First deal: Low existing rents, zoning breach

[Daniel Hynes]

Hey gang! 

First deal I've ever analysed. First potential RE purchase. First ever forum post... It's all terribly exciting and yet I'm sure I'm overly exposed to risk/exploitation as such a newbie. 

Problem 1: Low Current Rent + Rent Control 
As I look deep into this potential triplex, I see that current rents are way below market levels but I am in rent controlled Long Beach, CA. I can only legally increase by 5% + (% increase in cost of living), capped at 10% total. What I have thought of so far is to go way below asking and additionally bank on raising rents 5-7% every year until the cash flow becomes meaningful. What approaches do BPers have for this situation of underpriced rents?

Problem 2: Zoning Breach 
I dug into the city zoning codes and it looks like in this zone triplexes are not allowed! Zone is CNR in Long Beach, CA. I imagine this might be a source for leverage if approached correctly. I am not a unit short legally since the building is divided into 3 units, 1 becomes obsolete! So... what approach might I take in negotiations with the seller? Does this zoning issue have other significant implications for me as the potential landlord?

I appreciate you all and look forward to any and all thoughts you have to share with me.

[Kevin Lakkis]

Problem 2: The building may be granfathered in as a triplex. There are lots of properties in Long Beach which don't meet the current zoning. I'm in a what is now a single family neighborhood with about 50% of the neighbors having duplexes. I also have a duplex surrounded by triplexes where the current zoning is for duplexes (R2N). You can call the Planning Department to confirm. 

You can also check Building Permit Records on the LB city website (older data is spotty). 

If the building has 3 electric meters or 3 gas meters I have always assumed it had to be a legal 3 units at the time it was built because Edison or the Gas Company would not install a meter without a sign off by the Planning Department. I would assume the same if the legal property description on title says it's a triplex.