Investor · Los Angeles, CA · Member since 2015 · 52 posts · 11 votes
Hi,
I am purchasing a rent controlled property in Los Angeles. I wanted to know if there is a way to get rid of one tenant. Is there anything I can write in a new lease to have them leave after one year of anything..
San Diego, CA · Member since 2012 · 19 posts · 3 votes
10y
One strategy to raise rents yearly (starting with a new tenant and lease) more than allowed by rent control is to use the LEASE DISCOUNT PROGRAM recommended by rent control experts/ lawyers Dennis Block and Zachary Larence . Taken from their article....
http://www.aoausa.com/magazine/?p=164
You are a landlord with a building in the City of Los Angeles that is under rent control, and have a vacancy. For the sake of this example, let’s say the landlord wants $1000.00 per month for his unit. He also wants annual increases which are more than 3% (or whatever the allowable annual increase is at the time). The landlord would draft a lease that creates a base rent of $1,500.00 for year one of the lease. However, the landlord provides a discount to the base rent of $1,500.00, based on the following schedule:
¢ Year #1 – $500.00 discount ¢ Year #2 – $400.00 discount ¢ Year #3 – $300.00 discount
In this example, the landlord is creating annual rent increases of $100.00 per year, which exceed the 3% (or the applicable amount for any given year) annual increases allowed by rent control. The key component of the LDP is to establish a base rent on the face of your lease. The words base rent should appear prominently on the lease, along with your annual discounts.
Have you closed on this property yet? Is there something special about the property that makes you have to have it? Have you done the numbers to make sure that it will be a solid investment not just now, but for when you eventually rent it out to others? Reason I'm asking is I looked long and hard here in the Oakland, Berkeley area where they have rent control.
Is it a SFR or a multifamily?
Bottom Line it was worth it for me to keep looking until I found a vacant duplex.
Don't make the mistake of thinking that if your mortgage is $2500/mo and the rent they pay is $3,000/mo that you're OK. Vacancy/Repairs/Prop Management/Capex/Taxes/Insurance.
Do your due diligence and make sure the numbers work out AND make sure you follow the rent control laws.
One strategy to raise rents yearly (starting with a new tenant and lease) more than allowed by rent control is to use the LEASE DISCOUNT PROGRAM recommended by rent control experts/ lawyers Dennis Block and Zachary Larence . Taken from their article....
http://www.aoausa.com/magazine/?p=164
You are a landlord with a building in the City of Los Angeles that is under rent control, and have a vacancy. For the sake of this example, let’s say the landlord wants $1000.00 per month for his unit. He also wants annual increases which are more than 3% (or whatever the allowable annual increase is at the time). The landlord would draft a lease that creates a base rent of $1,500.00 for year one of the lease. However, the landlord provides a discount to the base rent of $1,500.00, based on the following schedule:
¢ Year #1 – $500.00 discount ¢ Year #2 – $400.00 discount ¢ Year #3 – $300.00 discount
In this example, the landlord is creating annual rent increases of $100.00 per year, which exceed the 3% (or the applicable amount for any given year) annual increases allowed by rent control. The key component of the LDP is to establish a base rent on the face of your lease. The words base rent should appear prominently on the lease, along with your annual discounts.
Anyone have experience with this? Curious if it would work in Berkeley / Oakland. It's pretty clever, although a little shady.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
Legal or not, it's useless when tenant is in place. And what if year 5 rates are at 2k? you're still stuck at 1500. You could also go with 2500 and "minimum" discount of 1500 for year one, 1300 on year 2, etc, that way you can give 1400 or 1300 on year 2. why didn't the authors think of that?
Investor · Los Angeles, CA · Member since 2015 · 52 posts · 11 votes
10y
Thank you all the response. We currently have people living there so I can not "kick" them out. One tenant is paying LOWER than market value I want to increase but can not more than 3% a year. Any ideas? Any ideas?
Have you closed on this property yet? Is there something special about the property that makes you have to have it? Have you done the numbers to make sure that it will be a solid investment not just now, but for when you eventually rent it out to others? Reason I'm asking is I looked long and hard here in the Oakland, Berkeley area where they have rent control.
Is it a SFR or a multifamily?
Bottom Line it was worth it for me to keep looking until I found a vacant duplex.
Don't make the mistake of thinking that if your mortgage is $2500/mo and the rent they pay is $3,000/mo that you're OK. Vacancy/Repairs/Prop Management/Capex/Taxes/Insurance.
Do your due diligence and make sure the numbers work out AND make sure you follow the rent control laws.
What do you think of @Scott Malkin post? Is that possible to give a discount? I will have a new tenant agreement signed. Because the current landlord has signed a 2 bedroom lease when there is one(I do not want to be liable for that)
@Brian Garlington Its a multi, I am getting about $600/mon after expenses: Ins, taxes, mortgage etc.
Los Angeles, CA · Member since 2015 · 23 posts · 12 votes
10y
I have not heard of this "discount" approach before, but I don't spend much time on residential leases in my practice. I would not expect this approach to withstand a legal challenge in a tenant-friendly city like LA. Please keep in mind as well that the article looks to be a bit dated, so there's a chance that the city has already seen a few of these and taken a stance against them since the article was published.
Investor · Los Angeles, CA · Member since 2015 · 52 posts · 11 votes
10y
@Alon L. I spoke to someone from HUD they mentioned this is not a practice they allow and its complex to do.
I did want to ask is it ok if I have all tenants sign a new lease with us? The previous landlord has a 2 bedroom lease but its really a one bedroom. Any recommendations?
Los Angeles, CA · Member since 2015 · 23 posts · 12 votes
10y
Why do you want them to sign new leases? If the units are rent-controlled you won't be able to raise the rent beyond than the annual limit (I think it's currently 3%). What investors typically do in your situation is some kind of cash for keys arrangement with the existing tenant(s).
Please note that I don't represent anybody on this thread as their attorney and nothing here is intended to constitute or should be taken as legal advice.
Investor · Torrance, CA · Member since 2013 · 35 posts · 8 votes
10y
@Edward P. Most of my properties are rent-control and your options are very limited regarding existing tenants. You should be valuing this property using current income and assume you will be inheriting the existing tenant base. Your opportunity as the investor will be to run the building better and unlock additional value.
Here are some strategies I use to maximize revenue and expose turn-over opportunities.
- Begin raising the rent like clockwork on the 1st of the year
- Look for violations in the existing lease including pets, people, etc. Issue 3-day notices on these violations and you can act if these are not corrected.
- Be diligent about collecting all fees including late, RSO, and SCEP.
- See if cash for keys is an option and then calculate if it makes sense.