Inherited multi-home property with renters far below market rate

[Mar Liu]

Hey all,

My family recently inherited a 4-unit property from our grandparents located in Oakland. We uncovered that our grandparents never increased rent over the 30+ years that they had this property. 2 of the 4 units did turn over recently, so those are now at market rate. However, there are 2 tenants who are living in units that are significantly below market rate. 

Neither of these tenants have leases anymore and are essentially month to month. Also, for one of the units, we are currently unsure whether the original tenant is still occupying the unit. Her son moved in and we aren't sure whether he lives there alone now or alongside his mother.

We'd ideally like to sell off this multi-family property, but at the current rental rates for these 2 units, it doesn't make a ton of financial sense for a buyer. Would love advice on what we can we do to get both apartments back to market rate / what options we have with this property. Any other things / angles we should be thinking about?

[Peter Mckernan]

Hey! This is a great problem to have for sure! The challenge is that Oakland is a rent control city so that raising rents will be harder than another city that does not have these restrictions. 

This is what I would do, while assuming that you increased the rents for the two units that went vacate to the current market rents that is a huge plus for this situation. For the month-to-month people in those units, keep them at a month-to-month because in rent control cities when selling/keeping tenants in with a locked in lease gives the buyer/owner less advantage. 

I would keep the month-to-month, increase per the city guidelines as often as you can, I believe 3% once a year. The reason this is, is because once someone comes to buy the place you can sell as it is and that person could be buying as a primary and move one of the units out to live along with 2 units top rent and they can work on getting only one unit up. This is just one example of a plus for going to market and giving the market the ability to see what it is really going to value you the property at with the 2 units newly rented and two having long term existing tenants.