Opinions on Buying Rent Controlled Properties

2 Replies

I want your opinions on rent control BP!

I am currently remodeling a single family home in a gentrifying part of Los Angeles, California.  There is a quadraplex across the street that has been very nicely renovated, however it has been on the market for quite some time now, with multiple price drops.  

The other day I approached the agent after she had a showing to see what the deal was.  It turns out that both front units are rent controlled for $1,088 and $600.  However, one back unit rents for $2,200 and the other for $2,800.

If the front units were not rent controlled the property could cash flow quite nicely.  

So the question is...  What are your thoughts on purchasing a property like this?  Would you do it knowing that the rent controlled units will eventually be vacated and rents raised?

I base my business decisions only on what I am buying day one. I never pay for future potential/income since you may never realise it. The unit in question is dropping in price due to the fact that all potential buyers are using the same criteria. The value of a property is based only on what it's income is at time of sale. This is how investors take advantage of poorly managed properties. 

Assume the rents on all 4 units will never go up during the time you will own it and pay accordingly. Rent is now $6688/month and that is all you can pay for. Property cash flow wise is not worth more than 650 -700K. Assuming your market is out of wack with that pricing, which CA always is, you do not invest.

Owners of rent controlled properties are in a very difficult situation, as you will also be in if you buy, so your goal is to take advantage of that fact. You make your money when you buy not when you sell.

Thank you for that info!  Much appreciated.  Everything you stated makes perfect sense.