As I considered a topic for this month’s article, I read an announcement that California has passed yet another law that will increase costs for landlords. This month, we’ll discuss California’s never-ending parade of regulation that is increasing costs and decreasing the incentives for landlords to stay in the California rental business.

The New Regulation – Mandatory Refrigerators

Assembly Bill 628 was signed into law by Governor Newsom on October 6^th and requires landlords to provide a working stove and refrigerator with each rental unit. As a landlord myself, I have always let the tenants supply their own refrigerator and was glad to be free of the responsibility for maintaining those units and the cost of their initial purchase. Now, our cost for any future lease turnovers will be increased by the price of the purchase and delivery of a new refrigerator.

Proponents of this new law will say “don’t be so dramatic – a new refrigerator is ‘only’ $600.” My complaint is that this is just one of many new costs that California has implemented. Rent control, a per-unit tax, seismic retrofits, now refrigerators – and what will the next cost be? (Because we know that more are coming.)

“Regulatory Creep”

Regulatory Creep – where new rules and laws build up to progressively remove freedoms, raise costs and make business more difficult – is certainly happening in California, as it always has. Once a regulation is in place, it is seldom removed – more restrictive and expensive rules are piled upon it. For example, landlords in sane (non-rent controlled locations) here in California once enjoyed considerable freedom to conduct their business. Provided that the landlord provided safe accommodations, he could charge whatever rent the market could bear and choose the best tenant for his unit.

Today, California – against the expressed wishes of voters – has instituted statewide rent control that is always threatening to get more strict. As of 2020, if a landlord chooses not to accept the additional regulatory hurdles and government babysitting associated with Section 8 tenants and rejects them, California could call that “discrimination by income source.”

What is Next? Mandated Air Conditioning, and a Potential Ban on Criminal Background Checks

In August, Los Angeles County passed a mandate that – effective as of September 11, 2025 (but Los Angeles says enforcement will begin January 1, 2027) – landlords must maintain a maximum 82 degree temperature in All “habitable” rooms in All rental units. Owners of 10 or fewer units will only be required to keep one room at 82 degrees – but in 2032 the “All rooms” requirement will apply to them. Los Angeles will need to hire a new army of “air conditioner police” armed with thermometers – and are thinking about an additional $7.77 per unit surcharge to pay for them. That’s an estimated cost – they may decide to charge more.

In 2024, Los Angeles city council members voted 11-0 to craft an ordinance that would prohibit landlords from conducting background checks of potential tenants for criminal history. The city of Oakland passed such a law in 2020, (This was expanded to all of Alameda County in 2023), and I’m not sure that things have gotten better in that city since then.

The Disadvantages of All This

Of course, California politicians aren’t putting basic economic principles to use while making policy. Their stated goal is to provide more housing and to ease rent growth. When they make being a landlord more expensive, California is discouraging us from providing rental properties. Owners of many 8-unit properties will find it prohibitively expensive to add all-room air-conditioning systems and will be forced to sell. These properties will likely be purchased by developers who will demolish the properties and build new non-rent controlled buildings, or – more likely –condominiums for sale.

All this will take rental units OFF the market and make any declared “housing shortage” worse. Either our politicians are ignorant of how economics works, or they don’t want to provide more and cheaper housing at all. I think that is the real truth: a housing crisis benefits them. That’s potentially a topic for a future article.

Exchanging Out of State

Many investors are deciding “It is time to sell our properties in California and look for growth in other states.” Thinking about the logistics of this reveals it’s not an easy answer. How do I go about buying properties in Texas, Georgia or Florida? How will I manage properties that are a day’s travel away? How would I find a local property manager, and how do I supervise him when he knows I am hours away?

Since 2001, I have been helping investors – through 1031 Exchanges – sell their management-intensive properties in California and buy partial interests of buildings in growing parts of the country. These properties are sourced and managed by national companies that – in many cases – run hundreds of properties. My investors have bought parts of 300-unit apartment buildings in Dallas, parts of Amazon warehouses in Arizona, and hundreds of other properties across the country. With this, they defer (potentially forever) their taxes while preserving income and growth potential. Management is handled by a professional company that deals with tenants, bills, and monthly distributions. This allows my investors to escape “crazy California” before the next big and expensive regulations are announced.

Does a “California Exit” sound appealing for your real estate portfolio? If you would like to discuss, my toll-free office number is (877) 313-1868.

By Christopher Miller, MBA, Specialized Wealth Management

Christopher Miller is a Managing Director with Specialized Wealth Management and specializes in tax-advantaged investments including 1031 replacement properties. Chris’ real estate experience includes work in commercial appraisal, in institutional acquisitions for a national real estate syndicator and as an advisor helping clients through over five hundred and fifty 1031 Exchanges. Chris has been featured as an expert in several industry publications and on television and earned an undergraduate business degree and an MBA emphasizing Real Estate Finance from the University of Southern California. Chris began his real estate career in 1998. Call him toll-free at (877) 313 – 1868.

Securities offered through Emerson Equity LLC, member FINRA/SIPC. Emerson Equity LLC and Specialized Wealth Management are not affiliated. All investing involves risk. Always discuss potential investments with your tax and/or investment professional prior to investing.