If you own rent-controlled apartments in Los Angeles, you might not know about one of the most valuable programs available to owners. It’s through the Los Angeles Housing and Community Investment Department (HCIDLA) and called the “Capital Improvement Rent Pass-through.” It has the ability to have a truly major positive impact on your profits.
The concept is simple: you are eligible to recoup from your tenants as much as 60% of the cost of major improvements to your property, by applying to HCIDLA for this specific program. Don’t be intimidated—the application process isn’t difficult.
The Rent Stabilization Ordinance (RSO) defines a capital expenditure as: “the addition or replacement of the following improvements to a rental unit or common areas of the housing complex containing the rental units, provided such new improvement has a useful life of five years or more: roofing, carpeting, draperies, stuccoing the outside of a building, air conditioning, security gates, swimming pool, sauna or hot tub, fencing, garbage disposals, washing machine, or clothes dryer, dishwasher, children’s play equipment permanently installed on the premises, smoke detectors, and similar improvements as determined by the Rent Adjustment Commission.” (LAMC 151.02.C)
Simply put, a capital improvement must primarily benefit the tenant rather than the landlord, with a life expectancy of five years or more. It cannot be normal routine maintenance or repair work to the rental unit or building.
If a light bulb just went on in your head because these criteria apply to an improvement you plan to make (or have made in the past year) to a building or unit you own, good news: you’re eligible for a Capital Improvement Rent Pass-through. If approved, a surcharge will not become part of the base rent, but will typically last 72 months.
As a property manager and owner, I’ve seen firsthand the world of difference this program can make to an owner’s bottom line. Recently, a client of ours was despairing over the cost of a new bathroom he was about to construct for a tenant of his rent-controlled apartment in Eagle Rock. After we filled out the application for the Capital Improvement Rent Pass-through (available on the Housing & Community Investment Department Website), the HCIDLA approved it, and we charged the tenant 50% of the bathroom remodel. Most repayment schedules have the payments broken up over 5 or 6 year periods. This might sound like a long time, but some landlords simply think of it as being able to roughly double their allowed rent increases, with improved buildings as the result.
Have you been putting off that new roof? What if you could cut the cost by 60%? If you even think you might qualify for Capital Improvement Rent Pass-through on any of your recent or upcoming building improvements, read the guidelines and instructions for application at the HCIDLA website above, or visit LAPMG.com for more information. In a climate where rent control seems to be gaining ground, this program is a triumph for owners. Don’t just improve your property—improve your returns, too.
David Crown is the C.E.O. of Los Angeles Property Management Group, and has over twenty-five years of experience managing all types of income properties. A hands-on leader who has managed properties in 16 states, Mr. Crown has been asked to serve as an expert witness in property management matters, and currently serves on the Forbes Real Estate Council. He can be reached directly at (818)646-8151.