All Forum Posts by: Francis A.

@Richard Rountree 

Good stuff, stay motivated! 

PS: Shouldn't there be a "Jr" after your name?

Hi -

I'm wondering if anyone has any info (recent or otherwise) to expound upon with regards to financing on 5+ residential units. 

IE: 

- How commercial financing differs from conventional (duplex, Triplex, 4 plex)

- What are the various downpayment stipulations, percentages [down], combination [if applicable] etc.

-  Is there a version of the "owner occupied" in the commercial space and if so what does it  (or do they entail) etc?

- Do different interest rates apply to commercial (5 units+ residential) and non commercial (duplex, Triplex, 4 plex)?

- Any other "off the beaten path" nuances THAT DO NOT OCCUR IN NON COMMERCIAL that are unique to commercial that one needs to be aware of etc etc.

- Anything else that would be helpful...

Thanks so very much!!!

@Shane W. 

@Amen

@Cool news!

@ This is really just "down the street" from you. 

@Josh Prince 

     Originally posted by @Josh Prince:

     Hi @Francis A. - I am not trying to make this contentious. Glad to hear your thoughts.

I knew you weren't being contentious. 

By contentious I was saying that the new lease and bullet points I proposed were actually a practical solution if wielded right - a way to transition positively from the legacy (existing) tenants from the seller to the buyer (new owner)  while respecting the upstanding existing tenants and dealing with tenants who refused to respect their end of an agreed upon bargain. IE: making life difficult for everyone associated with the apartment building they were living in.

In the end 'rent control' and non rent control even out in the sense that for example… you can't rent out a "non rent control" $1000 apartment for $1500 in a neighborhood that won't fetch that kind of price.

And then by the same token, owning a "rent control" $1000 apartment in a neighborhood that will support  a $1500 price of that same apartment in the right neighborhood can be be awesome. Especially, if tenants transition out every 2 years. Meaning the building has to be located in an area where tenants transition out apartments is fairly common. 

I would rather go for owning the rent control $1500 apartment knowing that I have a higher ceiling.

Rent control can be a good thing. You just have to look through the Kaleidoscope differently from the way others are looking through it. 

@Josh Prince 

       Originally posted by @Josh Prince:

       In Los Angeles, you can evict a tenant with a rental agreement for failing to sign a 

      new agreement that is similar to the old agreement.

       Does this let you force a tenant on MTM into a 1-year lease? Yes.

      However, I do not believe you are within your rights to threaten eviction because 

      the    tenant will not sign a lease that imposes new obligations or restrictions on 

      the  tenant, such as late fees, curfews, non-smoking (when the tenant was allowed to 

     smoke before), etc.

     I think if you proposed that a tenant sign a lease like this or leave, and they went to 

     the housing department it would be viewed as coercion or an illegal eviction. 

     @Francis A. - Have you had experiences that indicate otherwise?  

This isn't meant to be a contentious situation. The great thing about Real Estate is that no two situations are exactly alike. 

I actually think that having a "rent control" building is a great marketing tool (in Los Angeles at least) if you handle it right. Tenants LOVE rent control buildings.  And in LA depending on where you buy, you can have tenant turn over every year due to various factors (graduation, job relocation etc).

I am not advocating kicking out month to month tenants in "good standing".  On the contrary they are an asset as you transition into owning your newly purchased building. Now if you had a month to month tenant who "broke all the rules" (excessive noise/unreasonably disturbing the neighbors etc etc), you are within your rights to mutually resolve this with said abusive tenant using some of the pointers I outlined earlier.  And of course, consulting a reputable evictions Real Estate attorney would be the first thing on your list before you made ANY move.

Paying tenants to leave (if the situation requires it) is quick and painless. The main thing is not to see a rent control building as a detriment. Anytime you have a tenant move is a great opportunity to upgrade and place that newly vacated unit in the upper 1% of what rent in that particular area allows.

I hope this helps in clarifying my earlier thoughts. 

@Lee L. 

