Thinking of purchasing an multifamily property as your own home or as an investment? Excellent choice! What a great way to build up your family's wealth.
While multiunit apartments are a great way to have rental income offset your monthly mortgage, you'll need a few guidelines to help you navigate the available sale listings.
Rent control was implemented in order to keep housing affordable since little new development is taking place in Los Angeles. While you may or may not agree with it, you will need to abide by it. More information is available from the LA Housing and Community Investment Department.
1. Rent control limits your rental increases to 3% a year
There are small categories that allow you to temporarily raise rent to provide for upgraded amenities, however this amount is also limited.
2. All multifamily buildings built prior to 1978 are under rent control.
3. Single family homes are not under rent control, but duplexes are.
As well, building a second unit on your R2 property could make the single family home subject to rent control if built prior to 1978 (according to a phone call to the RSO). The new unit would not be subject to rent control.
4. You may not be able to evict your tenants as planned.
If you are planning to ask your tenants to leave in order to increase the rent, you likely will not be able to do so. You can ask a tenant to leave if you or a family member (or apartment manager) want to move in, however the rent has to go back to the previously low amount after that member moves out. If you lie and re-rent it at a higher rate, you can be asked to rent it back to the previous tenant at the lower rate. The HCIDLA provides more information about legal evictions under LA rent control.
If you are planning to evoke the Ellis Act, understand that you only have a few options post-eviction. You may turn the apartments into condos (and offer them to the tenants first). You may petition to turn the apartments into a hotel. Or you may stop renting the apartments and leave them empty or demolish them. However, you cannot use this Act to evict tenants and re-rent at a higher rate. Should you choose to re-rent them, you need to apply to do so and also offer them back to the original tenants at the old rate.
As a buyer, you should also be doing your due diligence and asking for proof of how the previous tenants were evicted. You don't want to be stuck with the old landlord's problem if they erroneously evicted the tenants.
5. You may ask the tenants to "voluntarily vacate" for a fee
It is allowable in Los Angeles to offer a generous relocation fee and ask if the tenants want to "voluntarily vacate". You should do this with a formal legal agreement and review with an attorney. The first payment must be provided within 15 days of signing the agreement and the remainder when the keys are handed over. The security deposit is to be refunded in addition to this amount.
5. Insist on seeing a full rent roll.
This will give you more information on the actual rent paid by each unit.
Vacant buildings or wholly family-occupied buildings frequently sell for a premium. The other multiunit properties are generally priced high for the return, so you will need to do your due diligence and work out the numbers. If you choose to live in the property yourself, the lower rent may be a nice bonus to an already nice space.
*This article is for informational purposes only, please contact your attorney to advise on legal matters.