My tenant buyout in San Francisco

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My tenant buyout in San Francisco

Diane G.
CA · Member since 2016 · 1k+ posts · 1k+ votes

Just wanted to write down my experience of tenant buyout in San Francisco, in the hope of helping those trying to go down that road...

So I have a unit in a 5 unit building in Pacific Height...Building comes up for condo conversion this year but my tenant needs to move so that my unit can be vacant...

He was paying $3700 when market rent was around $4800...After 6 months of long and (very) painful negotiation, tenant and I agreed at $61K buyout....

Tenant has been there for 8+ years, been a super perfect tenant, very nice and friendly, never late on rent in all of 8 years...I was actually kind of sad to see him go...

That was my experience... if you want to share yours, please go ahead....

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Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
7y

I'm 100% acknowledging that I have no understanding or experience in your market, but the fact that a housing market exists, where its appropriate to give a tenant $61k to give you control of your own property blows my mind.

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  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    7y

    Gotta love San Francisco. 

    0Reply
  • Brian Sparr
    Real Estate Agent · Cary NC & Walnut Creek, CA · Member since 2009 · 99 posts · 84 votes
    7y

    Hi @Diane G. - thanks for sharing!  I'd love to hear more about how you guys landed at the $61k number ... how far apart were you and the tenant when you first started negotiating?

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    So, I started the negotation offering my tenant $30K which he quickly accepted...Then he got a lawyer called "Crow & Rose", who is a pretty malicous person...lot of hatry for landlord and capitalizm in general...Lol

    "Crow & Rose", at one point, told my tenant that he should ask for $384K...

    After lots of back and forth, we settled at $61K, roughly the mid point of tenant's initial expectation of $50K to $75K, before he got the lawyer....

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    $61K might seem a big number for people outside of SF, but I feel it is an OK deal that I got.. Not the best, not the worst either...

    Also, I bought the place for $620K about 10 years ago, this tenant paid me around $350K in rent over 8 years, and the property is now worth $1.2M....

    2Reply
  • Jim G.
    Investor · Bay Area, CA · Member since 2017 · 85 posts · 35 votes
    7y

    Just curious to know if this would be happening in San Jose, where I have SFH with long term tenants who are still renting.

    0Reply
  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    I'm 100% acknowledging that I have no understanding or experience in your market, but the fact that a housing market exists, where its appropriate to give a tenant $61k to give you control of your own property blows my mind.

    12Reply
  • Darwin Crawford
    Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    7y

    Wow!!

    @Diane G. thank you for sharing that, I've heard of this happening but have not ever seen "real life" numbers.  

    Kudos for making it work in San Fran, I know that is a really tough place to be a landlord.  In AZ, we just give them 30 days notice when the lease is up, no money needed.  

    I'm with @Andrew B. that it's a little mind blowing to think about, but hey, those are the rules I guess and such is life.  

    If you ever get into another negotiation, I really love the book "never split the difference", its made me a lot of money in the negotiation phase of things.  Best $18 on amazon I've ever spent I think. 

    2Reply
  • Puri Indah
    Member since 2018 · 36 posts · 11 votes
    7y

    Doesn't the buy disqualify you for the condo conversion?

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Darwin Crawford

    Thanks i will definitely go spend that $18....Thank you...

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y

    Yep, in good ol' rent controlled areas of CA you need to set aside 20% of the rent for regular renters and 50% if they are elderly or disabled...to rebate back to them to get them to leave.  So sad!  They control how much you can increase then rent then make you give back so much when you want them to move on.

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Lynnette E.

    The highest buyout this year is a $330K payout in mission district....

    I told myself I will never buy TIC again in SF...next time I will just buy 4-plex and legally evict the tenant , pay each tenant $5K per law, and convert the building into TIC... much easier

    4Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    7y

    Could you point me to the specific SF or CA laws that require this type of payment?  I don’t invest there, simple curiosity.

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Kris L.

    It is not required.... it is negotiated.... I had to negotiate because in SF a landlord can’t kick a tenenat out unless the tenants wants ....so that is why it is called a buyout, because I am buying the tenant out....Lol

    2Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Kris L.:

    Could you point me to the specific SF or CA laws that require this type of payment?  I don’t invest there, simple curiosity.

    I do not know SF laws.  My parent's rentals were in the LA area.  You can google Los Angeles rent control board rules and get lots of summaries and explanations.  Even the whole laws if you want.

    Here is a general basic explanation written for the tenants to understand, plain English.  The amounts are old and likely have been updated.  Look at the cost for the basic 'everybody who behaved and needs to moveout gets this amount of money'.  The amount is based on age and disability vs. regular rate.  Also note that the amount is not per house but per tenant.

