Re: What would you do with a lifetime leased unit?

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Re: What would you do with a lifetime leased unit?

Mabel L.
Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes

I need some input for a SF specific situation that no one but those who knows the tenants laws in SF could possibly understand:

I purchased a 1 bdrm TIC to live in, moved back home temporarily (so I thought) when my mother was sick, rented it to someone who knows & maxes tenant's rights laws and was grandfathered in with a lifetime lease when we went through the expanded condo conversion. It's been 8 years, I really do want out of this but not quite sure what is the best financial option. Do I...

Option A: Sell like 50% under-market value with tenant (who will surely let buyers know she is a lifetime tenant).  If I do a buy-out, I am working on an informed assumption based on her past history that she will ask for so much that it's like selling it for 50% under market.

Option B: Sell to tenant like 70% under market value knowing well she will turn around and sell the unit for market value making a better profit than I? (The 70% guess comes from 2 different realtors who thinks she would probably agree to that price point)

Option C: Keep hanging on hoping she will want a bigger place, get married, have kids and move.

Option D: You tell me!

About the tenant:

-Single, early 30's.

-Pays on time, takes care of the place but I have had to relocate her twice and she demanded max payment and faked disability to get more money.

Thank you in advance for anyone willing to chime in!

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Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
8y

I’m familiar with the expedited condo Pgrm. The “lifetime lease” is iron clad- no evictions allowed. Basically you’re screwed. (Sorry.)  

One thing you don’t tell us is how much under market is her rent now, and how big is the unit?

Based on that, your best 2 choices are:

1- wait her out, pray she moves out eventually 

2- attempt a buy out agreement. May not be worth it, as you need to weigh the rent differential vs buy out payment total (could easily be a 10-20 year payback schedule, which is not worth it IMO.)

At any rate, if you get serious about a potential buy out, definitely get a qualified lawyer before you begin any negotiations with her. Buy outs are now registered in SF, so you need to follow the process. 

Lastly, DO NOT make any cosmetic improvements to her unit! Just do the most minimal maintenance required by law. And don’t be intimidated by her “lawyer friend.” You’d be surprised that only safety, heat, hot water, basic functioning appliances and keeping the place dry are the main things you must upkeep. You have no requirements to paint, recarpet, nicer counters, cabinets, etc!  Don’t make the place any nicer than it need be. And DO NOT allow here to make ANY improvements on her own, like painting, etc.  She will eventually get tired of living in a typical run down RC unit. 

Let us know about the rent she pays and the unit size, bedroom count. 

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  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Diane G. Hi. Is your condo conversion part of the 3-6 unit expedited program? How long did you have to wait, and how are things with the other partners on doing this? Or is this for the standard 2 unit conversion, which is still allowed in SF?

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Amit M.

    It is the ECP program which just ended in January....I believe we waited 6 years to qualify..We are a 5 unit building

    All owners are super motived so no issue at all there....

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Diane G. are non of those units tenant occupied? I thought the city “froze” those applications because the lifetime lease is getting challenged in court. (Or maybe those units were left “empty”...the smart workaround;)

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Amit M.

    right, "empty" units.... Lol

    1Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    Thanks @Amit M. and @Diane G. for your cautionary advice! Yes, I will celebrate when it is actually done! 

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Mabel L.

    when is her last day?

    0Reply
  • Patrice Pominville
    Rental Property Investor · San Francisco, CA · Member since 2019 · 7 posts · 1 vote
    6y

    What a nightmare. Glad it's finally over for you.

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    @Diane G. and anyone else following this thread (lol!), funny how things unfold the way they do...my tenant is finally gone but I have been unsuccessful at getting her lifetime lease unrecorded on title because of the Shelter in Place order and not having anyone process the paperwork! I was on a roll with signing on with an agent, getting estimates on work to get done, started to get some work done and then everything came to a halt due to SIP.  So, here I am with an empty unit, trying to push the unpushable to happen (can't get stager, photographer, etc) but it's ok.  At the end of the day, I am still so damn relieved, I am at last done with rent-control and my lifetime tenant!  Wishing the same for all of you who are in what was once, my shoes!

    1Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Mabel L.  - that is NOTHING compared to having a lifelease... HAHAH...

    Congrats...

    Why did she decide to leave in the end? Getting married, getting a new job?

