Landlording in the Santa Cruz Mountains

In the liberal San Lorenzo Valley, it is easier to admit dope smoking than ten years of successful landlording, and I fear my head may fly from a pike in future revolutions.  But I hope neighborhood critics would consider that I am a paraplegic who depends on passive income for caregiving that doesn’t burden taxpaying neighbors.  I discussed “Landlord Taxes”, building codes, zoning restrictions and tariffs on building materials previously.  Despite high interest rates and annoying regulations, here’s why I recommend the business to neighbors who can buy relatively affordable real estate right now with expectations of investment growth and positive cash flow.  Loans for rentals may be easier to obtain than personal housing loans because projected rents justify the loans.  Hedging stocks with local real estate works better for those with large down payments and tenants will benefit from more housing for every landlord.

The Big Game: Capital Gains

Landlords seek positive cash flow and rising prices in the big game.  Prices are likely to rise because supply is severely limited by zoning and hampered by building codes and construction expenses.  Yet demand from the technology and medical engineering sectors persists with the established capital within commuting distance.  Landlording investments are leveraged:  if you do buy a million-dollar house with a 500k mortgage at 7%, and it rises in value the typical 3%, then you pay under $35k of interest the first year with $60,000 equity growth.  “Marry the house but date the rate!” realtors say and know that the deal gets better with refinances expected.  

Realtor Dylan Linde, surfing Santa Cruz, sees great opportunity for buyers in Santa Cruz Mountains real estate.

The Small Game:  Positive Cash Flow

The small game of landlording is cash flow from tenant relations; do it wrong and you may face courts or pay into rental “alligators” each month.  But be excruciatingly cautious in rental interviews and check credit, job status and references from former landlords.  Choose tenants carefully because regulations prohibit questions not just about race, shared religion, gender-identity and ethnicity, but also family, source of income and immigration status.  Landlords must accept government-paid Section 8 tenants along with government inspections; payments may be higher but the tenants might not be sued successfully if they cause damage.  Reasonable accommodation for disabled tenants must be provided, but tenants generally must pay for costly physical modifications (e.g. wheelchair ramps) without higher rents. Be sure to include asbestos and lead disclosures and other legalese in a rental contract which may be downloaded or procured from an attorney.  The security deposit can only be two month’s rent for unfurnished units.

Ah ha.  Landlords need the ability to supervise repairs and a working knowledge of landlord-tenant law—not college degrees or the realty and mortgage licenses I hold.  Apartment cleaning, painting and minor construction and repair skills are useful to keep rents flowing regularly and prevent tenants from deducting repairs from rents legally.  If you can do these things yourself, you are more likely to have positive cash flow.  And this affects the big game too because landlords with profitable rentals can get loans for more rentals.  This year I told tenants with 30 days notice that I would raise rents to cover higher Fair Plan insurance costs and they all accepted this.

The Risks and Rewards of Santa Cruz County Landlording

Apart from a redwood tree fall, flood or fire hopefully covered by insurance, the worst and more probable risk of landlording is an unexpectedly bad tenant.  In apartments, tenants can not be evicted because the lease ends, but may be evicted “at fault” for non-payment of rent, nuisance, criminal activity etc or “no fault” for owner move-ins or “substantial” remodeling. Lockouts and other landlord retaliation are illegal.  A Boulder Creek tenant simply stopped paying rent and I drove to Santa Cruz half a dozen times to get an eviction which forced the tenant to move his family in with friends when the Sheriff knocked on the door.  I was very lucky that the tenant did not stall in the courts.  It took me and a helper a week to clean unwarranted messes.  

I have cats and dogs in my heart and allow them knowing they are lawyer’s dreams because of damage they cause. Dog urine in my rental necessitated replacement of flooring as well as rugs as it made the house uninhabitable.  I once bought out a tenant for two months’ rent because of cat-damage, smoking and a door constantly left open to the wind.  Lease expiration does not enable eviction for cause, so know that every enterprise carries legal risks and tenant protections pass effective partial ownership without compensation from owner to renter.

Investors have reason to fear moves towards rent control which currently don’t affect homeowner occupied single family homes, owner-occupied duplexes and new construction.  In 2025, the California Apartment Association blocked AB 1157 from passing in 2025 which would have limited rent increases to 2% and taken away exemptions for single family homes and condos. Apartment landlords can still pick initial rents, but AB 1482 limits yearly rent increases to five percent plus changes in cost of living to a maximum of ten percent with thirty-day notices.  Landlords should rest assured that 62% of voters in 2024 struck down Proposition 33—which would have given cities more leeway to control rents.  “(Voters) understand that the answer to our housing crisis isn’t more red tape — it’s building more housing,” said Nathan Click, a spokesperson for the No on 33 campaign.  

Growing cash flow through landlording takes time, but careful tenant management, regular maintenance, proper bookkeeping and payments enable leveraged rentals to generate real wealth over time.  Good landlords befriend and retain tenants, and my best one stayed with me for ten years. 

Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. ​ He serves mostly Santa Cruz Mountain dwellers. ​ These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. ​