All Forum Posts by: Scott Malkin

Great post John. Curious what you think about the Verano land development, ~1800 acres surrounding Texas A&M. That land has been tied up in litigation for years which has since been resolved with plans to sell it off in the very near future.  Now the property can finally be developed with much needed student housing,  town center, single family residential, commercia, etc surrounding the University.

Mike, you are correct, you can use passive losses from real estate to offset passive income from PPR note funds. That is exactly  what I do (under the guidance of my tax advisor). You,  obviously,  should confirm this with your tax professional as it relates to your particular circumstance....

I have not personally tried this. Perhaps Alon L can comment on the legality of this...

One strategy to raise rents yearly (starting with a new tenant and lease) more than allowed by rent control is to use the LEASE DISCOUNT PROGRAM recommended  by rent control experts/ lawyers Dennis Block and Zachary Larence . Taken from their article....  

http://www.aoausa.com/magazine/?p=164

You are a landlord with a building in the City of Los Angeles that is under rent control, and have a vacancy. For the sake of this example, let’s say the landlord wants $1000.00 per month for his unit. He also wants annual increases which are more than 3% (or whatever the allowable annual increase is at the time). The landlord would draft a lease that creates a base rent of $1,500.00 for year one of the lease. However, the landlord provides a discount to the base rent of $1,500.00, based on the following schedule:

¢ Year #1 – $500.00 discount
¢ Year #2 – $400.00 discount
¢ Year #3 – $300.00 discount

In this example, the landlord is creating annual rent increases of $100.00 per year, which exceed the 3% (or the applicable amount for any given year) annual increases allowed by rent control. The key component of the LDP is to establish a base rent on the face of your lease. The words base rent should appear prominently on the lease, along with your annual discounts.

Since your rental is in San Pedro, there is a good chance it is under rent control. I recommend you check out the website of attorney Dennis P Block. There you will find links to free forms including leases and other info that will prove useful in dealing with the strict laws favoring tenants with wonderful rent control....

You are indeed correct- one can charge market rent once a tenant leaves. Getting a tenant out is easier said than done. They know they have a good deal and know their rights. You can legally force one tenant to leave if you move into the unit; however, you would need to pay them a relocation fee of ~ $10k, you can only ask the tenant who has moved in most recently (as opposed to one who has lived there for many, many years and paying the lowest rent), you would have to live there for 2 yrs and if you moved out sooner or happened to have another vacancy, you would have to offer the available unit first to the tenant you just paid to leave.... Of course you can do 'cash for keys' but that will likely cost several tens of thousands for it to be worthwhile to the tenant paying far below Santa Monica market rent. 

You can also use the Ellis Act to go out of business but would need to pay each unit an $8300 to $19,950 (depending on # of bedrooms, if tenant is a senior or disabled) relocation fee and cannot rent the units for another 5 years, I believe. Getting condo permits in Santa Monica is quite difficult these days, so I've heard....

We are fortunate to not have any mortgages on the property as well as very low property taxes as property has been in family for decades. Current income is ~ $180k/ yr,  total expenses (self-managed) ~ $45k/ yr....

With those numbers, if someone were to purchase the building with 30% down and correcting  for property tax adjustment, they would be easily be in the red to the tune of $7000/ month. Despite that, people seem more than willing to purchase property in 'prime' Santa Monica....

Why would anyone want to purchase a rent-controlled Santa Monica apt building?

Consider this deal…

10 unit building, built ~ 1950, class C, in a prime Santa Monica location !

Under rent control !

Huge upside in rents (assuming you can actually get current tenants to leave) !

Decades of deferred maintenance !

Well, we are getting unsolicited offers to purchase said building at a GRM of ~ 21.

cap rate ~ 3% !!

Seems like a good time to sell… perhaps we are nearing peak pricing for the area...

Ay thoughts?

The ideal would be to have the tenant and dog move out. As it is a  rent-controlled apartment in a 'prime' area, if the tenant were to move out we could get market rent which is significantly more (~$1000/mo) than current rent. The tenant has already declined our offer to collect a pet deposit and increase the rent. Under Santa Monica rent control we currently are only able to increase rent ~ 1% per year, but would be able to increase it by any amount agreed to by current tenant and landlord to add the dog into the lease...

We have a tenant who has lived in his apt for ~ 2yrs, lease has a 'no pet clause', tenant has had a dog for nearly their entire tenancy. We would like to now enforce the no pet clause. I understand that one could argue we waived our right to enforce the clause as a long period has passed. The previous owner (family member who  passed away ~ 6 months ago) did not enforce clause. We, the new owners,  have  just recently become aware of the dog (2 months ago) and just recently (one week ago) found the old lease with the pet clause we would now like to enforce it. Do you think we would prevail if tenant challenges this in court? This is a rent-controlled apartment in Santa Monica....