All Forum Posts by: Elizabeth O.

I have a great handyman - I haven't asked him to work on a garage door yet, but he's done plumbing, electrical, carpentry, drywall, and tile repair for me. His name is Joseph - PM me and I'll send his number.

@Amit M.

I will definitely update you on our progress with the legalization. We are leaving town for a couple of weeks, but I am devoting July to working with DBI. I just assumed they would have us tear out the kitchen and redo it to code with permits since that was their answer on how to legalize the 2nd bath in my own house.

@Account Closed @J. Martin

Yes, the tenants moved to Oakland into a cheaper rental house. Based on their income and their own words, they could have paid the new rent, but the part that really offended them was the clause stating we would be re-evaluating the rent based on market level each year. In reality, if they had paid the new rent, it would have taken our situation from break-even to profitable and we probably would have left them alone and bought ourselves another house.

For Berkeley, it's my understanding that SFH as well as "Golden Duplexes" are exempt from rent control with no rent increase cap. Quote from cityofberkeley.info:

Thank you to everyone for the advice - it's so helpful!

@Steve Babiak @Bill Exeter

Thank you for the clarification on the timing for the 1031. We will talk to our tax advisor after we see the offer range and decide whether to pursue it.

@Amit M.

Thank you for your perspective. It's not right across from the projects - actually it's near the Leland strip. My husband and I have decided we want to try to work through the city's procedure to legalize the in-law unit. Since the space was built with permits as a 1BR / office / 1 BA addition and passed inspection, the ceiling heights and egress requirements should hopefully work to qualify the unit as a legal 1BR / 1BA. We don't know why they permitted the second bedroom as an office. The only thing we can guess is that they may have mistakenly thought that it needed a closet to comply as a bedroom. We'll see if it is able to be changed to a 2BR during this process. While I start that conversation with DBI, we'll work on upgrading the upstairs a little more.

@J. Martin

The test Craigslist ad is a great idea. I'm going to try legalizing first, but if they throw up a bunch of hurdles, I'll test the market with the single kitchen layout.

As far as evictions on a SFH, you can just jack up the rent if the market rate has risen and you're careful to document your comps. We researched this when hoping to move back into our primary residence. After a lease is up in San Francisco, it automatically goes to month-to-month with no regular option for the landlord to terminate it as long as the tenants continue to comply with the lease terms. We had the option of an owner move-in eviction, but we would have to pay $15K ($5K x 3 people) to the tenants to make that happen.

In our case, once the lease expired, we told them we were back in town in a rental house and were wondering how long they planned to stay. They straight up told us they had no plan to ever leave. Ever. I believe they were hoping we'd do an owner move-in eviction so they could have the$15K. Next, we had a property manager prepare rent comps - we didn't want to do it ourselves since we thought we might be biased. Then we asked her to throw out some of her higher comps and set it at $100 below our calculated market rate just to be safe. We gave the required 60 days notice for an increase of 17% from the original rent 18 months earlier. The renters went to the tenants' union claiming we were trying to do an illegal eviction by raising the rent above market level. The tenants union apparently told them they had no case, so they moved out immediately. If we had tried to set the rent above market, I'm sure we would have been sued.

I wish I could come Thursday, but I've got a t-ball game. I'd love to know if anyone has experience with legalizing an illegal SF unit and how long and expensive it is. My current guess is $10K to demo and redo the illegal in-law kitchen. My original post is here:

http://www.biggerpockets.com/forums/311/topics/133...

Thanks!

@J. Martin - the $460K fixer I was using as a comp (770 DELTA St, 94134) appeared to have a tenant paying about $500/month, so I assume they've been there for 20 years and the place would need new kitchens, baths, floors, all windows, roof. Even if you remodel it, isn't the ARV limited by the rent controlled tenant? Since mine is empty, $825K might be a good guess at the value if I converted it to 2 unit.

And yes, I want to keep everything straight up legal, but the downstairs can be used as living space as long as there is no second kitchen. This means the downstairs folks would probably be related to the upstairs folks.

Thanks, Elizabeth

@Johnson H. - You're probably right that rents can't keep going up like they have been. The rent control probably won't make that much difference after this rent bubble passes.

