Owners with only one rental unit may be facing rent contol in San Jose.
We’ve had this discussion several times and yet, some of our San Jose City Council members keep bringing it back to the table. The question they keep asking is, should duplexes be added to the TPO (Tenant Protection Ordinance)?
Many duplex owners (including me) purchased our property years ago with a plan. The plan was to rent out one side and live in the other. Due to the cost of housing in San Jose, the rented side did not pay the mortgage. In fact, in the beginning an owner did well to receive even so much as a third of the property costs. But as time went on and rents went up the percentage got closer to being a shared cost. If an owner worked at paying down the mortgage over the years, they could possibly refinance with little or no mortgage when the time came for them to retire. For a number of owners with no company retirement or pension, this is the best scenario they could hope for.
Now that the TPO issue is back on the table, those of us who live in our duplexes are faced with quite a dilemma. So, what do we do now?
- We can keep the property and live in fear that one day we may get an unreasonable or hostile tenant. Remember we live on the other side of the wall from our tenant. There is no anonymity. We don’t have a property manager with whom we can file a complaint.
- Today we don’t have to give a reason that could create bitter debate. We can simply serve a no cause 60 Day Notice to Vacate. Under the TPO we would be required to have a well documented “just cause” to even begin the process with the aid of an eviction attorney. Or, we could offer to give the tenant an excessive amount of money (which could equal nearly a half year of rent) to buy them out of the unit.
- We can sell or exhange for a property outside of San Jose. But wait. It’s not quite that simple. Duplexes fall under special circumstances. One side of the property is owner occupied. The other side is a rental. If we sell the property we will pay substantial capital gains for any gain in equity on the investment side. To exchange we would have to purchase a more expensive (higher debt) investment property to avoid the capital gains. This sends us backwards in the goal to eventually retire. And somewhere in the mix we would still need a place to live. In otherwords, it would have to be just the right property to meet both the investment and the owner-occupied needs. On top of higher debt, we would be strapped with higher property taxes making it even more difficult to meet the ultimate goal.
- There is one other option. We can let the rental unit set vacant. That, of course, would blow the whole purpose of owning a duplex out of the water. What seemed like a well thought out plan has now become a stressful trap.
Let’s hope the San Jose City Council will give this issue much thought and consideration before disrupting the lives of so many who did the right thing to plan for their future.
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*The opinion given in this article is not intended to provide tax advice. Contact a CPA or tax expert for tax information.