All Forum Posts by: David Tipton

I second contacting legal aid. You may also want to seek out a local attorney who represents tenants. California is very tenant-friendly. Someone needs to review your lease and assess the situation in order to give you any kind of advice.

Tom Gimer is correct. The rule of professional conduct cited applies to attorneys as parties to a transaction with a client. A licensed broker or agent who happens to be an attorney has the same fiduciary duty to the client as any other broker or agent when conducting a real estate transaction. As others have said, being both a broker or agent and an attorney may lead to avoiding pitfalls a non-attorney may not necessarily be aware of. At the end of the day, it probably won't make much difference but if the cost is the same why not take advantage of the added expertise?

@Account Closed is correct, California has a mandatory minimum tax on LLCs of $800.00 per year. It does not matter whether you actually make money or do any business through the LLC. It may not be the same for folks in other states. It will depend on your specific situation as to whether or not its worth it to have your properties in an LLC. If you are looking for risk mitigation, it will depend heavily on your specific situation. Depending on how many units you have, it may make more sense to address potential liability through a more comprehensive insurance policy. I would recommend consulting with an attorney to see how to best mitigate risk given your particular situation.

Originally posted by @Rohan J.:

Wouldn't using an S-corp instead of an LLC protect you from getting sued while also avoiding the $800 CA LLC fee?

 No, every corporation that does business in California pays a minimum tax of $800.00 per year, including S-Corps and LLCs.  

As others have hinted, there is no corporate formation that will absolutely protect your personal assets form a lawsuit.  It is very important to be aware of and follow the particular requirements and formalities required by your state.  Failure to do so may cause a court to "pierce the corporate veil" and treat the corporation as an extension of you as an individual.  It is worthwhile to speak with an attorney once you have substantial assets to protect.  To do it properly requires ongoing attention to corporate formalities.

Originally posted by @Antonio Scerra:

it is in the contract that this unit will be delivered vacant and that the seller will pay relocation fees. 

Sounds like this is a seller problem.  You should not pay anything for an eviction, it should be done for you by the seller before closing per the terms of the contract.  You can always work with him on extending the time for escrow to close, especially if you are coming in with no money down as you won't tie up any of your funds.  The seller can always choose to back out, but would likely need to pay you liquidated damages if it is a standard CAR (California Association of Realtors) contract.  You can always use that as leverage to work out a deal that will help the sale go through, despite the delay.

"I've heard that in California, the eviction record is automatically concealed for 30 days (yuck!)"

It's actually 60 days, win or lose.  If the tenant prevails, the record is sealed permanently.  

If the tenant is leaving voluntarily, you can rent out the unit just like any other vacant unit in Los Angeles.  That is, still subject to the LA Rent Stabilization Ordinance.  As @Steve Jones mentioned, you should keep up to date with the city requirements.  As of now, you should be ok.

@Account Closed renting to anyone, whether through Airbnb or otherwise, could be very dangerous.  The legislature recognized the potential for abuse of the Ellis Act and provided for steep penalties for landlords who do not comply with the requirements.  The idea is that you are taking the units permanently off the rental market.  A landlord's use of the Ellis Act is recorded with the county.  An application must be made to the Los Angeles Housing and Community Investment Department before the unit can be offered for rent or lease, which would include Airbnb.  If it's within five years of the unit going off the market, the unit would need to be offered at the same rates as before.  Presumably, your Airbnb rates would need to be a pro-rata daily rate based on the prior rent, which would probably be too low to be worthwhile for a periodic rental.  Additionally, you may have to give a right of first refusal to the evicted tenant(s) to move back in if the re-rental is done within two years.  

You may be tempted to try to evade the law and rent out the unit(s) without going through the appropriate legal steps. This could be disastrous. If you are discovered, as a few landlords recently were, you could not only face a lawsuit from your tenants where they could recover the increased rent they paid, moving costs, etc., but you may be liable for punitive damages. Punitive damages are designed to punish a person for wrongful conduct and to deter others from engaging in the same conduct. While an insurance policy may cover your defense and potentially cover the actual damages of your tenants, it cannot and will not cover punitive damages. You could potentially be liable as an individual, without the protection of a corporation/LLC, and without the benefit of insurance coverage. I wouldn't evict based on the Ellis Act unless I intended to tear down the property or truly remove the units permanently from the rental market.

Lauren,

You may not be able to evict her at all, unless you plan to take the unit off the rental market or move in yourself or your family (or a few other, less likely scenarios).  Even then, you would need to pay relocation fees between $7,600.00 and $19,700.00.  

Since she's expressed some interest in leaving, you may just want to follow up with her periodically and see if she's given any thought to it.  It's fair to say that you want a heads up from her so you can start marketing for a new tenant to eliminate or mitigate any gaps in rent payments.  That said, it will probably come down to her being able to find another Section 8 property more than anything, which can be a challenge.  If you are able to offer that to her on another property you have that she prefers, it may be a win-win.  Depends on your situation though.

You are correct that the LA Rent Stabilization Ordinance will not allow you to raise the rent, even if Section 8 will pay more.

I'm not sure if you want to get down to the level I'm at, but welcome nonetheless @Gafar Odufuye.  Hehe.

Welcome @Carlos Caban. Your strategy seems sensible and conservative. By nature I'm the same way. I worry though that you are approaching this backwards. I think most folks on here would tell you to take risks while you are young and look to build equity down the line. Not to go crazy, but little calculated risk. As Bruce Arians apparently says according to the FOX NFL broadcasters, "no risk-it, no biscuit."  As stupid as that saying is, there is some truth to it. (I personally find it hilarious).

I don't know your situation, so if you have piles of cash laying around by all means go high cash and try to get some cash flow going. If you are just saving up, by the time you have enough you may miss out on these historically low interest rates. You will also need cash for repairs and as reserve for maintenance. Personally, I would try to leverage as much as possible on my first property. If the numbers don't work without pouring in a bunch of cash then it's not the right deal. 

Have you considered multi family for your first purchase? You can get an FHA loan to owner-occupy a 2/3/4 unit. It gives you more flexibility and exit strategies.

There are tons of resources on here that can help you. Check out the podcasts. They're great.