Cash 4 Keys only option, not able to evict in CA
Hi BP,
I'm in the process of purchasing a duplex in LA. The owner passed and left the house to her 95 year old sister, who is selling it. The front unit is empty, but the back unit has been occupied by a couple and their mother for 10+ years. They pay a ridiculous $650 in rent. I opened conversations of what's to come - complete renovation of both units, including foundation repair on the front. I asked them what they were thinking about a relocation fee and they came back to me with $50K. I told them that was about of my budget and I was looking more at $15K. They took a few days to think about it and said they could do $40K. Needless to say, I think this amount is insane.
Based on a conversation with LA County Consumer & Business Affairs, I was under the impression they qualified for relocation assistance amounts under the guidelines they set. After speaking with LA County Housing & Community Investment Dept, they said that's not the case. That only applies if I evict the tenant, which based on my reason (renovation), I cannot evict.
Has anyone had a similar experience? Is it true I can't evict (putting aside eviction moratorium)? It seems crazy that a tenant can just stay in the house if a landlord wants to renovate and will only leave if they're given a ridiculous amount of money. Any insight would be helpful, even if it's to contact a lawyer. With that being said, if we can't come to an agreement, I'm ready to cut my losses and walk - I won't be giving this tenant $50K. Thanks!
I'm glad my rental properties are in Texas. I don't know how people make a living in California 🙄.
From my experience in the SF Bay Area, and from stories I've heard, $50k isn't uncommon. It's a function, also, of where their rent is versus market. They have a plum deal @ $650 a month, and it's unlikely they can find comparable housing anywhere nearby on the market. Right?
The state has inadvertently created a situation where they don't own the land, or the building, but they do have ownership of something pretty valuable (a regulatory controlled access to housing that they can sell to you, if you're willing to pay). I find a lot of multifamily deals with low rent tenants CAN make economic sense to shell out this kind of money to get them out. When you pay $50k to remove a tenant paying $650 but market rent for that same unit is $2295 and the market trades between a 4 and a 5 cap (let's call it 4.75%), then the rental INCREASE alone is valued at over $400k.
The issue here, in my mind, is that increasing the rents from the duplex doesn't automatically increase the value in the way that an apartment building might. But these tenants are benefitting from the fact that it CAN make sense in a large apartment building, though it perhaps does NOT in a 4 unit or less building ...
@Jennifer A. This is standard, and talked to an investor in LA/OC about this type of situation about 2 months ago on a property in LA. Cost him $85K for each person in each unit on the duplex, $55K for one and $30K for the other due to living in the place for 10 years or more LA states it's life tenancy and you have to give them 365 days notice to evict if they fall within the criteria to evict.
On the other side of the coin, the people agree to the handsome $40,000, and stay within LA/OC, they will lose more money on their move out and move in expenses along with raised rent which does not make it worth it for them. Talked with an investor that deals with LA only just a couple days ago about a Triplex in LA; which is the same situation you are in, and he passed on the sale due to knowing he would have to pay each tenant $20K-$50K each. Unless that property was priced 50% below market he was out, and that is standard for him which he deals in that space all the time. He paid a person $36K to get out of one of his units, the person called him 6 months later stating they should have stated because within the first year of rent increased due to moving and all the other expenses they would be paying $50K out of pocket.
The conclusion would be get the property for a lower price, or be content with paying that $40K and doing your plained execution for the deal to make more money.