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    She moved with her boyfriend (who I had prayed long and hard for to marry her and have babies so they would move out like 2 years ago! haha) out of state!

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Mabel L. good for you!...miracles do happen, even in San Francisco real estate ;)

    I once looked at the docs needed to remove the lifetime lease a long time ago, and it was very burdensome. Can you give me your review of it. i.e. does the tenant have to sign something? Does it have to be notarized? What other proof is needed? Or maybe it simpler now??

    0Reply
  • Lawrence LeungBusiness Member
    Property Manager · San Francisco, CA · Member since 2018 · 97 posts · 80 votes
    6y

    @Amit M.Goodness, how did I ever miss this thread? :)  Great advice as always!

    @Mabel L. Congrats on a very difficult situation. Your patience and hope for the small glimmer of light at the end of the tunnel materialized into a spectacular sunrise.

    I don't want to rehash everything that has been discussed, but was very informative and provide a glimpse of the challenges for anyone interested in investing in San Francisco. Investors in San Francisco will agree that it is a beast of an environment for Real Estate Investments, but if you are patient and understand the opportunities it can be very rewarding. For those that are interested in the HUGE benefits of Condo Conversion and to ensure they are best represented they should certainly reach out to either Sirkin or 3GMH. Both firms are unarguably the best when it comes to understanding and receiving help with co-ownership (TIC, HOA, Condo Conversions, etc..)

    For those that want to understand Lifetime Leases that are a direct result of the ECP (Expedited Conversion Program) discussed by Amit and @Diane G.when tenants are present you should check out the SF DPW FAQs on this topic. Although EPC is no longer available at the time of this post, the likelihood is that another program will be reincarnated in its place with similar requirements and challenges. 

    Amit, By the way, in the FAQ they discuss the process for removing the lifetime lease... "2F -- THE APPLICANT MAY REQUEST THE DEPARTMENT OF PUBLIC WORKS (DPW) TO FILE A NOTICE OF TERMINATION. UPON SUBMITTAL OF SUFFICIENT PROOF THAT THE TENANT VOLUNTARILY VACATED THE UNIT, THE CITY AND COUNTY SURVEYOR, AT HIS OR HER COMPLETE DISCRETION, APPROVE RECORDING A NOTICE OF TERMINATION OF THE OFFER OF LIFETIME LEASE."

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  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    @Amit M.

    Yes.  DPW outlines the following MUST be submitted (verbatim):

    An affidavit, signed by the tenant, stating that the unit hs been voluntarily vacated. The affidavit must be executed, dated, and acknowledged after the date of the written offer of lifetime lease.

    Suggested documentation includes:

    • A copy of the lease agreement showing the tenant's name and address of new residence
    • A copy of the purchase and sale agreement showing the tenant's name and address of new residence.
    • A copy of the most recent utility bill showing the tenant's name and address of new residence.
    • A copy of the voluntary move out agreement showing the tenant's name together with a copy of any consideration paid.
    • Or, other compelling evidence supporting the contention that the tenant has voluntarily vacated and terminated their tenancy.

    Unfortunately for me, my tenant wasn't very cooperative and wouldn't give me a tenant affidavit and insisted that her email documenting her intent to move-out should be sufficient.  I tried to ask in other ways; paid her her security deposit immediately and not once cent less, offered to pay for a notary to go to her, but she still wouldn't provide me an affidavit.

    Because of SIP, the department that handles this within DPW is closed so, I actually still don't know how this will turn out.  I guess this thread is still to be continued =(...

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Mabel L. hi, yes I just got Dpw’s doc for this process. I reached out to Dpw as well, as getting a notarized affidavit from a long gone and former tenant is a major PITA! Let’s compare notes as we get more info on this rather prickly subject. 

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    @Amit M. Congratulations to you too, then!  Didn't realize you were going through the same.  Yes, let's keep each other posted.  I do want to ask, you said you just got the DPW's docs...when exactly?  I thought they weren't open or working.  I've called their lines and no one answers.  I actually initially requested for the docs via email (as suggested by someone who took my call) but no one ever emailed me back anything.  This was I think the 1st week of March.  So I went to the office and that's how I got the docs.  Then SIP happened and like I said, haven't heard from anyone and haven't been able to get in touch with anyone.