@John D. - A 4 BR in my neighborhood near Glen Park would go for $4K, but Vis Valley is a working class hood containing the city's largest public housing project. I have friends with kids who live there and think it's reasonably safe but it's not popular yet. My estimate of $3200 for the whole house with lower kitchen removed is based on the previous tenants' rent of $3000, current craigslist, and historical craigslist data which barely justifies asking $3200.

Another question I have about renting it as one unit is how hard would it be to find tenants who want to rent it that way? I personally would find it very inconvenient (as a family with 3 kids) to go outside to get to the lower unit. My husband (and J Martin seems to back him up) thinks that there are enough multi-generational families who want completely separate spaces but that cook and eat together in one kitchen.

@Bill Exeter - Thank you for your reply. I didn't realize we could wait to decide on attempting a 1031 until after we see the actual gain.

@J. Martin - Interesting ideas! I was only thinking of going through the legalization process if I were to hold it for long term because that's the way I want to do business. My realtor's opinion was that if we want to sell it now, it would be better to let the buyer decide whether to legalize, keep it illegal, or return it to single family layout. This neighborhood may prefer cash renters below the radar - that's what was going on with the tenants who just left. I had to request rent via check rather than cash.

I have no idea what a legal 2 unit would sell for in Vis Valley. I can only find one recent comp and it was a fixer for $460K. The kitchens and lower bath of my rental were redone from scratch in 2006, so it doesn't need much work. The lot size is 2,495 sqft, which I think is pretty standard. I don't think I have enough comp data to know whether that time and money for legalization would pay off in sales price.

I hope to be able to come!

MARKETS? currently only San Francisco, but interested in East Bay

STRATEGY? fix and hold

PROPERTY / ASSET TYPE? currently only SFR, but interested in multi-family

SEEKING/INTERESTED IN? learning about investing, rehabbing, property mgmt

CAN OFFER/KNOWLEDGEABLE ABOUT? hmm...know a bit about San Francisco neighborhoods in the south half of The City.

OTHER INTERESTS? hiking and photography

@Jean Bolger - our lawyer told us that the presence of the 2nd kitchen triggers rent control. To rent without rent control in SF, it either has to be a SFR (which this is clearly a 2 unit - there is no interior access from one unit to another) or the second unit can house roommates who do not have their own kitchen. I wish the landlord-tenant relationships here weren't so complicated!

@J. Martin - I do think we can get $2/ft. My estimate of $3200/month for the whole 1600 sq ft is based on current craigslist for Vis Valley 3BR/2BA. The $2500/month I was estimating for the top unit only ~1000 sq ft. I think we could get $1700/month for the lower unit because that's what the master tenant was getting. So if we wait to legalize the lower unit, we could probably get $4200/month total.

So, do you guys think $4200 rent controlled income is better than $3200 non-rent controlled? It sounds like a silly question, but the last three annual increases were 0.1%, 0.5%, and the most recent was 1.9%. Is $1000/month extra now worth it? We were able to encourage the tenants to move out of the house we live in now but just raising the rent to market level. It seems like I'd be giving up my last bit of leverage.

@Account Closed - I guess we didn't think we'd give up any equity to sell it. If we bought it for $605K and could sell it for $670K, which our realtor thinks is reasonable for that neighborhood, we should be able to pay all the fees without losing any equity. We only got it for a good price because it had the illegal tenant situation. Now that it's empty, it's tempting to sell it and buy something that doesn't need to be walked through an unknown legalization process. Maybe I'm just being lazy and need to hear everyone say keep it!

@Matt R. - it's tempting to rent out the in-law below market to students - that's what most of my friends do with their illegal units - the other few rent theirs out on airbnb to tourists. However, our lawyer scared us off any illegal rent paths already. We're determined to come up with a legal solution.

Thanks for all the input!!

Elizabeth

Hi Steve,

Thank you for your input - I didn't think the 1031 was too important here. You're right, we could even lose money. The neighborhood is pretty small and stable and there aren't a lot of comps. Our realtor thinks we'd make up his fees just due to the fact that the whole house is empty vs. having a bunch of illegal tenants when we bought it.