Oakland Property - Existing tenant questions!

[Calvin Kwan]

Hey Guys,

There's a property in the Oakland that I am interested in, but it has as pretty unusual tenant situation. It's a duplex on record, but the previous owner put in 2 additional non-conforming units (so 4 units total).  One of the legal downstairs units is room-hacked, with 4 tenants living in the unit and separate rental agreements w/ the owner.  All said, there are 7 tenants living/rental agreements on this property, more than I'd like to manage.

Possible options with the property?

1)  Don't rock the boat and keep the property as is.  This is my least favorite option as I don't want to manage 7 tenants.  Some of the tenants are paying extremely low rent, and I don't see them moving on any time soon.  Maybe I can hire a PM to just manage all the tenants...

2)  OMI the downstairs unit.  Not sure if this is an option, but I'm curious of I can OMI the unit if there 4 separate rental agreements w/ the owner.  If possible, I would move-in and rennovate.  With time, hopefully I can hopefully rent it back out to a single lease-holder.  

3)  Completely forget this property.  It would be a lot of trouble to OMI the downstairs unit and I don't want to manage so many tenants.  Also, the issue with the non-conforming units is risky.

I'm a bit torn on this property because the cash flow is pretty good - especially with the non-conforming units bringing in close to market rate.  If I can find a favorable solution for the downstairs unit, I'd feel much more comfortable submitting an offer.  

What do you guys think?  I know I should consult and attorney, but I wanted to reach out to the community to get a first take.

Thanks,
Calvin

[DG A.]

2 big problems. 

For tenants in illegal units,  they can literally sue you for all the rent they've ever paid and win.  I'm not sure if they can win all rent ever paid,  or just rent paid to you after you take ownership.  Either way,  it's not worth it. 

OMI could work if it eliminates tenants from all illegal units. But there's 2 illegal units.  I'd say pass on it. 

If you're willing to OMI find  duplex with market rate rent on one side and low rents in the other.  Then OMI the low rent unit. 

A problem specific to the next 60 days in oakland is that OMI is not allowed under the 90 day rent increase moratorium.