Sellers Tenant refusing to move, rent control, Los Angeles
Real Estate Agent · San Pedro, CA · Member since 2016 · 22 posts · 7 votes
I would like to start by saying that this is my first post to the Bigger Pockets community and I am very excited to be a part of it. With that being said, I am reaching out to you guys for guidance regarding my situation. Thank you for your time. So here it is......We are currently in escrow and I was just informed that the Sellers tenants are refusing to relocate and even threatening the seller that they will sue him. We are in a rent control area in Los Angeles and we are abiding by the relocation rules. The agreement is that the seller is going to provide the funds to pay the tenants the relocation dues and I as the new owner will occupy the unit that they are moving out of after the proper amount of time is given to the tenants to relocate. The seller's agent informed my agent that the seller wants to cancel the sale due to the hardship that the tenant is causing. Would it be wise for me to back out of this purchase? By continuing with this purchase, does the tenant become my problem? Does the tenant have any grounds to pursue a lawsuit? How long can they drag this out for if the sale and relocation assistance is being properly executed? Any help or information would be greatly appreciated. Thank you.
I have very minimal experience, so take this with a grain of salt.
Everyone has had fantastic advice, but for me, it boils down to one simple fact. Your contract states that the seller delivers the property with the unit vacant. I'd hold the seller to that. How does he/she get the tenant to vacate? Not your problem. It's the seller's responsibility to perform their part in the contract. If he/she doesn't perform, I would think there are legal remedies you could pursue towards the seller.
I don't think that waiting six months is worst-case scenario. There are many stories on here about situations that took much much longer to evict. Sure, you may eventually be entitled to the relocation escrow. But, what if the current tenants cause six figure damages to the property? What if all the nice mechanical systems that were replaced in the last five years are destroyed? What if their behavior makes life miserable for the other tenants, so that they move out too, and nobody is willing to move in?
I understanf that the process should eventually allow you to take up residency in the main unit, but I'd be very hesitant to assume that the property will be in the same condition as you see it now. So, the simple solution, in my mind, is to stick to the clause that states the seller will deliver it vacant. Let the seller handle it.
That has definitely been a blind assumption of mine...I was definitely being naive thinking that the unit will still be in good condition after they vacate.... @Jason Krick I spoke with my realtor about the sellers responsibility to have the unit vacant on COE. It would've worked just fine had the tenant remained cooperative with the seller and taken the relocation funds he was giving them. It seems like it would've worked out more like a Cash for Keys deal between the seller and tenant and the unit would've been delivered vacant. Since the tenant is not cooperating and the seller will not be occupying the unit, according to RSO laws the seller cannot evict them. That is where I as the new owner/ occupant of the unit come into play. The RSO laws state that the" owner/ landlord" can evict if they will be living in the unit. So, our contract has that flaw as of right now. The seller offered to cancel because of the tenant not cooperating. I'm really trying to assess this from all sides and I will continue to take the information I receive here and try to make the best decision. @Ralph R. Thank you for that advice. I completed the rental properties calculations using the BiggerPockets calculator and I came up with a negative monthly cashflow number. I will share the info with my agent and see what he has to say. I'm not sure if all of the numbers are correct and I would like to get it verified. I will update the information as soon as I can.
@Antonio Scerra don't get sucked in on a bum deal right out of the Shute. I dunno what your numbers are but you have to verify every one you can for an accurate analysis. I also know parts of California poor cash flow doesn't mean it's a bad deal. The average realtor isn't usually investor Savey. Being an investor you need to make your own decisions and stand by them. You are the one who has to deal with the results. The realtors main concern is his commission. There will be other deals if you walk on this one. There may not be other deals if you buy this one and can't make it work. I have a tendency to get wrapped up in a deal and it's not a good trait. I've learned to trust my analysis and gut feelings about a property. Ive also been burned a couple times. That's part of it. It's why I can trust my instinks. This one has flags all over it. The unit in question Will probably be trashed if and when the tenant leaves. The seller knows that and probably would rather sell it to somebody who isn't planning on living there. your contract requires he present a vacant unit which he can't do or is going to cost him a bucket load of money to do. If you buy it and evict the tenant you are going to have to fix up a trashed unit. Have you the money and place to stay while you are doing all this?? RR
Sounds like you are looking for ways to make this deal work. Are you in the rush to move? Or is there something particularly attractive about this property? I'm sorry, but I fail to see the "good" in what you mentioned about the property. Just from what I've seen, multi-family is not selling too hot in LA, especially the ones under rent control. If that's your niche, I think you have a lot of choices because there are a lot of ppl who won't even touch rent control properties. Why not let the seller work harder for your money while you keep looking?
