BY CAPPING REVENUE, RENTAL CONTROL LAWS OFTEN LEAVE LANDLORDS UNABLE TO COVER RISING OPERATIONAL COSTS.
THE GROWING WEIGHT OF RENT CONTROL
Perhaps the most significant pressure point for landlords has been the expansion of rent control. First appearing in New York City in the 1920s to address post-WWI housing shortages, their modern iteration has become far more punitive. Historically, these laws led to reduced incentives for new construction, the growth of dilapidated tenement housing, and significant market
distortions. Today, the stakes are even higher. During the COVID-19 pandemic, governments at all levels implemented severe rental restrictions, including federal eviction moratoriums and rent freezes in cities like New York and Los Angeles. These measures, while intended to protect tenants, placed the entire financial burden of the crisis squarely on the shoulders of property owners.
THE REGULATORY ONSLAUGHT CONTINUES
Even as the pandemic becomes a distant image in the rearview mirror, the regulatory environment has not eased. States like California, Oregon, and New York continue to pass laws that negatively impact Net Operating Income (NOI) and destroy equity. For example, recent California laws that went into effect in 2024 have created a minefield for landlords. Under the Tenant Protection Act, rent increases are strictly capped, and no-fault evictions are heavily restricted. New regulations limit security deposits to one month‘s rent and prohibit discrimination against
tenants based on credit history if they receive rental subsidies. Furthermore, landlords cannot easily end a tenancy to remodel the property, and they face strict "repair and deduct" remedies if maintenance is delayed. Similarly, New York’s rent stabilization laws create a bleak financial picture for owners. By capping revenue, these laws often leave landlords unable to cover rising operational costs, insurance, and property taxes. This depresses property values, creates buyer hesitation, and ultimately erodes the equity owners have spent a lifetime building.
WHY MANY INVESTORS ARE EXITING ACTIVE MANAGEMENT VIA A 1031 EXCHANGE Faced with these challenges, long-time rental property owners are increasingly deciding to exit the role of active management. Instead of dealing with the "3 T's"—Tenants, Toilets, and Trash—many are utilizing 1031 exchanges to move their equity out of restrictive states and into more pro-business regions.
DELAWARE STATUTORY TRUSTS (DSTS) HAVE EMERGED AS A POWERFUL, INSTITUTIONAL- GRADE SOLUTION.
This is where Delaware Statutory Trusts (DSTs) have emerged as a powerful, institutional-grade solution.
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