How to Raise Rent in Los Angeles???

Question

Hi I am currently looking for a second property in the Los Angeles area to House Hack! I purchased a duplex last year and have since renovated, placed a tenant and looking to refinance soon and do it all again. I am looking for a bit of a larger challenge for this next property so I have been looking at 4-plexes but the houses I've been liking (based on price, location, condition) have been occupied with tenants pay way below market price!

An example of this would be a 4 plex with 4 2-bedroom units with units being rented for $800-1100 when the area could be getting $1700-2000 (a upgrade will probably be necessary).

I assume I can get one unit vacant so I can occupy as an owner occupant but was wondering what I could do about the other units! Raising rents slowly over the years will take too long so any advise for people with experience with this would be much appreciated!

Thanks in advance!

Scott M. · Answer

Might find some useful info here  2021 Update: How Much Can a Landlord Legally Raise the Rent in California? | Sage Real Estate (sageregroup.com)

Shiva Bhaskar · Answer

Alejandro, I"m a local attorney, and invest in the sorts of properties you mentioned. Your best bet here is a cash for keys. It is risky because as @Jon Schwartz noted, on a 20 unit, you have to buy out fewer units. On a 4plex, you make or break the deal based on buying out a unit.

If you want a referral to a skilled tenant negotiator (we do some in house, some we hire outside), happy to suggest one. Also know a lawyer who does this and is quite good. Please feel free to send me a colleague request, and will be happy to share their info.

Rick Albert · Answer

@Alejandro Garcia,

There really isn't risk other than time and money should they don't move out (from inspections, appraisal, etc).

You can structure it in a way to work in your favor.  I did it for a client where the Seller was on board and we would have had acceptance except the tenants wouldn't cooperate.

It's really a whole strategy because there are a lot of moving parts, especially because you want the tenants out before you close.

Alejandro Garcia · Answer

Thank you @Rick Albert and @Jon Schwartz for your input. I was thinking a cash for keys/buy out would be the only reliable option. Might need to look for a property slightly smaller so I would be able to pay for the time the units would be unoccupied if it does end up working out.

And I like the idea of asking for the property vacant, would allow for the seller to do the cash for keys and deal with that stress rather than do it myself. Is there any downside to doing it that way other than just having a potential deal fall through if the tenants refuse to take the deal?

Rick Albert · Answer

Right now there isn't much you can do outside of cash for keys.  However, be careful because there are new "harassment" laws put in place.

In terms of moving in, for the City of LA that is still on hold (the City discussed this at the last housing board meeting).  You would be taking it off the rental market known as the Ellis Act.  Your intention is to live there for a minimum of 2 years.

What I have been doing for clients is asking the Sellers to get the units vacated.  This way it is less to no cash out of your pocket and if you are the Seller  you might get a better price.  The other option is to literally offer a price that makes sense for the tenants to stay.  Even though they are paying well below market rents, you can educate the Seller on what's going on and why you are offering what you did.  That's how I got a $55K price reduction on a duplex for one of my clients.

Best,

Rick

Jon Schwartz · Answer

The quickest strategy is a tenant buy-out, and many investors purchases multifamily property with the intent of buying out most or all of the tenants. This strategy works better at larger scale; an investor might buy a 20-unit building knowing he only needs to achieve 8 buy-outs to be profitable, and based on past experience, is confident that's achievable. With a fourplex, you have less room for error. If you need all three tenanted units empty in order to achieve market rents and be in the black, even one hold-out can screw up your plan.

Outside of the City of LA, but remaining inside LA County, you are allowed to relocate tenants in order to perform a major renovation, which is defined as work that takes more than 30 days to complete. You might want to investigate Long Beach, Pasadena, and other LA-adjacent municipalities that don't have municipal rent control.

Outside of those two avenues, our hands are rather tied.

Good luck!

Jon

How to Raise Rent in Los Angeles???

Most Popular Reply