San Diego Property Owners: Preparing for the Unexpected in Real Estate - Article Banner

It wasn’t too long ago that a global pandemic arrived, throwing the entire economy into chaos. As real estate investors, we had to deal with eviction moratoriums and maintenance protocols that were safe and a lot of uncertainty over what the future would look like for rental properties, tenants, and investment portfolios in general. 

Not a lot of us saw it coming. 

That’s the problem with crises and catastrophes; they are often unexpected. 

Real estate investments present property owners with so many opportunities, especially in competitive and active markets like San Diego. However, as with any investment, it’s not without its risks. There are often unexpected twists and turns. Tenant demands and trends change. Prices rise and fall. 

For rental property owners, being unprepared for the unforeseen can quickly turn a profitable venture into a stressful ordeal. How can that be prevented or at least minimized? As local San Diego real estate and property management professionals, we have a lot of emergency plans in place. We’re ready for just about any unexpected problem, whether it’s a water leak at one of our rental homes or an earthquake that leaves us unable to reach our owners and our tenants. 

Because things can often feel uncertain, we’re sharing some key strategies to help you brace for surprises and safeguard your investment in San Diego’s real estate market

The more prepared you are, the stronger your position will be if the unexpected does occur.

Assess and Mitigate Risks Early On

One of the first steps in preparing for the unexpected is to evaluate potential risks. No one is especially excited about meditating on worst-case-scenarios, but when you have a good idea of what could go wrong, you can be more prepared if it does go wrong. 

These risks and unexpected fumbles can include something like tenant turnover that results in a long and expensive vacancy, eviction, unexpected and very expensive repairs, natural disasters like earthquakes or fires, and even changes to market conditions. New laws can sometimes feel like a catastrophe, especially if you’re not prepared or adaptable. 

What can you do to mitigate the risks we’ve just mentioned? Here are some thoughts that should go into your planning process. 

  • Screen Tenants Carefully: Find reliable tenants by instituting a thorough screening process that includes credit, background, and former landlord checks. You don’t want to find yourself evicting a tenant unexpectedly. When you conduct a nationwide eviction search on a prospective tenant and you find they’ve been evicted three times in the last five years, you’re avoiding that risk by denying the application. If you’re looking at an application that shows your applicant has moved every four to six months, you don’t want to approve them, either. That turnover and vacancy will cost you money.
  • Regular Inspections and Maintenance: Prevent costly emergencies with regular property inspections and keep a reserve fund for maintenance and unforeseen repairs. Keeping up with minor and routine repairs is easy enough for most rental property owners. But, what if the roof needs to be replaced? Suppose your HVAC system needs to be replaced? You’ll have to spend a lot of money on those replacements, and it will likely take a healthy reserve in order to meet those financial obligations. Start planning financially now, even if your investment property is in excellent condition and somewhat new.
  • Insurance: Ensure you have comprehensive landlord insurance that covers typical risks as well as natural disasters prone to San Diego area. As you think about the insurance that you’ll need to mitigate your risk, remember that property values have been steadily increasing. Has your insurance coverage increased, too? If you bought a policy that will pay for a million dollars in repairs and replacements but your investment needs to be rebuilt from the ground up at a price tag that’s $1.5 million, you’ll find yourself underinsured and at a loss. Look for comprehensive insurance plans, too. Flood insurance and earthquake insurance are not included in most rental property policies. Buy that coverage. And, always require renter’s insurance from your tenants. 

Keep Abreast of Market Trends and Legal Changes

Staying informed is another great way to protect yourself from potential problems that you never saw coming. In a fast-moving housing market, staying informed is your best defense against surprise. This means keeping up with market trends, rental price fluctuations, and new housing laws that could affect your business. 

Not a lot of landlords were prepared for eviction moratoriums. We were busy thinking about how we were going to navigate the Tenant Protection Act, remember? The laws in San Diego and in California are constantly changing. There is rent control in place. Just cause eviction is something that requires special attention, whether you’re evicting tenants for cause or simply trying to move into your investment property yourself. There are new security deposit restrictions going into place in July of 2024 that will limit what you can collect in a security deposit. 

Finding yourself embroiled in a lawsuit or a fair housing complaint would definitely qualify as an unexpected real estate catastrophe. Make sure you know the laws. 

Make sure you know the market conditions, too. If you’re holding onto a portfolio that’s full of commercial office space even as remote work continues to grow in popularity, you might find yourself losing a lot of money. If you’re not paying attention to the short term vacation rental marketplace, you may miss out on opportunities for specific investments you’ve made. 

Educate yourself and grow your network. When you attend real estate seminars, join local landlord associations, and network with other property owners for insightful advice and timely information, you’ll find there are fewer unexpected market factors that rip you up. When you familiarize yourself with tenant rights, rent control ordinances, and other changing regulations by consulting with real estate attorneys or partnering with a property management firm, you’ll find you’re less likely to make a legal mistake.

Staying on top of market changes and legal requirements seems like it should be easy. It isn’t always. This is why a property management partnership is so critical. If you’re not already working with a San Diego property manager, protecting yourself against the unexpected is a great reason to start. 

Develop a Strong Lease Agreement

A robust and clear lease agreement is your first line of defense against many unexpected situations. It can help you when there’s a conflict with your tenants, an eviction you need to file, an unauthorized pet or a “guest” who has been in the property for months, or a move-out situation that’s showing a lot of property damage that was left behind.

Your lease agreement must be compliant with all California laws and legally enforceable in this state. It should also detail: 

  • Payment Obligations: Be clear about when rent is due, the amount, late fees, and the consequences of non-payment.
  • Maintenance and Repairs: Outline which maintenance responsibilities fall to the tenant and which ones to the landlord.
  • Property Use Rules: Clearly state what is and isn’t allowed on the property (e.g., pet policies, smoking, alterations).

When you’ve got a solid lease in place, it will be your starting point when something goes unexpectedly wrong with your tenants. 

Good communication with tenants can often diffuse issues before they escalate. A positive landlord-tenant relationship encourages tenants to take better care of the property and communicate openly about any upcoming issues. Make sure you’re responsive to your tenants. Address tenant concerns and repair requests quickly. This not only keeps tenants happy but can also prevent minor problems from becoming major ones.

You want your tenants to be able to reach you in case there is an emergency at the property that needs your immediate attention. For example, if a fire breaks out, you’ll want them to call 9-1-1 first, and then reach out to you once they’re safe. 

Financial Planning for Unexpected Events

Let’s talk about money, because those unexpected problems will almost always cost money. 

Having financial safeguards in place is critical to weathering unexpected expenses without destabilizing your finances. Create an emergency fund that can cover at least three to six months of property expenses. This is vital for times when the property may be vacant or when unexpected repairs are needed. You also want to diversify your income streams. If it’s possible, explore additional income streams within your real estate portfolio to offset potential losses from one property.

San Diego rental property owners can successfully prepare for the unexpected in real estate by assessing risks, staying informed, crafting a strong lease, maintaining positive tenant relationships, and having solid financial planning. While no one can predict the future, taking proactive steps will put you in a much stronger position to handle whatever comes your way. 

Learn about Real EstatePreparation is paramount, and preparation doesn’t end with a one-time assessment. Continuously educate yourself, monitor your properties, and adjust your strategies to the ever-changing real estate climate. 

Need some help with this? We’re here. Please contact us at Chase Pacific Property Management & Real Estate Services.