When wildfires destroyed thousands of homes in California last fall, tens of thousands of residents were displaced. As those households began to seek new places to live and to rebuild, many investors flocked to California as well. This is part of the housing/natural disaster cycle: When disaster strikes, real estate investors play a crucial role in rebuilding. Sometimes, they offer cash for properties damaged beyond repair. Sometimes, they offer services in high demand, such as construction. And, sometimes, they get caught up in regulations and legislation that they may not necessarily realize apply if they are not from the local area.

In the case of charges levied by state prosecutors against a northern California landlord, it is unclear what motivated the landlord to raise her rents from about $5,000 a month before the wildfires to $9,000 a month afterward. Wisely, she is remaining silent on the subject while the lawsuit is in process. However, according to state prosecutors, the rent hike qualifies her for three misdemeanor counts of price gouging because she raised her rates by more than 10 percent within 30 days of an emergency or state-declared disaster, which the fire certainly was. It destroyed more than 5,300 homes completely. The rental property in question is located in Novato, California, which provided support for wildfire evacuees during and after the fires.

Investor Insight: Know your local legislation. In some states, you will not be able to raise rents (or do other market-driven activities) under certain circumstances, such as in the wake of natural disasters.

Novato provided shelter and support for evacuees affected by the Tubbs wildfire, which not only destroyed homes, but also infrastructure like power grids. Extremely strong winds (up to 90 miles-per-hour) not only burned homes, but also contributed to the deaths of more than three dozen people. Novato churches and public facilities served as shelters, and the local population donated pallets of goods to help those who lost their homes and possessions in the fire. With a heightened demand for rental housing, the landlord in question could have legally raised her rent to around $5,500, but the $9,000 leap was too great to be legal, according to state prosecutors.

California’s governor, Jerry Brown, recently extended disaster protections in wildfire-affected areas through December 4, 2018, which means constraints on raising rents and evicting non-paying tenants will remain in place until that time. Disaster protection laws also prohibit evicting tenants in order to raise rents and retaliation (likely in the form of an eviction) if the resident reports an illegal price increase. Those convicted face $10,000 in fines and up to a year in jail.

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  • Carole VanSickle Ellis

    Carole VanSickle Ellis serves as the news editor and COO of Self-Directed Investor (SDI) Society, a membership organization dedicated to the needs of self-directed investors interested in alternative investment vehicles, including real estate. Learn more at SelfDirected.org or reach Carole directly by emailing Carole@selfdirected.org.

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