive in their current form.

The House of Representatives Ways and Means Committee advanced a reconciliation bill that did not include any changes to 1031, or several of the other tax reform proposals that had been floated earlier in the year which would have affected real estate investors.

Eviction Moratoriums

Will this cause people to sell their rentals just because the rules are complicated? Probably not, but they won’t have much patience for tenants who have been taking advantage of the system. From CAR:

The statewide eviction moratorium under the COVID-19 Tenant Relief Act (CTRA) is due to end today. However, the law will not simply return to its pre-pandemic form. Instead, a new law, the COVID-19 Rental Housing Recovery Act, will take its place. Here are the key differences in practices and procedures.

  • Exemptions for SFP and new construction to the just cause eviction rules return. Beginning October 1, the standard exemptions to the just cause eviction rules return, the most significant ones being for single family properties and new construction properties built within the last 15 years.
  • For rent due prior to October 1, 2021, the 15-day notice is still required (but not for rent due prior to March of 2020). To avoid confusion after October 1, if a tenant owed COVID rent from before October 1, 2021, it is highly recommended to use the appropriate forms to demand the rent now.
  • Special 3-day notice beginning October 1, 2021, through March 31, 2022, and the requirement of applying for Emergency Rental Assistance. Beginning October 1, a landlord may demand the full amount of rent using a special 3-day notice to pay rent or quit for rent that became due on or after October 1. However, the new notice requires the landlord to apply for emergency rental assistance. This special 3-day notice will be required for all rent due until March 31, 2022.
  • Tenancies commencing October 1, 2021, are not subject to the special 3-day notice. If the tenancy has commenced on or after October 1, 2021, then neither the special 3-day notice nor the requirement to apply for emergency rental assistance is required. Instead, on that date landlords can return to using the traditional 3-day notice to pay rent or quit.
  • On November 1, 2021, the landlord may collect unpaid COVID rent due from March 2020 through September 2021. Beginning November 1, 2021, the landlord may initiate a legal action to recover the unpaid COVID rent. This includes going to small claims court to recover any amount of COVID rental debt even if it is otherwise over the small claims court limits.

The above explanation is a simplified version of a surprisingly complicated procedure. C.A.R. intends to update its landlord/tenant forms where necessary. This will include:

  • The introduction of the special 3-day notice to pay rent or quit for rent demanded from October 1, 2021, through March 31, 2022
  • The reintroduction of the standard 3-day notice to pay rent or quit (for tenancies commencing after October 1, 2021)
  • The removal of the “Notice of Termination of Tenancy COVID Tenant Relief Act” (form NTT-CTRA)
  • The return, in its pre-pandemic form, of the “Notice to Terminate Tenancy” (form NTT)

Even though C.A.R. may make forms available for landlords to use, all persons are strongly urged to work with their own landlord/tenant attorney specialist before providing these notices, especially if their ultimate aim is to evict through a court procedure.

Tenant Screening

For those who might be thinking about my idea of renting your home for a year so you can defer the capital-gains tax when you exchange it for other(s), know that California is a tenant-friendly state.  Just the denying of a tenant has potential consequences!  We can refer you to a local property manager to assist you.

1031 – Identifying Replacement Properties

We’ve completed many regular and reverse 1031 exchanges, and it is critical to follow the IRS rules when identifying the replacement properties.

For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules.  These rules are not that complicated, but a failure to follow the rules may ruin your exchange.

Here are the top ten things to remember when identifying replacement property in an exchange:

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