    0Reply
  • Lawrence LeungBusiness Member
    Property Manager · San Francisco, CA · Member since 2018 · 97 posts · 80 votes
    6y

    @Amit M. and @Mabel L., I know both of you are trying to unravel from a lifetime lease, but for you and any other future investors that are looking at a condo conversion value play, we are developing a house hack strategy (not yet proven) to find properties to condo convert where you sell TICs to long term tenants (likely protected or disabled) to get the owner occupancy percentage up high enough to qualify for a condo conversion. The narrative for the tenant is appealing because they are likely living there for such a long time that they love the building, unit and neighborhood and ownership would be a life long dream. The added possibility of a bump up in equity over night is icing on the cake.

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  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Mabel L. I just emailed Dpw and got that 6 page doc. Not sure what else they can do via email, but it doesn’t hurt to try!

    FYI- in my case, back in 2015 when I condo converted, I had 2 tenants that had not interest in the lifetime lease. They were Upwardly mobile tech workers and didn’t need to milk the system:) So the “offers” expired. BUT, I’m still stuck with that recorded doc on the title report, and I’m trying to get it nullified/removed to clean up the title. 

    @Lawrence Leung interesting idea. Let us know if you gain traction with it!

    BTW, are you seeing comp rents in the city begin to drop the last few weeks? (I haven’t so far, but wonder if that will be changing soon.) Also the amount of rentals available haven’t soared (yet), I believe. What are you seeing?

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Amit M.

    I happen to have a unit becoming vacant on the eve of shelter in place order... Lol... Listed at $3000, had one person offer me $2800, one person offer me $2600.... Lol...

    on your 2015 condo convert, how many units in the building???

    @Lawrence Leung

    even though the lawsuit (by the Ohio couple) ended in 9/2019, DPW still has NOT open up applications from buildings with tenants...I thought that was surprising...

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Amit M.  @Lawrence Leung

    I also came across an article talking about buying small MFH, convert to TIC, and sell each unit off as TIC as each unit nautrally becomes vacant (ie, tenant leave himself)... what is your thoughts on that strategy?

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    I considered re-renting but I was really surprised by the some of the rents offered now.  It's at least a few hundred dollars cheaper.  Maybe neighborhood specific since @Amit M. you haven't noticed a drop yet.  

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Mabel L. I think you and I are experiencing the same thing now.. Lol

    It will be over soon, or so I hope....

    0Reply
  • Lawrence LeungBusiness Member
    Property Manager · San Francisco, CA · Member since 2018 · 97 posts · 80 votes
    6y

    @Amit M., @Diane G. and @Mabel L., I've seen similar.  The properties where the owners agreed to lower a couple hundred have seen good steady interest, conversely those properties where the owners want to hold steadfast and wait out the SIP have seen little to no inquiries.

    @Diane, Selling off as TIC is a solid strategy that can get you a good return, whether you sell it vacant or with tenants in place. The downside is that waiting for a tenant to vacate can be a very long proposition eroding your ROI over time. The strategy we are exploring is more immediate as it hones in on the properties that have challenging tenancy situations and convincing the tenants to become co-owners with the prospect of not only home ownership, but also the upside of increased equity post condo conversion. We use the former TIC sell off as more of a backup plan as our ultimate goal is separate APNs :)

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  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Diane G. my bldg was 3 units for the ECP (I kept them).  as for selling off individual tics, that strategy has been around a long time in SF. Main issues are renovating units one off with people still living in the bldg, and having a mix of tenants and owners in the bldg (yin and yang...if you will ;) So as the owner you will probably have to manage all that.  

    * Do you know what happened with the Ohio tenants lawsuit? Did they win? Maybe it’s being appealed?

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    As for rents, I do see a moderate drop too, but I’m not sure if it’s due strictly to corona, or if it’s been soft due to early year seasonality (although things pick up by April, and get hotter in the summer.)  I think corona is definitely effecting the volume of prospects currently looking. 

    0Reply
  • Ivan Vasquez
    Contractor · San Jose, CA · Member since 2020 · 32 posts · 17 votes
    6y

    @Dan Redmond- interesting topic. Wasn’t aware of sf laws. My realtor always steered me clear from buying in sf... and I see why. Can you please share Andrew Zacks contact info? Nice to line up references when the time comes.

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