Why Being a Landlord in California is Getting Harder

Lately, we’ve had a lot of conversations with clients about how difficult it’s becoming to be a landlord in California. It usually starts with skyrocketing insurance premiums—or worse, getting dropped and scrambling to find a new provider. Then there’s the never-ending cost creep from HVAC systems, window replacements, roof repairs, and general maintenance—only made worse by inflation. Add in horror stories about unruly tenants, under-rented units, and distant relatives asking for discounts because “you obviously can afford it.” Eventually, the conversation ends with some quick math—and the realization that many landlords are only earning 2–3% cash-on-cash returns on their equity after expenses… all while doing three times the work.

For decades, the main defense has been California’s historical appreciation. And it’s true—real estate values in the Golden State have soared over the last 10, 20, even 30 years. But the question we keep hearing now is: at what cost?

1. Rent Control Laws & Limits on Rent Increases/Evictions

Statewide Rent Caps (AB 1482): California’s Tenant Protection Act of 2019 (AB 1482) imposes rent control on many residential units statewide. Landlords generally cannot raise rent by more than 5% plus inflation (CPI), or 10% total, in any 12‑month period – whichever is lower (Source). This statewide cap applies to most multi-unit residential properties older than 15 years, with some exemptions (e.g. most single-family homes and condos owned by individuals) (Source) (Source). Initial rent for a new tenancy can be set to market, but thereafter annual hikes are capped. Several large cities have even stricter local rent control ordinances that override state law with lower caps. For example, Los Angeles has long capped annual increases for older apartments (and even froze those rents during 2020–2023 under COVID emergency rules), and San Francisco limits increases to a small percentage of CPI. In effect, landlords’ ability to raise rents to keep up with rising costs is tightly constrained.

Just-Cause Eviction Rules: AB 1482 also requires “just cause” for eviction of tenants who have been in place 12+ months (Source) (Source). Landlords can no longer evict at the end of a lease term without a cause specified by law. Permissible reasons fall into two categories (Source) (Source): “At-fault” evictions (e.g. nonpayment of rent, lease breach, nuisance, illegal activity) and “No-fault” evictions (owner move-in, withdrawal of unit from rental market, substantial remodel, etc.). Even when allowed, no-fault evictions trigger obligations – notably, the landlord must pay relocation assistance equal to one month’s rent to the displaced tenant (Source) under state law. Local ordinances often mandate higher payments. For instance, Los Angeles’ new 2023 tenant protection ordinance extends just-cause requirements to virtually all rentals (including single-family) and requires substantial relocation payments for no-fault evictions like owner move-ins (Source). Taken together, these laws significantly limit landlords’ ability to remove tenants or raise rents, even to cover higher expenses. Landlords must navigate strict notice procedures and may be unable to adjust rents sufficiently to keep pace with inflation or maintenance costs.

2. Surging Insurance Premiums & Wildfire Risk

Landlords in California face an insurance affordability crisis. Property insurance premiums have skyrocketed, and many insurers have pulled back from the California market due to escalating wildfire losses and rebuilding costs. In 2023, major carriers like Allstate and State Farm stopped writing new homeowner and commercial property policies in the state (Source). Those that remain have sought double-digit rate increases (e.g. State Farm requested a 22% hike (Source) or tightened underwriting standards. Wildfire-prone regions have been hit hardest, but even landlords in low-risk areas have seen policies canceled or non-renewed as insurers reassess statewide catastrophe exposure (Source). Many owners have been forced into California’s FAIR Plan (the insurer of last resort), which comes with much higher premiums (Source). The FAIR Plan’s total insured exposure has surged – its written premiums jumped 199% from 2021 to 2024 (to $1.26 billion) as more owners resort to this costly coverage (Source).

Data: Overall insurance costs for rental properties have spiked by high double digits. One Los Angeles broker noted it is “almost impossible” to find coverage for older apartment buildings now (Source). For example, a 33-unit apartment in San Bernardino saw its annual premium soar from ~$13,000 to over $41,000 after its insurer dropped coverage – a ~$28,000 increase (Source). These jumps vastly outpace the rent increases allowed under rent control (capped ~5–10%). Landlords must absorb the difference, eroding net income. Wildfire risk compounds the issue: 8 of the 10 most destructive wildfires in U.S. history have occurred in California, driving huge insured losses (Source). Insurers cite not only fire risk but also higher rebuilding costs (labor and materials) as reasons for exit or rate hikes (Source).

For landlords, soaring insurance is one more financial vice. Many say they have no choice but to pass some costs to tenants – potentially raising rents – yet rent caps limit them to at most 5–10% increases (Source). As one landlord put it, operating rental property in California has become “like death by a thousand cuts,” with insurance just one of many cuts (Source). This insurance crisis threatens not only landlord finances but also housing supply: if owning rentals becomes unviable, some may sell or convert properties, further squeezing the rental market.

