Rent control laws: California has stringent rent control laws that limit how much landlords can increase rent annually. These regulations can affect the potential return on investment, especially for those planning to invest in rental properties.
Property taxes: Property taxes in California are also unique due to Proposition 13, which limits the amount property taxes can increase each year. While this can benefit long-term property owners by keeping tax increases manageable, it can also result in higher initial purchase prices as sellers factor in the tax benefits.
Environmental regulation: The California Environmental Quality Act (CEQA) requires developers to assess the environmental impact of their projects. This can significantly impact timelines and costs, making it essential for investors to account for these factors in their planning.
Tenant-friendly laws: The state has robust protections for tenants, including requirements for just cause evictions and extended notice periods. Anyone who’s looking to invest in residential real estate in the state should first understand these laws.
Market risks: The value of your investment can be impacted by market shifts, natural disasters or regulatory changes made at the state or local level. For example, California’s susceptibility to earthquakes and wildfires can pose significant risks to property owners. It’s important to factor in these potential challenges when planning your investment strategy and to consider options like insurance and diversification to mitigate risk.