Hold or Sell rent-controlled Los Angeles duplex?

Question

I've owned an L.A. duplex for 10 years now (bought 2016) and the increasingly aggressive rent-control laws and skyrocketting costs of the last 5 years are making me consider selling to reinvest elsewhere. I have been house-hacking, living in the garage for 4 years (rough!), and just paid the back unit tenant $10k in Relocation Fees to move into the back house. I will have to get a roommate to make it work.

If I rent it back out at market rate (much higher than what my previous tenant had been paying), I maybe could get $4300. But I am feeling like I may want to sell in the next few years, and would then have to pay the tenant a big buyout again.  The front unit rent is $3717. If i move into back unit w/ a roommate, they'd pay $1600. The max amount I can increase rent on the other rented unit is 3% annually.

I'm feeling like this is not a great investment right now, but I know it's because of the buyout & resulting 3 month vacancy, and my needing to squat in my own home w/ a roommate in order to maintain control on the sell-ability of my house.

But I don't want to make a hasty decision as I had always thought of this property as my "retirement fund".  What are the numbers to look for to determine whether I should hold on to this or sell?

How would I use the ROI calculator to calculate these #s if I  refi'd my original loan in 2021 and have actual cap ex expenditures for the last 10 years? Do I run a separate report for 2016-2021, and then another report for 2021-2026? Do I include a future tenant buyout as a possible selling cost?

Thanks for any help!

Tim B. · Answer

I think the bigger question is whether you’re trying to maximize returns or preserve future options.

I wouldn’t spend much time trying to calculate the last 10 years. Those are sunk costs. I’d focus on today and the future: what could your equity realistically earn elsewhere versus what this property is likely to produce over the next 10–20 years?

For me, the decision eventually became less about returns on paper and more about the lack of flexibility and the risks that come with owning rentals in Los Angeles County. I ended up investing out of state. That’s not to suggest you should do the same, plenty of people invest successfully here. But I do think it’s worth considering how much you value flexibility alongside the financial return.

For the calculator, use today’s estimated market value as your purchase price, your current loan balance and payment, current property taxes, insurance, maintenance, vacancy, and any expected capital expenditures. Use market rent if you’re evaluating it as a rental. That will tell you what return you’re getting on the equity you have tied up today.

If you’re comparing hold vs. sell, I’d run a second scenario outside the calculator that assumes you sell, subtract selling costs (and any taxes if applicable), and estimate what that net equity could earn in another investment. That’s really the comparison you’re trying to make.