Cash 4 Keys only option, not able to evict in CA

53 Replies

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!

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Hmmm, is it just me that I would be okay with paying that 40k depending on where the duplex is located in LA? Plus it will be an empty duplex aftewards? Score! Appreciation is crazy, that 40k will be a penny's drop in the future. LOL. I heard someone demanding for 325k in the Bay Area and getting it! Average buy out cost in SF is 48k according to the article below. 

https://socketsite.com/archive...

How much and how often can you raise rent? If they want to live in as is while you continue to raise rent and fix the other. Figure out how many months it would take at a higher rent to recoup that $40k. If it’s more than 2 years I’d just raise rent and carry on. 

Do you get more rights as an owner occupant if you move in to the vacant unit? Can you move in to the vacant unit and then move a relative in to the other unit?

@Nicholas L.  I'm not sure when their lease is up, still investigating.  Market rent is about $1600-1800.

@Nathan G. Prepared to pay but you don't think $40K-$50K is a bit much when they've only been paying $650?  I was prepared to pay just not at that level.  Relocation assistance matrix for 2 bedrooms is max. $15K, so that's where I'm coming from that I think it's unreasonable.  I live in CA not WY, so ridiculous or not, it is what it is for this state.  

@Bill Brandt I don't think they'd enjoy living that close to the other unit with the amount of work being done to it.  I believe rent increase is only 3% annually, so beginning at $650, it would take years.  I do believe if I or relative moves into the unit, they would have to vacate. 

Overall, it's disappointing but as I said, I'm prepared to walk if we can't negotiate something.  I just feel bad for the 95 year old owner, who will have to go through this with any other buyer.  But maybe someone else is willing to pay what they're asking.  

Best to spend a few hundred dollars and run this by a lawyer. I read somewhere that since COVID, the state has modified over 200 laws related to housing. No idea if that is true, but given the number of changes I've seen, it wouldn't surprise me. 

I thought that ~$20K was the max payment in the City of Los Angeles. For mom & pop owners, it was ~$16K. Those were the max based on number of tenants, age, and income. 

Someone posted on these forums that the City of LA was looking to make cash for keys illegal. No idea if that was accurate or if it happened, but if it did, I can see offering more than the max amount a violation of this law. 

The real information we need to know, to see if this is a good deal or not, are:

  • What will the unit rent for when rehabbed? Basically, how long to recoup your payout?
  • Does the purchase price reflect the fact that there is an underpaying tenant and/or there will be a relocation fee. If not, is the seller willing to negotiate? 

@Jennifer A.

You could ask an attorney how long your relative has to live there. I’m sure there are a ton of 18 year olds that would live there for free for a year. You lose $650 x 12 (7800?) but save $40k. Heck you could pay all their utilities because “they need help getting back on their feet” and come out way ahead. A year later you’d be ahead. 

@Greg M. I did plan on consulting with an attorney.  I'm just starting to do my legwork now and am not sure what's affected by COVID. The payout is different based on 3 categories (standard, senior/disabled, low-income) and the levels within those categories are based on bedroom #s. Max at 4 bedroom in any of those categories is $21K. Once rehabbed I think rent could go for about $2K.  The price reflected the underpaying tenant & trying to see if seller will negotiate.  

@Bill Brandt I'm investigating all of this and considering all legal avenues.

@Jennifer A. welcome to LA rent stabilized housing. Your situation is not unique and it does sound like this unit and the tenants are protected under the Rent Stabilization Ordinance (RSO). Because of this it may be near impossible to evict them and cash 4 keys may be your best option. 

One option you could look into would be to evict under grounds that you or a family member will occupy their unit. This is grounds for an eviction but you will still have to pay the tenants relocation assistance which can currently be as high as $21,900. Given that they have lived in the unit for over 10 years and their mother lives there as well, this option may not work though because of the following RSO guideline:

"If a tenant lives in an eligible unit but has continuously resided in the unit for at least ten years, and is either 62 years old or older, or is disabled as defined in Title 42 United States Code Section 423, or is handicapped as defined in Section 50072 of the California Health and Safety Code, the tenant is protected and the landlord cannot evict for an owner, relative, or resident manager move-in."

If this is the case then cash 4 keys will be your best option and the amount they are asking is not unheard of by any means. I've done a few of these with the majority falling in the $20k-$25k range and one that I paid well north of the $40k they are asking you to pay. In all instances the deal was good enough for me that paying the tenants these amounts made sense. You just have to run your numbers with this expense in mind and see if it still makes sense for you. If it only works at $15k and they want $40k, best to walk away and look for another deal.

If you would like to speak to an LA attorney well versed in this stuff shoot me a PM and I can share my attorney's info. 

Best of luck!

This may or may not work, but I’d come up with a deadline for them to accept— something like Aug 1 or 15. My $15k offer is good until then and then it drops $1,000 per day until it reaches $0. Then, I’d find another way to get them out with $0 paid to them — such as having a family member move in, or whatever else your lawyer advises. 
They’re really abusing you — CA or not. Beware that some tenants trash their apartments when they leave. Sledgehammers, small fires, etc.  Maybe run a deep background check on them to see if anyone in the family has a record before you engage with them.  Can be done online or via private I. 

@Jennifer A. @Nicholas L. the tenants lease never expires under RSO even if the fixed term has ended or is currently month to month. 

Below are the most recent LA relocation amounts and definitions for qualified vs unqualified tenants.