That has definitely been a blind assumption of mine...I was definitely being naive thinking that the unit will still be in good condition after they vacate.... @Jason Krick I spoke with my realtor about the sellers responsibility to have the unit vacant on COE. It would've worked just fine had the tenant remained cooperative with the seller and taken the relocation funds he was giving them. It seems like it would've worked out more like a Cash for Keys deal between the seller and tenant and the unit would've been delivered vacant. Since the tenant is not cooperating and the seller will not be occupying the unit, according to RSO laws the seller cannot evict them. That is where I as the new owner/ occupant of the unit come into play. The RSO laws state that the" owner/ landlord" can evict if they will be living in the unit. So, our contract has that flaw as of right now. The seller offered to cancel because of the tenant not cooperating. I'm really trying to assess this from all sides and I will continue to take the information I receive here and try to make the best decision. @Ralph R. Thank you for that advice. I completed the rental properties calculations using the BiggerPockets calculator and I came up with a negative monthly cashflow number. I will share the info with my agent and see what he has to say. I'm not sure if all of the numbers are correct and I would like to get it verified. I will update the information as soon as I can.
My point is that the fact that the tenant is not cooperating should not be your concern at all. It's the seller's problem. He/She needs to handle it and deliver the property to you vacant at closing, per the contract. I would enforce that clause as much as I am legally allowed to, or I wouldn't close. To me, at least, everything else is you doing much more work than you should do. The RSO law should be moot in this case because the property must be delivered vacant.
@Antonio Scerra,@Jason Krickis right. From what I understand, the contract provides the Seller must deliver the property vacant. The Seller has not done so. I fail to see why this situation needs any further "assessing."
I am at fault for limiting my options. I am looking in San Pedro in particular because that is where I plan to live. There is very little supply here and housing in San Pedro is a lot more expensive and sought after, than some neighboring towns. Even in the worst areas homes are at around 400-500k. And those are mainly SFR.
So big update......We have canceled the transaction! After weighing all of the possible negative outcomes regarding the tenants and rent control, we have decided that it is not worth the risk. The main reason was the uncertainty of what the pissed off and annoyed tenants would do to the property, which could've resulted in thousands upon thousands of dollars in legal and property damages.
We took into account all of the information that was shared here. We also contacted an attorney familiar with the rent control laws in Los Angeles. We discussed the issue over and over with our agent. We did a lot of research and reaching out and finally concluded with cancelling the purchase.
But, I am grateful for having been put in this position because I have gained an immense amount of knowledge regarding purchasing multi-family and rent controlled properties.
This community helped save us tons of money and future headaches!
We are happily moving on to the next property (whenever we find it), and continuing our journey to reach financial freedom through investing in real estate. We have lots to learn, and hopefully the outcome of this transaction will be able to shed some light on others who are in similar situations.
Huge take-aways from this experience:
1) Do your homework. Due diligence is extremely important. Put in the time and effort to learn as much as possible.
2) Reach out to others who might be able to help. Take the advice and evaluate it to paint a better picture for your situation.
3)Try to find every reason why you shouldn't go through with a purchase before you decide why you should.
Thank you all for your help and advice. Please feel free to ask any questions you might have on this topic. I will answer them to the best of my ability.
I commend you for taking all advice to heart and making a very difficult decision. As I'm sure you know, this is all about minimizing risk. You decided the risk was too high. While I'm never happy to see a deal fall through, especially when a personal residence is involved, there were many unknowns. There's no telling what the tenants, who refuse to leave, would do.
And I commend you for your openness for advice, analysis, and constructive criticism. And your positive outlook afterwards is amazing! That attitude will get you where you want to go.
Kudos.
I am at fault for limiting my options. I am looking in San Pedro in particular because that is where I plan to live.
One thing you may want to consider is moving down the road a bit ... Long Beach has no rent control, more multi-family inventory to choose from, and similar price points (depending on the neighborhood) as San Pedro. If you go up the road to Wilmington/Carson, same thing ... not 100% sure, but I think also no rent control and similar (or maybe even lower) price points ... more SFRs than multi's I think, though, but nothing wrong with that necessarily ...
Thank you for the tip. I will definitely think twice before attempting to purchase a rent controlled unit again. And I will consider looking into those other areas, though they will not be ideal in my current situation.
Noticing that you say that you're planning on living in living in San Pedro, I'm going to share a little secret with you, that people outside of San Pedro don't know. I lived in San Pedro for almost 2 years and am back in Atlanta since March. All of my things are still in storage in Wilmington.
I moved to SP, because I love the water and loved the little houses, that dot the hillside area in the 30th street blocks, being able to walk to the beach and surrounding areas.
And then in May the fireworks started. Every frigging night. M80's blowing up next to your house at midnight or 2 or 3am. This happens every damn night until August. Every time you are in full sleep and ...BAM....you're woken up again. My dog was freaking out every night and I sat with him for hours and then being tired every day. I basically had PTSD, because I didn't have a night of solid sleep for months.
