If you’re a multifamily property owner in the Greater Los Angeles Area, you’ve probably heard the term “rent control” more times than you can count over the past 5 years. It’s the one topic that everyone loves to talk about, but few seem to fully understand.

Well, buckle up, because we’re diving into what rent control really means for your investments—no jargon, no confusion, just the facts. Spoiler alert: It’s not all doom and gloom, but it’s not a lifetime supply of passive income either. Let’s break it down so you can make smart decisions about your property, without losing sleep over the applicable rent caps.

The Basics of Rent Control Laws in the City of Los Angeles

The City of Los Angeles has some of the strictest rent control laws in the U.S. The city’s Rent Stabilization Ordinance (RSO) covers buildings built before 1978, with certain exceptions. If your multifamily building falls under the RSO, you’ll be limited by how much you can raise rent each year—usually, it’s around 3%-4% annually, depending on inflation. For right now, it’s 4%.  This means that even if the market rent for similar properties is soaring, you’ll be stuck with a much slower rental increase.

You’ll also need to navigate limits on when you can raise rents, how much you can increase them, and the legal steps you must take to increase rents. And let’s not forget, the tenant protection laws that go hand-in-hand with rent control—like restrictions on evicting tenants—means that your tenant retention strategy needs to be on point.

How Rent Control Affects Your Bottom Line

At first glance, rent control might seem like a burden for multifamily property owners in Los Angeles. After all, if you’re limited in how much you can increase rent, your cash flow could take a hit, especially in high-demand areas like West Los Angeles, Hollywood, or Downtown. But here’s where the situation gets a bit more nuanced. While rent control may slow down your revenue growth in the short term, it can provide long-term stability for your investment. In high-demand neighborhoods, where rental prices are rising rapidly, rent-controlled properties can remain relatively more affordable compared to market rates. This means tenants may be more likely to stay put, reducing turnover and vacancy rates, which can be costly for landlords.

In other words, while you might not see the skyrocketing rents you would get in a free market, you also don’t have to worry about nearly as many costly vacancies. So, while rent control does limit your immediate income potential, it can create a sense of security and predictability for your investment.

The Financial Upside: Long-Term Appreciation

You might be wondering: if I can’t increase rents as much as I want right now, is my property even a good investment? The short answer is yes—if you take a long-term view. While rent control can put a cap on rental income, it doesn’t mean your property won’t appreciate over time. This assumes that rent increases are not restricted to nothing, and that there is still a bit of wiggle room to drive rent growth in the long run.  If that’s still true, rent-controlled properties tend to see steady increases in property value, driven by overall demand in the area. Investors looking for long-term capital gains may find that the slower rent increases are offset by the overall appreciation in the value of their properties. The more stable the rent, the less turnover you’ll face, and the more consistent your investment will be.

The Catch: Maintenance Costs and Rent Control

Of course, no good investment comes without risks or challenges and rent control in the Los Angeles Area is no exception. One of the biggest issues for landlords under rent control is the increasing cost of property maintenance. With rent increases capped, you may find that it’s harder to keep up with rising maintenance costs due mostly to inflation-driven price hikes for labor and materials.

While rent control does offer some stability, the long-term financial pressure of maintaining an older property can be a tough pill to swallow. To mitigate this, many multifamily property owners investigate passing through capital improvement costs as allowed under the law (albeit limited), or make strategic upgrades to their properties to improve overall value and tenant retention.

Navigating the Legalities of Rent Control

Another important consideration when investing in rent-controlled properties is the legal landscape. Los Angeles Area rent control laws are constantly evolving, so staying up to date with changes is critical. For example, the city periodically increases and decreases allowable rent increases, especially if inflation is high, but these changes often come with added restrictions. It’s essential to maintain membership in your local apartment association, and work with an experienced property manager or attorney who understands the ins and outs of Los Angeles Area rent control laws to avoid pitfalls.

The Final Word: Is Rent Control a Friend or Foe?

Ultimately, rent control in the Los Angeles Area is both a challenge and an opportunity. It’s not going anywhere, so if you’re an investor here, you’ll need to get comfortable with its impact on your bottom line. The key to thriving in this environment is understanding how to make rent control work for you, not against you.

Written by Kyle Crown, President, Crown Commercial Property Management

Kyle Crown is the President of Crown Commercial Property Management. He holds a B.S. in business from the University of Pennsylvania’s Wharton School.