I am interested in buying a fourplex in Northeast LA using FHA financing and occupying one of the units as my first rental property. The property looks pretty crummy (and the price point the seller is looking for certainly reflects this), and the rents are way below market, but no structural issues. I would like to spruce it up to attract higher-quality tenants, especially since several surrounding houses have recently been remodeled and look really nice--this property sticks out like a sore thumb--and there are some nice skyline views from two of the units that I think could entice some younger professional types (very short commute to downtown to boot).
Anyway, how can I get rid of the current tenants so I can rent to new ones at higher rents? Anyone "been there, done that"? I spoke to the HCID this morning and was told that even if I were to evict one of the tenants for owner-occupancy, I would be required me to pay the tenant thousands of dollars for relocation assistance! How do LA landlords get by owning rent-controlled units? Any wisdom from experience, especially from those who have been in my shoes (buying FHA owner-occupied in LA), is welcome!
1 bed / 1 bath: $721/month - 1-year lease
2 bed / 1 bath: $735/month - month-to-month
2 bed / 1 bath: $735/month - month-to-month
3 bed / 2 bath: $1030/month - expired lease (was told by the HCID that even if a lease is expired, if the tenant has lived there over a year, he/she is protected like any other tenant with a valid lease)
I think HCID didn't tell you the whole story... The tenant has all the protections just after 30 days of living on premises. Even if they don't have a lease in writing! So it really doesn't matter if somebody is on a year lease or month to month...
You can evict one tenant from whichever unit. If it's one of the two 2+1 units you can evict the one who moved in last. There is relocation fee nonetheless. It depends on how long the tenants been living on the property, their age, possible disability etc
Tenants can be either "qualified" or "eligible". And depending on that status you'll be paying $7,700 to $19,300 in relocation assistance. That's besides standard eviction fees. All this should obviously be calculated in your purchase price.
Majority of people (tenants) have no knowledge of law and protections they may be qualified for, therefore it's very common for the new owner to offer cash-for-keys.
Thanks, Ewa. This is making me think I should just focus on vacant properties that I can fix up however I see fit and rent out to whomever I see fit...
You often pay a big premium for units that are delivered vacant -- I'd say much more than you'd pay if the unit was delivered occupied but at market. Plus you'd be severely limiting your choices. You'd also be competing with other seemingly "irrational" buyers who also intend to owner occupy. These buyers are willing to pay a premium.
I'm not a lawyer, and not intending to give legal advice, or even good advice, but this is what I did, and it's working out excellently for me:
What I did for my purchase was I had the tenants sign an agreement which stating essentially that I'd pay $X,XXX a few weeks before they moved out, and the then $X,XXX by XX day, the day they moved out. I had them sign the document after we opened escrow and a few days before the end of the contingency period. The whole agreement between me and the tenant was contingent upon my successful purchase of the house. ie: if the purchase falls apart, I do not have to pay the tenant anything. The contract was written this way because, as I understand, you are not allowed to get into a contract with someone on properties that you don't actually own.
It's worked out well. I still talk to the tenants that I paid relocation to. Do I think it was worth the $10K+ I paid? Absolutely!!
Thanks, @Lee L. . Appreciate your advice. I notice that you invest in NELA. Are there any good investment groups focusing on that area?
Nice to connect with someone also starting out in nela!
I heard there is a group in the Silver Lake area that meets for lunch on Tuesdays sometimes. but I'm not really sure of details. I've been meaning to check it out and find out more info. I'll let you know if I find out.
Good luck with the hunt!
Hi Logan A. and Ewa mentioned, it is possible, and not illegal to negotiate with tenants on the side for an informal relocation payment. However, if you strike a deal with a tenant to move out for an amount that is less than the relocation assistance amount they would be entitled to - and they find out and complain to the housing department, they could potentially complain that you had coerced them into moving out and giving up their rights or something like that. In case you haven't figured it out, the rent control section of the LAHD/LAHCID etc. is not especially pro-landlord and is going to look closely at cases where tenants have moved out of rent controlled apartments and then are unhappy about it.
Also, I have attached a link to the latest housing dept information for relocation assistance:
Good luck and let us know how it goes! (or post the deal if you are not going to move on it!)
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