3. Condo Complexes “Blacklisted” by Fannie/Freddie (Financing Challenges)

Another growing challenge is financing condos and multifamily properties. In the wake of the 2021 Surfside condo collapse in Florida, Fannie Mae and Freddie Mac (the federal mortgage agencies) tightened scrutiny of condo building safety, maintenance, and insurance. They maintain an internal list of condo associations that do not meet new standards (e.g. inadequate insurance coverage or deferred critical repairs) and thus are ineligible for loans they back. This has created what the Wall Street Journal termed a “blacklist” of over 5,000 condo properties nationwide that Fannie Mae will not finance (Source). Many of these are in disaster-prone states – Florida alone has ~1,400 blacklisted developments, and California has a substantial share as well (Source). Notably, in early 2024 Fannie Mae reportedly blacklisted most of the 6,700-unit Rossmoor condo community in Walnut Creek, CA due to under-reserved funds and insurance issues (Source) (Source).

Impact on Landlords & Sales: If a condo or multifamily property is on this list, buyers cannot obtain Fannie/Freddie-backed mortgages for units there. This severely shrinks the buyer pool, often forcing all-cash sales at a discount. Owners looking to sell may find their property effectively “unsellable” at market value (Source). Deals have fallen through as lenders discover a property is flagged. In some cases, owners must pay for expensive insurance or repairs out-of-pocket to get off the blacklist, or else wait for their HOA to remedy issues (Source). For landlords, the blacklist means limited refinancing options and lower exit value for their investments. It also reflects broader concerns: many HOAs, facing huge jumps in insurance premiums, have opted for lower coverage or higher deductibles to save money – but that very cost-cutting can trigger financing ineligibility. In short, tighter lending standards meant to ensure building safety are constraining liquidity. California landlords in affected condo complexes face a Catch-22: insurance costs make full coverage hard to afford, but insufficient coverage torpedoes unit financing. This is a particular concern for smaller investors (e.g. someone owning a few condo rentals) who rely on widespread mortgage availability to support property values.

4. Long-Term Appreciation vs. Returns on Investment

California real estate has historically been a story of strong long-term appreciation – but also relatively low cash yields for landlords, especially in prime markets. Over the past decades, property values have climbed dramatically statewide and in major metros:

• Statewide Appreciation: As of 2022, the median California home price was about 2.5× the U.S. median (Source). More tellingly, in the late 1960s a typical CA home cost ~4× the average household income; today it’s over 11× income (Source), reflecting decades of faster-than-average price growth.
• 30-Year Growth: In the early 1990s, California was coming off a housing downturn. For example, Los Angeles County’s median home price was around $178,000 in 1995 (Source). By 2023, the median hit about $853,000 (Source) – roughly a 379% increase (far outpacing general inflation). San Diego County saw a similar jump: from about $167,000 in 1995 to over $836,000 in 2021 (Source) (and nearing $900k by 2023). Many coastal California markets have seen home values increase 4× to 5× over 30 years. San Francisco’s housing, among the most expensive, has soared into the seven figures (SF’s median house price fluctuates around $1.3–1.5 million in recent years).
• 10- and 20-Year Perspective: Even over shorter horizons the trend is robust, albeit with cycles. 20-year (2005–2025): A home bought at the 2005 peak would have depreciated during the 2008–2012 crash, but recovered and gained value by 2025. For instance, the CA statewide median (~$500k in 2005) is roughly ~$800k two decades later – ~60% higher despite the interim bust. 10-year (2015–2025): California’s house prices have risen sharply in the past decade. The statewide median in 2015 was around $450k; by 2025 it’s about ~$750–800k (approximately +70%). Major metros like LA, SF, and SD saw especially accelerated growth from 2012 to 2021, fueled by tech sector wealth, low interest rates, and housing supply shortages.

Cash-on-Cash Returns: While appreciation has built significant equity for owners, cash flow yields (rent income relative to price) are typically low in California. Cap rates (net operating income ÷ property price) in top coastal markets often range around 4–5% in recent years (), and dipped even lower (3–4%) during the 2015–2019 period of peak prices and low interest rates. This means an apartment owner paying today’s high prices might only get a 4% annual return on the property value from rents – not counting expenses. Operating costs (taxes, insurance, maintenance) further cut into these yields. Many California landlords thus rely on appreciation for their total return, accepting modest current cash flow. Over 10–30 years, total returns (rent income + value gain) have been strong, but the “cash-on-cash” return in any given year is slim. For example, a national apartment survey found repairs and maintenance costs alone jumped ~13.7% in 2022 (Source) (with many line-item expenses up 20%+), which can wipe out a good chunk of a 4–5% yield. High purchase prices relative to rents mean initial cash yields often start near break-even, especially if financed with mortgages. This is an ongoing challenge: even though California property values tend to appreciate long-term, monthly cash flow margins are tight, and any new cost (tax hike, fee, etc.) can push an investment from profit to loss until rents catch up.