Disgruntled tenant? Nooo. You're too nice for that! :-)

You would have consulted with your Real Estate attorney to draft up your new lease before doing anything. This is a non negotiable check list item for you.

We both know that every tenant signs a lease in order to get the keys to an apartment. You did too when you were a renter I'm sure (unless you have never been a tenant before). If so lucky lucky you!! ;-)

I don't think you will just hand any old body the keys without doing due diligence. And you certainly want to make sure that the very nice tenants who remain in the building you just bought will want to commit to at least another year. 

When you walk into your multi building situation there are most like likely going to be 1 of 2 things going on.

The existing tenants will either be living there "month to month" (meaning their existing leases have expired and the seller (your seller) hasn't re-signed them to new leases, or…the remaining tenants will be still signed to (your seller's) leases, however, those leases will be running out (IE: 6 months remaining on a 1 year lease).

AFTER you purchase the buildings, you certainly will NOT be using the now former owner's leases to re-sign the tenants to what now should be YOUR lease. 

Don't forget, a lease is basically a document that says "I the landlord promises to provide you with a hospitable place to live and you the tenant promises to treat is as such. You won't trash the place or turn it into a hostile environment to your neighbors who happen to be tenants also and upstanding tenants at that".

And btw, you will have consulted with a Real Estate attorney (not just any attorney) to go through your new lease that reflects the terms and conditions that you, the new owners needs (to operate what I'm sure will be a nice apartment building). 

The bullet points I listed will be bullet points that reflect how you would like the building to be in order for YOU to provide a (like I said) hospitable environment for all.

Some folks prefer non smoking apartments. You have the right to provide non smoking apartments. Without going overboard, you know that in places like Los Angeles, that's actually good business sense and "good health sense" so too speak. 

The existing tenants may not want to stop having parties that go on way past 12 mid night on a tuesday. In that case, you and said tenant will have to mutually decide what's best for each of you and the rest of the upstanding tenants who suffer from all the party noise.

Now that's where "disgruntled" coming in to play when the music comes blaring into the next door neighbors walls when he/she is trying to get some sleep before waking up and going to work at LAX at 5am..  ;-)

I hope this made sense. 

@Mario Lara 

This is how a couple of investor's I know see your situation about rent control. 

In addition to what @Moses Kagan  says, the biggest thing that I see (after doing a bit of homework) is that walking into a situation with pre existing tenants in a rent control building (who handle their rental obligations in a timely manner) is a positive one from the viewpoint that you walk into a situation with pre existing income to service your (debt) mortgage right out of the gate.

So let's say those tenants are under "rent control" stipulations which means you can't go and raise their rents over 3% of what existing rents are. No harm no foul so long as they fulfill their contractual obligations (ten, utilities etc) and stay in good standing.

Moving forward (say after 6 months to a year.. or whenever is right for you), you are going to want to re sign these tenants to long term leases (1 year at least) using YOUR OWN lease.

And since you're interested in making sure that existing tenants (and future tenants) don't downgrade your investment by making it less hospitable for their neighbors (RE: your other tenants in good standing) you will include some of these stipulations in your lease (and pre screening conditions - for new tenants).

- All Units will become NON SMOKING units. (Cleaning cigarette stench from an apartment isn't easy and doesn't come cheap. We won't discuss the health aspects).

- ALL tenants over 18 - 21 years of age ( your call) who occupy any unit must show proof of income - meaning they must show proof of a W2 job. No exceptions.

- All tenants over 18 - 21 years of age will have to sign separate leases EVEN IF their parents live in the same apartment. (This goes a long way in saving you major headaches - IE: Friends entering and exiting the apartment at all times, drinking on the premises, disorderly behaviors of the horror story kind, etc.

- NO parties on building premises after 8PM on weekdays and NO parties/noise on premises after 10PM on weekends.

This list goes on… but you get the point. 

Some existing tenants are going to respectfully disagree with you and opt not to sign your new lease and vacate the premises at a mutually agreed upon time. 