    Then look at the rehab cost amount the landlord needs to pay.  If you have a major rehab, you can not MAKE them go.  You must put them in the same size, location, etc. accommodation that you pay for at full new rent rate and short term rental rate and they pay you the rent control amount for your old property you are fixing.  Then you must pay their 'expenses' even though you set them up in a house and paid to move their stuff there.  So now you pay for their food, yep food, child care, yep, that is not a new cost, but now the landlord gets to pay it,  etc. on and on.  You know what people eat when the landlord is flipping the bill?  5 Start restaurants three times a day, and for all their guests too!  And its LA, so they have many to go to!

    So, in the end you negotiate some sort of deal to make then on their own decide to leave.  Otherwise you go broke!  Oh, and after rehab, you can raise the rent by a whole 10%, maybe.

    https://www.caltenantlaw.com/L...

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    I honestly think rent would be lower in SF without rent control, but hey, no politician wants to believe that.... Lol

    1Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    Hi Diane, it’s good you got them out, but $61k is pretty steep given that they were only $1100 under market, and they don’t sound like they are a poor tenant without other housing options. Sucks they got a (typical) activist a**hole S.F. lawyer involved :( 

    Is this a registered buyout? Isn’t there an issue with condo converting and buyouts? I believe that you can only have 1 buyout per bldg., and that it can’t be a protected tenant. Can you confirm? Also, did you end up getting  a lawyer too, or did you negotiate directly with the a**hole™️ lawyer or tenant directly?

    To others reading this: don’t try to rationalize any of this...you'll hurt your brain! SF is simply bat sh*t crazy 😜 

    1Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    7y

    CA isn’t too big on people’s rights to their own property is it.

    0Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    7y

    @Diane G.

    You are likely sitting on a boat load of equity given the location. Sure it’s worth it both in the short and long term. Thank you for sharing your experience.

    0Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    7y

    @Diane G.

    Exactly! Your post may not get popularity points on here until the numbers are peeled back and appreciation is considered.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    No brainer and great deal  spend 61k to unlock 600k in equity. and all in ONE unit.. does not get any better than this other than other high priced markets of the US.. NYC  Boston DC north Chicago etc. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Amit M.

    Tenant is only 37 year old. Moved in when he was 28.... so not protected... and yes this is a registered buyout....

    The two of us negotiated directedly, both retained lawyer on consulting basis. Tenant lawyer Dave Crow is definitely a hater of capitalizm, who is an advisor on Rent Board..... told my tenant that I sounded like a typical SF landlord who has 1000 tricks to hurt tenant...

    I was also told many time, along the negotiation, that I did not follow the rules of SF, and they are about to call Rent Board and report me...Everytime I just got so mad that I told them to go F themselves....

    At the end of the day, we were able to close the deal, with lots of hurt feelings on both side....Tenant and I quickly repair our friendship afterwards, to a certain extend ....

    I have to say I got lucky because of the friendship we had.... And that my tenant is a young person with lots of options ...He just signed a lease at a lux high rise building near Van Ness...he was paying me $3700 at my 2/2, which means he is only paying $2000 for his part, and roommate pays $1700.... he is now paying $3800 on his own at his new lux apt...

    1Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Jay Hinrichs

    You are right on... yes this will allow me to unlock about $1.3m equity as it is paid off, thanks to tenants rental payment of $350K over the years

    I actually took $100K out the day the buyout agreement was signed and bought a 4th property in SF.... a small studio 550 sq ft on the top of Russian Hill, on Leavenworth and Green.... Lol

    Going forward though, I would never touch TIC again.... it is emotionally hurtful to go thru this buyout process....Lots is pissed off and sleepless nights .....

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Diane G.:

    @Jay Hinrichs

    You are right on... yes this will allow me to unlock about $1.3m equity as it is paid off, thanks to tenants rental payment of $350K over the years

    I actually took $100K out the day the buyout agreement was signed and bought a 4th property in SF.... a small studio 550 sq ft on the top of Russian Hill, on Leavenworth and Green.... Lol

    Going forward though, I would never touch TIC again.... it is emotionally hurtful to go thru this buyout process....Lots is pissed off and sleepless nights .....

    OH no free and clear 1.3 million dollar property that's not smart according to many.  LOL..  and bad play investing for appreciation that's risky :) 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    3Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Jay Hinrichs

    LOL... you are funny... Cracked me up

    0Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    7y

    @Diane G.

    Good to see you are buying. I do recall you being very bearish a few months back and talking about a major market collapse. What changed your sentiment?

    1Reply
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