If you plan to invest in residential real estate in San Francisco it’s important to familiarize yourself with the rental market in San Francisco, rent control ordinance, and the basics of Landlord-Tenant Law.   The majority of San Francisco’s rental properties are subject to the rent control ordinance.  Single family homes and condominiums are generally exempt and buildings built after June 1979 are also exempt.

It’s a number one priority to understand the basics of San Francisco’s rent control ordinance because it is complex and ever-changing. San Francisco’s laws severely restrict how much a landlord can increase a tenant’s rent.  The law also limits a landlord’s options when dealing with difficult or undesirable tenants.

Tenants have a lot of rights in San Francisco and property owners need to be educated in the rent ordinance in order to maintain the rights they do have as a landlord.   Property owners need to be proactive – not passive, according to Gordon Property Management based in San Francisco.

One of the key provisions of the rent ordinance dictates that rent can be raised only once a year and only by a specific % which is dictated by the Rent Board. Here are a few rules and regulations that fall under the rent control law from the San Francisco Tenant’s Union:

  • Landlords can only raise a tenant’s rent by a set amount each year (the amount is set by the Rent Board each year and is tied to inflation).However, landlords can petition the Rent Board for additional increases for such things as capital improvements (for a maximum increase of 10 percent) or increased operating and maintenance costs (for a maximum increase of seven percent). These additional rent increases must be approved by the Rent Board before they can be imposed (this requires a fair amount of documentation by the landlord).
  • Tenants can petition the Rent Board to decrease their rent if the landlord is failing to provide agreed upon or legally required services – i.e., the landlord takes away storage space, parking, washer/dryer, etc. or the landlord fails to maintain the premises as safe and habitable (uncorrected housing code violations).
  • Helpful sites to learn more about the legal code: San Francisco Tenant Union and the San Francisco Rent Board.

Future San Francisco property owners should also understand the issues facing multiple roommates and the consequences to the landlord when one of the original roommates is replaced with a new individual.   Gordon Property Management strongly suggests that if a landlord encounters a roommate change they should not acknowledge the new roommate – that person should be considered an “unauthorized subtenant”.  They also state, “Don’t take a rent check, email, maintenance call, or anything from the new person.” By acknowledging only the original people who signed the lease you will have a better chance of raising the rent down the line.  Once all the original signers to the lease have moved out of the property you can raise the rent to market rent.  Unfortunately, long term tenants in San Francisco are often considered undesirable as San Francisco’s rent ordinance does not have any control over vacant units.  Landlords are allowed to raise the rent to whatever they want when the unit becomes vacant.

If you intend to manage the property yourself, Gordon Property Management – the San Francisco-based real estate management company, recommends joining the San Francisco Apartment Association (SFAA).   SFAA offers excellent benefits including a monthly magazine with advice from experts on dealing with the rent law; tenant screening services; and a lease agreement written by a team of attorneys and property management professionals which specifically address the SF rent ordinance .

When investing in any property always make sure to look at location and amenities.  What do renters want – what would you want in an apartment.  In SF, neighborhood and walkability are extremely important – nearby coffee shops, stores, parks, schools, food markets, public transportation.  Prized amenities include garage parking and a washer/dryer in the unit.

Currently, the rental market in San Francisco is much more active than in other parts of the country. With rent control and job availability in the Bay Area and Silicon Valley there is a pent-up demand for housing offering wonderful opportunities for investments in San Francisco residential real estate.