50 Years! HBD Rancho Palos Verdes!
September 2023 marks 50 years since Rancho Palos Verdes incorporated into the city is know as today. The city is celebrating with banners along Western
A fantastic way of starting a real estate portfolio is to buy a duplex as your first property. A buyer could buy a duplex, triplex, or beyond with just about the same amount of capital as a typical single family home purchase of similar size. It does come with added landlord responsibilities, like collecting rent and maintaining the building in functioning order. However, in time the benefits can greatly outweigh the initial detriment, paving the way for a fantastic income-producing property you can keep in your portfolio for years to come!
Buying an income property is a great way to leverage your purchasing power with rental income to afford more property. For example, say we have a buyer who normally qualifies for a single-family home with a mortgage of about $2,500/month by themselves. Instead of purchasing a house, they could opt to purchase an income property, such as a duplex, with a mortgage of about $4,000. If the rental income from the other units is $2,000 or more, you will be able to qualify for the property, live in one unit and use the rental income to help pay the mortgage. *Your mileage may vary, but be sure to ask your lender about income property if it is of interest!*
This scenario assumes we have at least one unit available for the buyer to occupy, but that is not always the case. In fact, income property that is offered completely vacant will often command a much higher price than the same property with tenants in place. This is especially true if the current tenants are paying rents below market. If the rental property is not bringing in enough income, it could be challenging to make the numbers work for a new buyer. Adding to that challenge is the fact that if there are tenants, and you want to occupy a unit yourself, you would need to evict a tenant and pay them a relocation fee, which is often several thousands of dollars.
If you’re looking for clarity on rent control and the affects it could have on relocating tenants during a real estate transaction in Los Angeles City, you’ve come to the right place!
Los Angeles City rent control, otherwise known as the Rental Stabilization Ordinance (RSO), was enacted in 1978 with the intent to improve the affordability and availability of rental units. It established tenant protection laws:
“…as to safeguard tenants from excessive rent increases, while at the same time providing landlords with just and reasonable returns from their rental units.”
https://codelibrary.amlegal.com/codes/los_angeles/latest/lamc/0-0-0-195213#JD_151.01.
Whether or not it has accomplished its initial intent is still highly debated.
Previously, only buildings built prior to 1979 would fall under rent control. However, in 2019 California launched a statewide rent control under AB 1482. Below are a few bullet points of some of the more important aspects of rent control in Los Angeles:
LA city rent control pertains to several cities and communities. Some of the more popular areas are:
Buyers for income property are usually looking for one of two things: an Investment Property, wanting to rent all units on the property, OR a buyer looking to be an Owner Occupant of one of the units while renting the others.
In both circumstances, knowing local rent control laws is critical for everything from increasing rent, to the few just-cause reasons involved in legally evicting or relocating tenants in the city of Los Angeles. However, for buyers looking to be owner occupants, proper steps must be taken in order to legally relocate tenants. The process is outlined by the Los Angeles Housing Community Investment Dept. (LAHCID) and includes fees when relocating tenants.
Under rent control, tenants can only be evicted/relocated for one of 7 just-cause reasons, and it must be done through the LAHCID. The 7 valid reasons to evict/relocate a tenant are:
Aside from meeting either of the criteria above, a relocation fee must also be paid to the tenant. The relocation fee ranges depending on whether a tenant is Qualified or Eligible. The figures can be seen below. Qualified Tenants are considered anyone who is 62 or older, disabled or handicapped, or has minor dependent children living with them. Everyone else would be considered an Eligible Tenant:
As you can see from the table above, relocating tenants can get very expensive very fast, and is why vacant units are much more desirable than occupied units. The fees are calculated by unit, not by individual occupants.
As a buyer, it is possible to relocate a tenant for owner-occupancy / residential manager occupancy or by withdrawal of all units from the rental market. In both circumstances we would be require to withdraw at least one unit form the rental market.
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Though lengthy, the process for withdrawing rental units from the market can be accomplished using the forms that are provided by LAHCID. They are:
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