Cash for Keys Eviction for senior couple in San Francisco

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Cash for Keys Eviction for senior couple in San Francisco

Will Lee
Irvine, CA · Member since 2016 · 18 posts · 3 votes

Hello BP family! 

I have another problem that would love to brainstorm and get some feedback on for San Francisco Flat that I would like to get some help on!

Scenario:

- Landlord/Owner bought 2 br/2ba flat in San Francisco Richmond area

- Rented to 2 seniors (couple) that has lived in the flat for almost 8 years (rented since 2009)

- Rent is around 1000/month but Market Value is now around 3000/month

- Rent has been stagnant for all 8 years (never raised)

- Owner/Landlord would like to evict tenant to bring rent up to market value or to live in 

- Owner/Landlord is open for Cash for Keys or OMI (Owner Move In) eviction to get place back but wants to assess what is the best financial/logical decision

-  OMI process estimated to cost around 16,000 for Tenants + 5000 for Lawyer

-  Owner/Landlord already offered 21,000 to Tenants, but Tenants "googled it" and saw numbers as high as 100,000 for other "Cash for Key's" offers.

Question:

- As a Landlord/Owner, what is the basic calculation to use when assessing how much money to offer as "Cash for Keys" as the Base amount vs  Industry Avg vs High Amount.

- IE: Is it something like 5x monthly rent? or Some specific calculation? 

- What is everybody else's experience in offers/#'s that were successful for Cash for Keys in San Francisco?

Thank you so much for your time and responses! Very much Appreciated!

Will

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Michael Julian
Investor · Franklin, TN · Member since 2015 · 70 posts · 33 votes
8y

What's the point of a month to month lease if you are forced to renew it? No wonder I see so many Ca tags on cars moving to TN....

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  • Brian Schmelzlen
    Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes
    8y
    Are they on a month to month now, or how long is the existing lease for?
    0Reply
  • Will Lee
    OP
    Irvine, CA · Member since 2016 · 18 posts · 3 votes
    8y

    Hi Brian, They are on a month to month lease, but in a rent controlled area

    0Reply
  • Brianne H.
    Investor · Calgary, Alberta · Member since 2016 · 168 posts · 123 votes
    8y

    Forgive my newbie ignorance in this area, but what are the costs associated with Owner Move In, and why are they so high? If I understand correctly, the tenants turned down $21k to hold out for something closer to $100k for cash for keys? Is there a reason the landlord can not terminate if it's a month-to-month lease, or else wait for the lease to expire and non-renew? 

    0Reply
  • Will Lee
    OP
    Irvine, CA · Member since 2016 · 18 posts · 3 votes
    8y
    Brianne H. In SF there are tenant rights which require evictions to be of “just cause” and not just because the lease is up as long as the tenants are willing to pay the controlled increase in rent and don’t break any laws. CA is also a pro tenant state making tenants hard to evict even if there is “just cause “ so it’s a headache and time consuming (up to 6month) process with mounting lawyer fees. This is what I understand of ca law , but anybody feel free to correct me if I’m mistaken
    0Reply
  • Peter S.
    Attorney · Miami, FL · Member since 2017 · 108 posts · 113 votes
    8y

    Those numbers cant be right. If a landlord had to pay 20x-100x the monthly rent to regain possession of a property, it would crash the rental market of California. Most simple evictions can be finished within 90 days if all you seek is possession of the property.

    The "going rates" for cash for keys on a residential foreclosure could be what you are thinking of. Some foreclosure cases can take years. Evictions are much quicker.   

    0Reply
  • Ben Stewart
    Rental Property Investor · Chicago, IL · Member since 2017 · 14 posts · 4 votes
    8y

    I'd say present the financial facts and offer them another $5k from your original offer or you are going to go the OMI route and let them know exactly what they will get.

    0Reply
  • Brian Schmelzlen
    Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes
    8y
    Peter, you would think so. California, and San Francisco in particular, tends to do a lot of things that are anti-business, and there doesn’t seem to be significant consequences on a macro level as a result. The appeals of California keep a lot of people here despite some of the craziness.
    0Reply
  • Michael Kovac
    Rental Property Investor · San Diego, CA · Member since 2015 · 107 posts · 37 votes
    8y

    The buyout depends on many factors, including length of tenancy, the rent-differential between current rent-controlled rate and market rate, the relationship of the tenants and whether the landlord can evict for cause or implement a no-fault eviction. It all depends on how hard the tenant wants to fight and how big of a case the attorney representing the tenants wants to build. We have seen a large amount of tenant buyouts resulting in both parties seeking legal representation more recently. At the end of the day it is a negotiation between the two parties.

    0Reply
  • Michael Julian
    Investor · Franklin, TN · Member since 2015 · 70 posts · 33 votes
    8y

    What's the point of a month to month lease if you are forced to renew it? No wonder I see so many Ca tags on cars moving to TN....

    2Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    What about providing a solution outside of just a dollar amount. Set up something all inclusive, find them a spot, pay x amount of rent (year?), set up movers etc. Or maybe they just want some cash and movers/storage.... 

    It's hard to put a value on time and many people don't factor it at all when considering things such as a move. Even if you spent say 25k to move them out asap, that could be far more valuable than 20k and months long battle.... which could cost more than a fixed cost.