So for example: Unit #1 that lists for $1000 is vacated. You now have the choice of going in and rehabbing it, paint, new floors, whatever needs to be done to spruce it up and make it competitive to existing units in your area.  All of a sudden www.rentometer.com says you can rent out at $1100 and expect reasonable offers to rent it.

Or you go further and offer this newly refurbished apartment as "partially furnished" (Fridge, Stove) or fully furnished (Appliances, Bed and mattress). Now you're on the upper range of potential rent - $1200+.

Yes, you would not have been able to increase rent on the former tenant in the $1000 unit to $1200 plus. However, by starting off the newly refurbed unit out at $1150 - $1200, you have a trade off which you can live with.  Instead of adding a yearly (up to 3%) rent stabilized rate to the $1000 apartment, you're now starting off at your new rates with tenants who most likely will stay more than 1 or 2 years at your new rates (plus 0 - 3% depending on what your increases are).

Finally, there are rent ceilings in non rent control areas also (RE: what #s the market will bear) and so rent control area or not - it all evens out at some point - when you come in as a new owner of a rent control building.

Good luck!

@Jay Hinrichs 

I have friends who live in Lake Oswego. Great place to live!

You might have read this but I'll post it anyway. It's an interesting article I posted on another topic (accessory dwelling units aka grandma flats) that might be an interesting read for folks up in Portland.

http://www.nytimes.com/2014/05/08/garden/grandma-n…

@Larry Fried  

Eugene is pretty darn nice too. Just so you know, I was hoping Oregon would strut their stuff. Oh well. 

My regards to Uncle Phil! :-)

@Eric Zunkley  I forgot to add that in more cases than not, issuing a new long term lease (1 year ) with new stipulations won't be met with enthusiasm. Truth be told the new stipulations are (9 times out of 10) instituted to help YOU improve and protect your new investment - while taking care not to be a "tenant unfriendly" landlord. Most old tenants would rather opt to vacate the unit (within a reasonable time frame) than sign up to your "new and improved" lease. 

Here is NYTimes article that provides another view to your problem.

http://www.nytimes.com/2014/05/08/garden/grandma-n...

@Eric Zunkley @Josh Prince is right. Demanding vacant units may not have much traction but there might be simple work arounds and/or solutions. 

From what I've seen so far and have been told by my realtor who owns over five multi units himself, multi units are generally harder to move than SFRs so…. at least - ASK - your seller if she/he is willing to look into vacating that unit in question. 

Two weeks ago, I made in inquiry into a 4 plex building (1/1 x 4) just south of downtown Los Angeles that is fully occupied. The seller was definitely open to delivering the building with at least one unit for me to occupy and possibly two units vacant so asking won't hurt. 

Asking the seller to vacate unit has to be taken on a case by case basis.

I agree that you should also attempt to turn the illegal unit on the property into a negotiation advantage for you.

I too dealt with illegal unit issue (accessory dwelling unit) when I first started hunting for multi units to buy. Bear in mind I was looking to do the reverse of what you're doing. I wanted to see if I could legalize the units. It was too much work but nevertheless, see if you can get some insight. 

Check out this site.   http://buildingpermitslosangeles.com

Email JOHN who runs it with what you're looking to do. He can offer valuable insight. He's super busy so if you haven't heard from him in 24 hours after you send your email, PM me and I can email his assistant to help you.

Here is another one. She works with building to navigate the building permits maze and is is also an architect. I'm sure a phone call won't hurt with regards to the recourse you need to take.

Jamilah A Haygood Architect |  Tel: 310.801.0330 | www.buildingpermitexpeditor.com

One more thing. If the 4 plex you're attempting to buy has the tenants on month to month (you should definitely know that information), don't forget that you can solve this problem when you notify them that you'll be signing them up to new leases with new stipulations and regulations (IE: Newly non smoking allowed units, Each adult over 18 needs to sign a lease in order to live in the units, No parties after 9pm [which can be huge in Los Angeles] etc etc).

Good luck!