I inherited a four plex in a rent controlled building. One tennant is pay 80% below market and the other 50% below market value. The building is paid off but you still have taxes insurance and tenant issues
Not to mention since the new inheritance law prop 19 the taxes went up by 15k
What can I do about the under paying tenants? One has been there 15 years and the other 8. Can they just take over my building like that Im losing because of the tenants.
Property is in LA building is tent controlled.
There has to be something I can do. I want to pass it down to kids but it's not looking like a good deal especially with Prop 19
I can't do owner occupy it's last in first out, they are 1st and 2nd in and won't leave
That’s a really tough position to be in, especially inheriting the property and then getting hit with Prop 19. A paid off building in LA doesn’t automatically mean it’s profitable once you factor in higher property taxes, insurance, maintenance, and rent control restrictions. The tenants can’t just take over your building, but under LA rent control and strict “LANDLORD laws” in LA, long term tenants have strong protections. If they’ve been there 15 and 8 years, their rents are likely legally where they are unless you haven’t applied the allowable annual increases. It’s worth confirming that you’ve taken every permitted yearly increase, that the property is properly registered with LAHD, and that you’ve looked into any legal passthroughs for capital improvements or certain tax increases. Many owners leave money on the table simply because they don’t maximize what’s legally allowed.
Since you mentioned owner occupancy won’t work because of last in first out, this is where fully understanding the “LANDLORD laws” in LA becomes critical. Before making any major decisions, it would be smart to speak with a landlord attorney who specializes in LA rent control so you clearly understand all your options. From there, it really comes down to strategy. You could hold long term and gradually raise rents as allowed, negotiate cash for keys if it makes financial sense, sell and possibly 1031 into a market with more favorable landlord laws, or refinance if the equity supports repositioning. If your goal is to pass it down to your kids, it may need to be viewed as a long term appreciation play. But if the new tax basis under Prop 19 has made the numbers too tight, it might make sense to reposition now instead of carrying a property that continues to drain you. You’re not stuck, but you do need a clear plan based on the realities of the “LANDLORD laws” in LA. I truly hope this helps you. Should you need any further assistance, please do not hesitate to reach out, as I can help out the best way I can or point you in the correct direction.
Hi @Jacelyn Lo, I understand how frustrating this must feel. The tenants cannot take over your building, but under Los Angeles rent control you also cannot raise them to market rent or ask them to leave because the rent is low. Paying below market is not a legal reason for eviction. Unfortunately, you are limited to the city’s permitted annual rent increases, and removing a tenant requires a legal just cause such as nonpayment, lease violations...etc
In situations like yours, the most realistic option would be cash for keys, where the tenant agrees in writing to move in exchange for compensation. Otherwise, this becomes more of a long term strategy, gradually raising rent by the allowed amount each year while managing expenses as carefully as possible.
Oof, unfortunate situation. Aside from what others have mentioned, look into lawful passthroughs. Los Angeles allows certain additional rent increases for approved capital improvements and, in some cases, portions of property tax increases. With Prop 19 increasing your assessed value, that’s something worth reviewing carefully with a landlord attorney who works specifically with LA rent control.
I inherited a four plex in a rent controlled building. One tennant is pay 80% below market and the other 50% below market value. The building is paid off but you still have taxes insurance and tenant issues
Not to mention since the new inheritance law prop 19 the taxes went up by 15k
What can I do about the under paying tenants? One has been there 15 years and the other 8. Can they just take over my building like that Im losing because of the tenants.
Property is in LA building is tent controlled.
There has to be something I can do. I want to pass it down to kids but it's not looking like a good deal especially with Prop 19
I can't do owner occupy it's last in first out, they are 1st and 2nd in and won't leave
Advise you seek professional advice via a PMC or attorney.
Handling it yourself incorrectly, may cost your tens of thousands of dollars.
You can do an investigation to see if the tenants are breaking the lease for example subleasing or unauthorized occupants. These can give you a reason to evict and bring the units to market rate. I personally would never buy anywhere with rent control but know in NYC this strategy is popular, there is even surveillance software for landlords (check your local laws for what is allowed).
That is a tough spot. LA rent control is no joke—it's a minefield.
Don't try to DIY this. Seriously. If you mess up a notice or say the wrong thing, you could be stuck with them for a while. I'd talk to a specialized landlord-tenant attorney in LA immediately (not just a general real estate lawyer).
"Cash for keys" might be your best exit here. It hurts to write a check for $5k just to get your own property back, but if they are 80% under market, you'll make that equity back almost instantly once the unit is vacant. Just run the math on the buyout vs. the tax hit from Prop 19 before you do anything. Good luck!
Also, if it were me I'd sell and 1031 into another market.
Find out how much you can increase the rent by each year and increase them the max you can every year. In areas with rent control and long term tenants, it is not uncommon for their rent to be below market value as the maximum allowed rent increases don't keep up with the actual market values.
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