    0Reply
  • Brianne H.
    Investor · Calgary, Alberta · Member since 2016 · 168 posts · 123 votes
    8y

    Thank you for the explanation. You poor people in California, I don't know how landlords can ever win with so many restrictions (just took a gander at the tenant's rights in SF). Is the OMI process $16k because the LL would have to pay certain fees and costs to them? But not able to re-rent for 5 years afterwards right? 

    As the LL already offered cash for keys, does that affect the ability to do an OMI as it could then be considered an eviction in bad faith? These tenants have a screaming good deal on rent and they know it. They won't be going anywhere easily unfortunately. 

    0Reply
  • Will Lee
    OP
    Irvine, CA · Member since 2016 · 18 posts · 3 votes
    8y

    @Brian Schmelzlen @Matt K. @Michael Kovac @Ben Stewart  any all that responded, thank you for your input. We are going to to with the Lawyer route to determine the best course of action.  The OMI route although time consuming, may make the most sense at this point.   We may try to break it down for the tenants via the lawyer, to help them realize what we are offering is a better deal since they will be evicted anyways via OMI.   

    Thank you all again and thank you BP!

    Will

    1Reply
  • Calvin Kwan
    Oakland, CA · Member since 2015 · 246 posts · 127 votes
    8y
    If you OMI, you have to live in the unit for at least 3 years and can’t re-rent for over previous rent for 5 years after eviction. Previous tenant also has first right if you rent the unit out before 5 years at previous rent. SF is extremely strict and tenants are saavy. 100k buy-outs are definitely not uncommon and wrongful eviction lawsuits happen a lot. If tenants are protected status, you’ll have even more trouble. Don’t threaten to evict, it’s illegal. If you’re going to do it, just go through a lawyer. Good luck. I researched buying in SF, but the rent control is too crazy.
    0Reply
  • Bryan Zuetel
    Attorney · Orange County, CA · Member since 2017 · 242 posts · 99 votes
    8y

    Although I don't know the specifics of what the tenants saw as $100,000 for cash for keys, one such requirement in San Francisco was recently declared unconstitutional: http://sanfrancisco.cbslocal.com/2017/03/22/appeal....

    0Reply
  • Raimondo F.
    Investor · San Francisco, CA · Member since 2015 · 23 posts · 25 votes
    8y

    @Will Lee I hope you have not talked to the tenant of $$$ to move out. You need to register in advance of any buyout conversations. Read here: https://www.sftu.org/buyouts/

    If your tenants will sign up an attorney, just that action of talking to them without registering your buyout intent, may cost you an extra $30-$50k.

    You really do not want to end up in this group of people: https://www.nbcbayarea.com/investigations/I-Unit-S...

    BTW there's also some legislation under work that may make things even more complicated: https://48hills.org/2017/06/tenants-protest-farrel...

    And finally, watch out for a "disaster" like this one below.

    http://greensteinmcdonald.com/tenants-win-record-3...

    You can do an OMI only if you plan to use your apartment for yourself and for the foreseeable future. If you want to go down the route of buyout, be aware that as soon as your attorney register with the Rent Board, your tenants will receive unsolicited phone calls from the best tenant attorneys.

    Consider to join SPOSFI (https://www.smallprop.org/) as a small property owner in San Francisco.

    0Reply
  • Llewelyn A.
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    8y

    Wow..... And I thought NYC was crazy! Finally, I found an even crazier Tenant/Landlord City!

    Joking Aside, one of the reasons why Apts are so expensive in cities like SF and NYC IS because of rent controls! It works like a lottery system where if you get an apt, you can make money and according to those tenants, as much as $100k or more!

    NYC has over 1 Million rent control apts, greater than the whole population of SF. So maybe we are worse just because of the amount of apts that are rent controlled.

    Although I own more than 25 Apts in NYC..... I avoid rent control like the plague. But it certainly drives up the value of Market Rate apts and the vacancy rates are extremely low, 3% here in NYC.

    @Will Lee I wish you good luck and hope that the Seniors will just take the money and use it as a down payment somewhere that they can afford.

    0Reply
  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    8y

    @Will Lee - When you say flat, is it a condo? Or is it a TIC or a unit in a multifamily building and the landlord owns the entire building? If it's a condo, since the tenants moved in after 1996 there is no rent control, only just cause eviction. You'll have to give 60 day notice for an increase of over 10%. Take a look here:

    https://www.sftu.org/rentcontrol/

    Since the elderly couple has not lived there for more than 10 years, I do not believe they are a protected tenant but once they are protected, you'll have to be careful on what you do as well. 

    The amount of cash for keys just depends on the negotiations between the two parties and the financial upside of the vacant unit for the landlord. For example, low rent occupied homes in SF sell for a discount. Let's say you can realize an additional $300k if the house was vacant, is $100k buy out worth it? Of course you wouldn't start at $100k but many times the numbers work and the landlord will do it. However, there are tenants that will never accept a buy out as they like where they are and have no where else to go for the amount they can afford.

    I really would recommend finding a SF based lawyer that does real estate landlord law, not tenant law to get your options on what can be done with raising rent or if you want to move into the unit. There are plenty to choose from on Yelp with great reviews.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    I do not understand why some enterprising individual has not offered there services to landlords to strategically "remove" these tenants.

    There must be some morally flexable landlords that would be interested in paying less than 100K to get these people out.  

    0Reply
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