San Pedro is the port of L.A. and the people there grew up there and then they start working at the port and make 200K plus as longshore men. Rednecks in the south have big tires on their cars. In San Pedro it's about producing the biggest booms. I've heard that a lot of that illegal firework 'falls' off the ships from China and the longshoremen will then 'find' it.
There's nothing the police can do about it, because while it is against the law, they would actually have to catch them in the act of lighting and shooting off those fireworks. Their only response is to help them and go out with a camera and get a picture of them in the act. But since you don't know what time it's going to happen and where exactly these guys are going to be, that's impossible (same problem the police have). Plus you'd risk your life.
I wrote a post once in the San Pedro FB page how I hated those fireworks and really didn't like San Pedro any longer, because of it and I was bullied and threatened. Everyone of those posters was working at the port. It's like grown teenagers. They never had to really grow up, because they make a lot of money working at the port, like their father did and their grandfather and so on. outsiders can't get those jobs.
No real estate agent will tell you about it (unless they live there, they wouldn't know about it anyway).
That is the only reason why I will never, ever move to San Pedro again.
Yeah, San Pedro isn't for everybody. But some of us call it home. You have some very valid points, and thank you for input. I am very familiar with the fireworks and the longshoremen, and the rest of how San Pedro operates. It's not like many other LA towns/ cities. I'm just glad that I was able to walk away from a potentially catastrophic 1st home purchase. But, I will continue to look for what I want in San Pedro because I am confident that I can find it with some persistence and dedication.
If I were to rent all three units, they would pay for the mortgage and still have room for some slight cash flow. And, though I will be occupying one of the units, I will be paying less than I would if I were renting. Another question though, what is a safe margin for cash flow? The numbers seem to make sense to me since I will not be in the red after the mortgage payments, but is there a safe zone that one should strive for? And how likely is it to reach that safe zone given the area I'm in (San Pedro, CA).
I realize in LA you make most of your money on appreciation so I suppose the slight cash flow isn't necessarily a problem. You seem to only be taking the mortgage into account though. What about taxes, insurance, maintenance, vacancy, evictions, utilities, etc.?
I did factor everything into the total monthly cost. The rental property calculator helped a lot and I was able to make a better decision based off of it. Initially I was basing my numbers off of PITI and a total of 266$ per month for utilities and maintenance. The 266$ came from multiplying the livable square footage of the house by 14%. Whatever that equals should be a good estimate of monthly cost for utilities and maintenance (according to VA guidelines). When I calculated everything else that was available on the bigger pockets rental property calculator I came up with worse numbers than I wanted to see. It helped me make my final decision to cancel the purchase (as well as all of the possible and likely issues I would've had because of the tenants and rent control laws).
Hello Antonio,
I am interested to know if that particular Multi-unit ended up selling? Did you end up buying a comparable property in the same area for the same price or less?
I am a realtor and investor and have a similar rent-controlled opportunity coming my way. I have negotiated simalar situations with sellers and buyers on non-rent-controlled properties where the tenants refused to leave and needed to be evicted. The key was in structuring a win/win agreement where both the seller and the buyer got the best of the terms they were looking for despite the challenging circumstances.
I'm eager to hear your update!
Best Regards!
Yeah, San Pedro isn't for everybody. But some of us call it home. You have some very valid points, and thank you for input. I am very familiar with the fireworks and the longshoremen, and the rest of how San Pedro operates. It's not like many other LA towns/ cities. I'm just glad that I was able to walk away from a potentially catastrophic 1st home purchase. But, I will continue to look for what I want in San Pedro because I am confident that I can find it with some persistence and dedication.
I agree with Antonio, it's not that bad in San Pedro. It's not the longshoremen or the fireworks that's bad, it's the fact that it's under LAHCID (formerly known as LA Housing Department, but they got caught up in too many scandals and misappropriations of funds etc so changed the name to LAHCID[LA Housing and Community Investment dept!!!) RSO LA Rent control.
It's a messed up tied up, red tape system that keeps rents low and cities blighted. For instance, the lady complaining about fireworks. Well in a non-rent controlled city, a landlord would simply evict a tenant who caused a "nuisance" to their neighbors. You can't even evict a person for being a gang member or drug dealer (I've tried). Under LA City RSO you can't simply evict someone without going through a framework of scrutiny and hoops to jump through including paying up to $19,700 in "relocation assistance" (that is a down payment on a freaking house for many people)
RSO:
http://hcidla.lacity.org/system/files_force/docume...
Relocation Assistance Amounts - July 1, 2016 through June 30, 2017 Tenants with Less Than 3 Years Tenants with 3 or More Years Income Below 80% of Area Median Income* Evictions for Owner Occupancy In “Mom & Pop” Properties Eligible Tenant $ 7,900 $ 10,400 $ 10,400 $ 7,600 Qualified Tenant $ 16,650 $ 19,700 $ 19,700 $ 15,300