What It Means For Your Building And Your Cash Flow

Los Angeles’ new Rent Stabilization Ordinance rules limit annual rent increases on covered units to a band of 1 to 4 percent tied to 90 percent of CPI. For owners of rent-stabilized housing, this changes how you budget, how you plan capital work, and how you think about the long-term value of your building.

Below is a practical breakdown of what changed, why it matters for your cash flow, and how Coastline Equity helps owners adapt.

What Exactly Changed?

The City Council approved a new formula for annual rent increases on RSO units. Instead of a wider range that could move higher in some inflation years, increases are now locked into a 1 to 4 percent range and tied to 90 percent of CPI. The extra increase for owners who pay tenant gas or electric bills is removed.

For many owners, this means revenue growth will lag behind insurance, utilities, labor, and construction costs unless they adjust how they operate and reinvest in their properties.

The New RSO Formula At A Glance

Under the new rules for RSO units:

• The annual increase cannot exceed 4 percent

• The annual increase cannot be less than 1 percent

• The old utility pass-through increase is removed

• The adjustment is now pegged to 90 percent of CPI instead of 60 percent

For RSO buildings, especially those built before 1978, this narrows the revenue band at the exact moment many systems are aging and needing attention.

At Coastline Equity, we see this as a shift from growth thinking to stability thinking. Owners can still protect and grow value, but the strategy looks different.

Where Owners Feel The Pressure First

1. Insurance

Insurance costs for multifamily properties across Southern California have climbed faster than rent growth for several years. When your revenue is capped and premiums jump by double digits, the gap has to be made up somewhere else in the budget.

What we do:
We help owners model different insurance scenarios, explore coverage options with their brokers, and build reserves that anticipate increases instead of reacting to them.

2. Labor, Vendors, And Emergency Work

Maintenance teams, plumbers, electricians, roofers, and remediation specialists all cost more than they did a few years ago. Emergency calls are especially expensive, and they are more common in older buildings.

What we do:
We prioritize proactive inspections, bundle work orders, and maintain vendor relationships so you are not paying top dollar for last minute work.

3. Aging Building Systems

Roofs, plumbing lines, cast iron, electrical panels, balconies, and parking structures all have life cycles. Many RSO buildings are past the halfway point of those cycles. The new cap does not stop those timelines from moving forward.

What we do:
We build a multi-year capital plan that sequences large projects, times them with your cash flow, and looks for efficiency upgrades that lower future operating costs.

The Real Risk = Falling Behind on Maintenance

When income growth is fixed but expenses keep rising, the easiest lever to pull is maintenance. That is also the most dangerous.

Delaying repairs can:

• Increase the total cost of a problem

• Lead to secondary damage, such as leaks that trigger mold or structural issues

• Lower tenant satisfaction and increase turnover

• Raise the risk of code violations and liability

The RSO is designed to stabilize rent. It is not designed to make buildings self maintaining. Owners still need a disciplined plan for reinvestment if they want their property to remain safe, compliant, and competitive.

At Coastline Equity, we treat maintenance as a long-term investment, not a line to cut when things get tight.

Rethinking Your Investment Plan For RSO Buildings

The assumptions many owners used when they purchased their properties have changed. A simple “rents will rise faster than expenses” story no longer holds in a capped environment.

Questions we walk owners through include:

• How much annual rent growth can you realistically expect over the next 5 to 10 years under the new rules?

• What does that mean for capital reserve targets and timing of large projects?

• Which buildings still make sense as long term holds, and which may need a different strategy?

• Where can efficiency projects, such as water saving fixtures or energy upgrades, create real savings?

By answering these questions in a structured way, you move from reacting to policy to managing a plan.

How Coastline Equity Helps Owners Respond

Here is how we are supporting clients who own RSO properties:

1. RSO Focused Cash Flow Modeling

We rebuild your cash flow model using the 1 to 4 percent cap, realistic expense growth, and your specific building data. This gives you a clear picture of what is possible and where the stress points are.

2. Capital Planning And Project Sequencing

We create a capital roadmap that:

• Identifies high risk systems and components

• Bundles projects to reduce total cost where possible

• Times work with your expected cash flow and loan obligations

3. Operations And Maintenance Systems

We tighten day to day operations so more of each rent dollar reaches your bottom line without cutting corners on service:

• Preventive maintenance calendars

• Standardized vendor scopes and pricing

• Turnover processes that reduce vacancy days

4. Tenant Retention

In a world of capped increases, keeping good residents longer is a key part of the financial strategy. We focus on:

• Clear communication and expectation setting

• Fast, professional handling of work orders

• Consistent property standards across the portfolio
  
  

Example: An Older 12-Unit In Los Angeles

An owner with a 12-unit RSO building in Los Angeles faced rising insurance costs, older plumbing, and a roof near the end of its useful life. Under the new cap, the projected rent growth was not enough to cover all three major projects at once.

Working together, we:

• Modeled cash flow under the 1 to 4 percent band

• Prioritized the roof and main line replacements over cosmetic work

• Staged projects over three years instead of one

• Introduced water saving fixtures that reduced utility costs

The result was a safer, more resilient building with a clear path for the owner, even with stricter rent limits.

FAQ: RSO Cap And Your Property

Does the new 1 to 4 percent cap apply to all of my units?
No. It applies to rent stabilized units that fall under the city’s RSO rules. Newer buildings and exempt units follow different rules.

Can I raise rents more than 4 percent for a new tenant?
In many cases, the cap applies to how much you can increase rent on existing tenancies. There are specific rules around vacancy and allowable increases. You should review the latest city guidance or talk with a professional manager.

What if my expenses go up more than my rents?

This is exactly why planning matters. You may need to adjust reserves, timing of capital projects, and explore cost saving upgrades.

How often are these rules reviewed or changed?
Policies and formulas can change over time. We monitor updates from the city so our clients stay ahead of new requirements.

The Bottom Line For Los Angeles Owners

Los Angeles’ new 1 to 4 percent RSO cap reshapes the economics of owning rent-stabilized housing. It does not end the value of these assets, but it does demand a different level of planning, discipline, and professional management.

If you own an RSO building and want a clear, practical plan for protecting both your property and your cash flow under the new rules, Coastline Equity is ready to help.