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Taking Over Tenants in Oakland
Hi BP Community ! I am a first time landlord and bought a duplex in Oakland. Each unit already has 3-4 tenants in there, some on the existing lease and some not. There is one long term tenant who subleases to other friends etc. Each unit is generating ~$2500 in rent a month so close to market rate, but I think I could get $3000 a month. I will aim to increase by the 2.3% each year, but want to think long term.
So my questions are as follows:
- When will I be able to raise the rent, when all original tenants move out?
- What happens when I buy the property in regards to the existing lease, can I change anything about it if they are month to month?
- As I take over the lease and the tenants, what is the best strategy to ensure that I will be able to get to market? Should I have all existing tenants sign the lease or just have one of the longer tenants sign in hopes they move out and I can start with a clean slate?
- What are the pros / cons of letting tenants sublease?
Thanks in advance!
Eric
You can only raise rent once a year, so find out when the last time rent was raised. If rent hasn't been raised in a while, you can bank past year's rent up to 5 years, I believe. Find out as that can help you get above 2.3%.
I don't think you can change anything on the lease as it may be seen as a reduction of service. If that's the case, they may have a case of rent reduction. That may be different on month to month, but I don't think so. Tread carefully here and check with EBHRA.
If your intention is to sign a new lease with the tenants, I would make sure everyone that is staying in unit is on the lease for accountability. Even if they're not on the lease, if they've lived there for over 30 days, they're considered tenants and have full rights. Might as well get everyone the lease, get everyone on the same page and go from there. Unless you have other plans for the units?
Thanks @Calvin Kwan, super helpful! My concern is this scenario:
Tenant 1, leaves, so they find another friend to take his place to make rent, lets call them Tenant X .
Now I still have Tenant 2 & 3 on the lease, and will have to add Tenant X to the lease. This rolling list of tenants continues for a many years. What are the chances that ALL of the tenants decide to leave at once ? What is the best setup so I can eventually get market rent?
That is subleasing and simply don't permit that. Carefully check the lease and see what it say.. may say written approval is required by owner prior to any subleasing.. So if any roommate changes are made, your not permitting any new people to be signed on as a lease holder and your not permitting the lease holder to permit otherwise the person to sublease from the remaining lease holder.
NORMALLY.. IN CA could be different.. so download landlord tenant laws..
Hi Eric, don't put all of the tenants on the lease. If you create a new lease keep the long term tenant on it. Since you inherited these tenants you are subject to the terms of the lease that they currently have on the month to month. You won't be able to make any material changes unless the tenant agrees. Once the original tenant moves out you can raise the rent to market even if the tenants who are subleasing decide to stay. At that time you would put them on a new lease.
If the original lease allowed subleasing you can't unreasonably deny the original tenant the opportunity to sublease to a qualified candidate as a one to one replacement of a departing tenant. Check this link out http://www2.oaklandnet.com/oakca1/groups/ceda/documents/policy/dowd008121.pdf.
If you plan to move into one of the units you can do a just cause eviction as an owner move in. You would need to live there for, I think, 2 years after the fact. If you go this route, just know the eviction process is not straight forward even when it aligns with one of the just cause reasons.
One cool thing is if you decide to move into one of the units and you live there, after two years your property is now exempt and rent can be raised on the tenant occupied unit to market. This works in multi-family properties up to 3 units. http://www.oaklandtenantsunion.org/know-your-rights.html.
Before you decide to do anything make sure you do your research because you don't want to have to deal with the rent board. If you have detailed questions about rent
/eviction control and tenant rights in the East Bay I can recommend an attorney who specializes in the area.
@Taylor Ferris - Correct me if I'm wrong, but you don't have to change your lease just because a new tenant moves in. You just need to add an addendum. Your point about raising the rent when original tenants move out is still valid as it apply to the original folks on the lease (not addendum).
Having everyone on the lease is more of an accountability issues for me. If the 1 person on the lease doesn't pay rent, i can go after the other people on the lease. Either way, I will get rent from someone.
Also, if you OMI, you decontrol the building immediately. You don't have to wait 2 years for rent control.
@Calvin Kwan - Thanks for correcting me on the OMI situation! That is obviously much more appealing.
You're correct that you don't need to change the lease when a new tenant moves in, you can just add an addendum. As long as they are added as sub-tenants via the addendum who will then pay rent to the master tenant who then pays the landlord, you can raise the rent after the master tenant moves out and you'll have better accountability like you said. I may have overstepped when I said don't add them to the lease, what I meant was don't create a new lease where they are all equal co-tenants and don't add them as co-tenants to the original lease as they will have the same rights as the original tenant. Be careful of the language.
That said, if the lease allows subletting do you know if you can require the current subletters to be added to the lease as sub-tenants w/ the addendum or is that something that you need to make sure you catch when a new sub-tenant moves in?
@Eric Chang - What does it say in the original lease with regard to subletting or adding new tenants?
Thanks @Calvin Kwan and @Taylor Ferris!
The lease says "Tenant will not assign this agreement or sublet any portion of the premises without prior written consent of the owner, any additional tenant over 4 occupying the unit shall pay an additional $250 / month"
I spoke to the previous management company and they advised not adding everyone on the lease, I can ask what they think about using addendum. Do you all think its worth getting the original property manager for the first year (5% of rent) to get the leases sorted and to help coordinate repairs as I take over the place?
@Eric Chang, if you can make it work with your numbers hiring a property manager who is familiar with the intricacies of the rent control ordinance can be very helpful. They can handle the contracts, manage repairs and can help avoid problematic situations. The other benefit is a good property manager frees up your time to work on your business instead of in your business. You get to focus more on finding additional opportunities and can scale more effectively. If you're considering hiring a property manager for the property, even if it's just for the first year, I suggest interviewing more than one.
If you decide not to utilize a qualified property manager you should consult an RE attorney to help make sure all of the leases are set up properly.
Originally posted by @Taylor Ferris:
@Calvin Kwan - Thanks for correcting me on the OMI situation! That is obviously much more appealing.
You're correct that you don't need to change the lease when a new tenant moves in, you can just add an addendum. As long as they are added as sub-tenants via the addendum who will then pay rent to the master tenant who then pays the landlord, you can raise the rent after the master tenant moves out and you'll have better accountability like you said. I may have overstepped when I said don't add them to the lease, what I meant was don't create a new lease where they are all equal co-tenants and don't add them as co-tenants to the original lease as they will have the same rights as the original tenant. Be careful of the language.
That said, if the lease allows subletting do you know if you can require the current subletters to be added to the lease as sub-tenants w/ the addendum or is that something that you need to make sure you catch when a new sub-tenant moves in?
@Eric Chang - What does it say in the original lease with regard to subletting or adding new tenants?
Get politically active if you plan on doing real estate long term. There's all sorts of things going on rent control possibly expanding to single family and all units.
Costa hawkins (allowing new buildings and Single family houses to be under rent control and make it universal among different cities) and these groups like California Endowment and Tenants Together
CALIFORNIA ENDOWMENT gets $billions from the government then pours it into Tenantstogether.org
So they take property owners property taxes are paying this organization who wants to increase government control of private property.... thus upping their control and paying government worker salary. Messed up cycle. We need to get the word out before these groups are sending this sort of propaganda out ultimately they want housing to be a human "right" taking our property away.
ET "public television" It's sponsored by CALIFORNIA ENDOWMENT who gets funding from California Government