5. Rising Costs for Maintenance, Materials, and Labor

Landlords are also squeezed by rapidly rising operating costs. In recent years, maintenance, repair, and construction expenses have climbed at their fastest pace in decades, driven by both inflation and new regulatory requirements:

• Inflation in Materials & Services: The late-pandemic economic surge saw inflation hit multi-decade highs. California’s CPI reached ~7.5% in 2022 (vs <3% in prior years), and construction-related costs even higher (Source). Practically, this means everything is more expensive: paint, lumber, roofing, appliances, plumbers, electricians, insurance (as noted), etc. According to one analysis, average home maintenance costs rose 8.5% from 2022 to 2023 alone (Source). Common replacement jobs have doubled in price since 2018. For example, a basic water heater replacement that cost ~$850–$1,200 in 2018 now runs $1,800–$2,000 (roughly double) (Source). Deep cleaning a unit after move-out used to cost $150–$300; now often $400–$600 (Source). These increases far exceed general inflation, due in part to supply-chain shortages of key materials and labor scarcity in skilled trades.
• Labor Costs and Shortages: Construction and maintenance labor is in high demand. California minimum wages have increased, and skilled tradespeople command premium pay amid labor shortages. The apartment industry saw onsite wages jump ~9% in 2022 (Source) and continued wage pressure in 2023. Landlords report paying more to secure reliable contractors and handymen (Source). Even simple jobs like plumbing fixes now come with hefty service call fees due to fuel, labor, and insurance costs for vendors.
• Higher Taxes & Utilities: Operating costs also rise from property taxes and utilities. In many California counties, property tax assessments increase up to 2% annually by law (Prop 13 limits), but properties that change ownership get hit with a one-time reset to full market value – often a sharp increase. Local bonds and parcel taxes add further burdens. Utilities have not been spared by inflation: in 2022, nationally water/sewer costs rose ~10% and natural gas ~42% on average (Source). California landlords often pay water/trash for multi-family buildings, so these bills eat into profits. Additionally, new environmental regulations (e.g. mandated organic waste recycling/compost programs under SB 1383) have increased waste disposal costs for multifamily properties.
• Cost of Regulatory Compliance: Beyond market inflation, regulations themselves add costs. Landlords must fund mandated upgrades and compliance tasks. For instance, seismic retrofitting ordinances in cities like Los Angeles and San Francisco require owners of older apartment buildings to invest tens or hundreds of thousands of dollars to reinforce structures (e.g. soft-story retrofit deadlines). Balcony inspection laws (SB 721 and SB 326) now compel periodic structural inspections and repairs for balconies/decks in multifamily buildings, a response to a tragic 2015 balcony collapse. Many HOAs and apartment owners have had to build up cash reserves or pay special assessments for these safety mandates. While crucial for public safety, these rules impose significant one-time and ongoing expenses on landlords. Other compliance costs include periodic smoke/CO alarm upgrades, mold and lead paint remediation requirements, and even administrative tasks like energy usage benchmarking for large buildings.

All told, the expense side of the ledger has been swelling. One industry report summarizing 2022 found that virtually every expense category for rental operators rose sharply, with total operating costs up by double digits in one year (Source). Importantly, these rising costs are largely non-negotiable and apply to all landlords – yet, as noted, California landlords cannot freely raise rents due to rent control limits. This creates a profit squeeze: many owners are seeing net income shrink as expenses outpace allowed rent growth. Small “mom and pop” landlords with thin margins feel this acutely – a big repair or insurance hike can wipe out their yearly profit. Some report deferring non-critical maintenance (e.g. postponing repainting or appliance upgrades) due to cost, which can have long-term impacts on housing quality.