  • Qualified tenant – A qualified tenant is any tenant who on the date of service of the written notice of termination is 62 years of age or older; handicapped, as defined in Section 50072 of the California Health and Safety Code, or disabled, as defined in Title 42 of the United States Code, Section 423; or who has one or more minor dependent children (as determined for federal income tax purposes).
  • Eligible tenant – Unless a tenant is a qualified tenant as explained above, the tenant is an eligible tenant and is entitled to receive a relocation assistance amount that depends on length of time in the unit and income.
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It may be outside of what you are asking, but with increased tenant protection due to COVID I would also recommend checking out SB-91 (Senate Bill 91) which had rent increase & rent nonpayment verbiage. 

In many markets that are not regulated like L.A., you can simply raise the rent right away to a market rate. Or even give them notice to leave.  I believe Los Angeles has a form of rent control.   Rental increases allowed are less than 10%.  

Long term rent controlled tenants almost have a type of ownership of units.  40K sounds like a lot, but offer them 25K and see if they'll take it.  It's part of the business there.

@Steve Buchanan Thanks for all of your info. I appreciate the idea of stabilized housing and am fine with fair payout.  What fair is, seems up to interpretation.

If there is a lease, does it matter if she's on it and how long she's lived there?  I am feeling like cash 4 keys will be my best option.  Preliminary #'s tell me that going up to $40K won't be worth it, unless the seller contributes.  

Serious question. Why would anyone in their right mind invest their hard earned money in such an over regulated environment? Masochism? Everyone knows it only going to get worse. Does anyone but me think giving some renter who has had a bargain basement rent for 10 years 40 thousand dollars to move out is ridiculous? Even if it makes economic sense it's certainly immoral.

Why not just invest the money in a syndication in a normal state? 

@Gary L Wallman When your property has the potential to appreciate 200k - 500k plus in under five years in a hot market, you'll understand. That equity can be used for even more investing and snowball your portfolio even more. That $500/month cashflow for a couple of years out of state doesn't even touch that. I'm so glad I didn't invest out of state.  The appreciation factor is amazing. 

Originally posted by @Jennifer A. :

@Steve Buchanan Thanks for all of your info. I appreciate the idea of stabilized housing and am fine with fair payout.  What fair is, seems up to interpretation.

If there is a lease, does it matter if she's on it and how long she's lived there?  I am feeling like cash 4 keys will be my best option.  Preliminary #'s tell me that going up to $40K won't be worth it, unless the seller contributes.  

Whether she's on the lease or not likely won't matter much. If she has been living there for some time she likely would be considered a tenant. Before purchasing the property you could try and get an estoppel signed by the tenants and see if they include her in the list of tenants. I'm guessing they likely would include her but if they don't then later on you could make the case that she isn't on the lease AND wasn't mentioned in the estoppel. Even then you risk losing in court especially given that the lady is older and has likely lived there a while.

My advice would be to try and use the current owner's good will, and hopefully good rapport, with the tenants and see if she can work something out with them BEFORE you take possession. Taking possession of the property fully vacant should be your goal unless you are ok with the $650 rent (+3% increase) for that unit. Taking on this property in hopes that you can negotiate a way for them to vacate later on is a risky proposition. 

I would just wait until the eviction moratium is over and see when there lease is up. If they been there for 10 years they are probably month to month now. I would not spend 40k. Only place i heard of spending that much is places like San Francisco where they have "Protected tenants" for people who lived over 10 years. I haven't heard of anything like that in socal. Just tell them if they are month to month that courts will open up soon and its either take the 15k now or get nothing later and be evicted. 

Originally posted by @Gary L Wallman :

Serious question. Why would anyone in their right mind invest their hard earned money in such an over regulated environment? Masochism? Everyone knows it only going to get worse. Does anyone but me think giving some renter who has had a bargain basement rent for 10 years 40 thousand dollars to move out is ridiculous? Even if it makes economic sense it's certainly immoral.

Why not just invest the money in a syndication in a normal state? 

Working in such a regulated environment definitely has its challenges and is not for the faint of heart. That being said, all the red tape makes it such that those who learn to navigate through it and become good at overcoming the many obstacles (legally!) can have a competitive advantage and create some nice opportunities.

And as @David Lam mentioned the appreciation and subsequent equity gains we see in CA can make it all worthwhile. 

Originally posted by @Steve Buchanan :

@Jennifer A. welcome to LA rent stabilized housing. Your situation is not unique and it does sound like this unit and the tenants are protected under the Rent Stabilization Ordinance (RSO). Because of this it may be near impossible to evict them and cash 4 keys may be your best option. 

One option you could look into would be to evict under grounds that you or a family member will occupy their unit. This is grounds for an eviction but you will still have to pay the tenants relocation assistance which can currently be as high as $21,900. Given that they have lived in the unit for over 10 years and their mother lives there as well, this option may not work though because of the following RSO guideline:

"If a tenant lives in an eligible unit but has continuously resided in the unit for at least ten years, and is either 62 years old or older, or is disabled as defined in Title 42 United States Code Section 423, or is handicapped as defined in Section 50072 of the California Health and Safety Code, the tenant is protected and the landlord cannot evict for an owner, relative, or resident manager move-in."

If this is the case then cash 4 keys will be your best option and the amount they are asking is not unheard of by any means. I've done a few of these with the majority falling in the $20k-$25k range and one that I paid well north of the $40k they are asking you to pay. In all instances the deal was good enough for me that paying the tenants these amounts made sense. You just have to run your numbers with this expense in mind and see if it still makes sense for you. If it only works at $15k and they want $40k, best to walk away and look for another deal.

If you would like to speak to an LA attorney well versed in this stuff shoot me a PM and I can share my attorney's info. 

Best of luck!

 Interesting the RSO does not apply to units built after 1978. Luckily my rentals in LA were built 1990+.