California House Hack and Rent Control

[David Lyons]

Hi all,

My wife and I are in the works on buying a house hack in San Diego, and there are a few details for which I can't find answers, so I'm hoping the BP community has some!

Here are the details. We are looking to buy a 3- or 4-unit and move into one of the units while renting the others out. Most units for sale have tenants in place, often with below market rent where the owners haven't increased rent in years. To use an example property, it is a 4 unit, three of which are renting for $1600 and one for $1850, but market rent in the area is $2100. All tenants are month-month on leases, so in most states it wouldn't be that hard to turn the rental units.

With the passing of AB 1482 in CA implementing statewide rent control starting Jan 1 2020, it seems there are some major limitations with what you can do with rent and tenants. I know that rent increases are capped at 5% + CPI up to a max of 10%, and I also understand that you can no longer give tenants a "No Fault" notice to vacate. With that said, a few specific questions for you all:

1. As part of the purchase agreement, can the seller remove tenants from all 4 units? I know they would need a 60 days notice, and probably wouldn't want to until after I remove all contingencies. So that's a long escrow, but that would be ideal for us to take the building vacant. However, I'm not sure if the limitations around "No Fault" notice to vacate would stop them.
2. Same as above, but can the seller at a minimum remove 1 tenant, so we can occupy the property? We want to use a conventional loan, but those have a 60 day occupancy clause, and CA requires 60 days' notice to vacate. One of the allowable reasons to give notice to a tenant is the owner is moving into the unit, but I'm not sure if the seller can use that as justification or if we would have to close on the property, then give notice of owner intent to occupy.
3. Duplexes that are owner occupied are exempt from the state rent control law. Does anyone know if 3- and 4-units are also exempt?
4. Can rent increases be done cumulatively at one time? For example, if rents haven't been raised for the past 4 years, could it be raised 5% + CPI for all 4 years combined in one go? So 20% + increase would be allowable in this case? I know SF allows landlords to do something like this, but can't find a clear answer about the state law.
5. If the above answers are all unfavorable, it seems we'd be stuck with buying a property, giving notice to 1 tenant so that we can occupy that unit, and raising rent with 60 day notice for renewal of leases. In that scenario, could we decide to move into a different unit within the 4-unit each year, using the Owner occupancy clause? We could then rehab the the live-in unit each time, and rent the now vacant unit we were previously living in at market rent.

I appreciate any answers you all in helping us navigate this and get into our first house hack!

Thanks,

David Lyons

[David Lyons]

@Dustin Allen thanks for the detailed response. It seems like investors and realtors are still figuring out how to navigate this new law, and the implications for selling investment properties. I will push on the sellers to vacate 1 unit at a minimum