6. Legal and Regulatory Burdens (Evictions, Tenant Protections, Compliance)

California’s legal environment provides strong protections for tenants, which, while important for preventing abuse, also add legal exposure and procedural burdens for landlords. Key regulatory factors include:

• Complex & Pro-Tenant Eviction Process: Even when a landlord has legal cause to evict, California’s eviction process (unlawful detainer) is lengthy and procedurally strict. By law, a standard eviction can easily take 2–3 months on average (60–90 days) or longer (3–6+ months) if the tenant contests it (Source). Courts are backlogged in some areas, and tenants often obtain delays by filing legal responses or claiming hardship. Recent changes lengthened the process further: effective 2024, tenants now have 10 business days (up from 5) to respond to an eviction lawsuit (Source) (Source), giving renters more time to seek legal aid but inevitably delaying landlords’ ability to regain possession. If a tenant requests a jury trial or appeals, evictions can drag on for many months – all while the landlord may be collecting no rent. California also requires longer notice periods than many states (e.g. 3-day pay-or-quit notices for nonpayment were temporarily extended during COVID, and a 90-day notice is required for certain no-fault terminations or for tenants on Section 8). Procedural missteps (improper notice wording, etc.) can get a case thrown out, forcing landlords to restart the process. In sum, evicting a non-paying or problem tenant in California is a costly, time-consuming legal endeavor, during which the landlord may hemorrhage rental income. This dynamic heightens the risk for landlords, especially in periods like the pandemic eviction moratoria when removals were essentially halted statewide for over a year.
• Extensive Tenant Protections: Beyond rent caps and just-cause rules (discussed in Section 1), California law grants tenants various protections that landlords must carefully follow. For example, anti-retaliation statutes bar landlords from evicting or raising rent in retaliation for a tenant exercising rights (such as complaining to a code inspector); doing so can lead to lawsuits and penalties (Source). Habitability laws allow tenants to withhold rent or even sue if a landlord fails to maintain the unit in livable condition, putting the onus on owners to promptly address repairs. There are also protections for specific situations – e.g. during COVID-19, layers of state and local rules shielded tenants with pandemic-related hardships from eviction for a prolonged period, leaving many landlords with significant debt. California recently outlawed discrimination against tenants with housing vouchers, meaning landlords cannot categorically refuse Section 8 applicants and must navigate that program’s bureaucracy if they have available units. Local “Tenant Bill of Rights” ordinances in cities like San Francisco, Oakland, and Los Angeles create additional rules – for instance, LA’s 2023 protections require that if a tenant cannot afford a rent increase above 10%, they can request relocation assistance from the landlord to move instead of being evicted (Source). Los Angeles also implemented an “anti-harassment ordinance” defining many landlord actions (like repeated unnecessary inspections or refusing to accept a rent payment to later claim nonpayment) as harassment subject to fines. These measures collectively mean landlords must exercise extreme caution and often obtain legal counsel when dealing with difficult tenancy issues to avoid missteps that could trigger penalties.
• Compliance Obligations: California landlords face a myriad of compliance tasks. Some examples: registration and filing requirements (certain cities require registering rental units and filing copies of eviction notices with the city (Source)); mandatory disclosures (lead paint, mold, bedbugs, flood risk, etc., must be disclosed at lease signing); security deposit limits and itemized accounting (with statutory deadlines and penalties for mistakes); and periodic inspections (some cities mandate routine inspections for code compliance). New laws continue to add responsibilities – e.g. as of 2022, landlords must offer tenants the option to have rent payments reported to credit bureaus. For commercial property owners, California’s ever-evolving ADA (Americans with Disabilities Act) regulations pose a risk – failure to comply with accessibility standards can lead to lawsuits from serial litigants (some small building owners have been targeted by high-frequency litigators). Employment law can come into play for larger landlords – on-site managers, maintenance staff, etc., are subject to California’s strict labor laws (overtime, benefits), and misclassification or violations can result in liability.
• Legal Exposure and Costs: The cumulative effect is that landlords must navigate an increasingly legalistic rental environment. It is easier than ever for a tenant to obtain free legal aid or advocacy (the state has funded “tenant right to counsel” pilots in some areas), while a small landlord often must pay for their own attorney to handle a dispute or eviction. If a landlord mishandles an eviction, they risk not only losing the case but potentially owing the tenant damages. Even winning can be costly and slow. Insurance premiums for landlord liability have risen accordingly. Some owners express feeling that “the system is stacked against landlords”, citing the difficulty of removing non-paying tenants and the risk of lawsuits over minor mistakes. This legal climate, combined with the other financial pressures, is cited by some mom-and-pop owners as a reason they are exiting the rental business.

In summary, owning multifamily or commercial rental property in California has become more challenging than ever. Government rent controls limit revenue growth; insurance costs and financing hurdles increase expenses; long-term appreciation, while real, comes with short-term cash flow strain; maintenance and regulatory costs are climbing; and complex tenant protections heighten risks and management burden. Many landlords are adapting by tightening operating budgets, leveraging technology, and lobbying for relief (for instance, seeking state subsidy programs for seismic retrofits or insurance market reforms). The landscape in 2025 is one where profit margins are thinner and the rulebook thicker, especially for those providing rental homes in California’s high-cost, high-regulation markets. Landlords must be more proactive and diligent than ever to remain successful – and many are questioning future investments in this climate of “a thousand cuts.”