Los Angeles Rent Control

[Chris Collins]

I’m about to go under contract on a deal in the city of LA. It’s a 4-plex with month-to-moth leases in place with well below market rents. The seller insured me that he can deliver the building vacant at COE, which would allow me to mark rents to market without buying out any tenants.

What should I be concerned about here owning a rent controlled property if I can raise rents after doing a rehab by 50% in year one. Obviously, we have to be careful about CPI adjustments but what am I missing?

Appreciate everyone’s help here.

[KJ L.]

Hi Chris, I'm going to strongly recommend you to speak to a landlord friendly real estate lawyer that understands Los Angeles rent control so they can go over your potential property eviction and rent increase options with you if your property is not delivered vacant. Even though owners promise they can deliver vacant RSO properties, it's primarily dependent on whether the tenants are going to accept a cash for keys offer and leave because unless the tenants have broken the lease agreement, they are doing illegal activity, or the owner is taking the units off the rental market, the owner doesnt have many options to remove the tenants.  Make sure that your contract states that escrow closes only once the tenants are out OR negotiate a price reduction per unit that has a tenants remaining; the average cost for eviction of a unit ranges about $20k-$30k.  

I would also suggest that you call HCIDLA and double check that your prospective property's RSO fees are up to date and if theyre not, make sure the owner covers them before the close of escrow. The prior owner of our duplex did not pay the RSO fees and they ballooned to $3k+, luckily we caught it before the close of escrow so the owner paid them before transaction finalized. 

Because Los Angeles Rent Control is so strict, make sure you have extremely TIGHT leases for your future tenants which will protect you in the long run. I dont know if this is the information you were hoping to receive but hopefully it helps. Let me know if you have any questions. 

Where is your property located?