Buying a duplex with tenants in it below market rate... questions (sale, real estate) - Los Angeles - California (CA) - City-Data Forum

woodsart · 10-25-2014, 09:30 PM

We're considering buying a duplex that is in an area of LA that does not have rent control. We're new to this and have not been landlords of a duplex before (we've managed our parents' homes for renters, but not in LA).

Our question regards the tenant who is delivered with one of the units. He is elderly and we feel badly, but he's paying about one-third of the market rate on his rental unit. He's month to month. There is no way we can afford to buy the property and have that negative of a cash flow on it.

How does that usually work? Would we offer him cash for keys to help him relocate, even though we legally don't have to, in hope that it helps him and also frees up the unit faster? The unit also needs a lot of work, so we'd not only need to be getting market rent, but we'd need to fix up the unit ASAP.

StreetLegal · 10-25-2014, 10:35 PM

Every municipality has different regulations. You better read the fine print before you kick grandpa to the curb. An experienced real estate broker and /or attorney is who you need to ask.

I assume it is not in the city of LA since you said there is no rent control but most cities in California are very tenant friendly and Calif. state law is also that way.

Cloudwalker · 10-26-2014, 12:38 AM

What about making an offer with a contingency that the property be delivered vacant at the Close of Escrow, making it the seller's problem, not yours? You could also give a 60 day notice of a rent increase to a market rate, but that's going to take longer to play out if he can't pay and you have to evict. And I'm sure it wouldn't feel great to evict an elderly person, especially if they have limited means. Is it evident that he can't pay market rent or is it just that he doesn't currently?

Friends of ours buy beaten up properties with low rents in the mid-Wilshire and similar areas, renovate, then rent at market rates. Their standard offer to tenants they want out is $10,000. They get pretty good uptake, but a lot of their tenants also stay and pay the increased rent.

Cloudwalker · 10-26-2014, 12:42 AM

Also agree about consulting a lawyer to be sure you are on sound legal footing for your area.

woodsart · 10-26-2014, 09:07 AM

Thanks for the responses. Our realtor is very familiar with rental laws in the area (it is outside city limits) and is a landlord himself, but I just feel uncomfortable... I suppose particularly because of the tenant's age. It isn't just income for us, either. We are a younger couple trying to afford a house, and our best bet is to have income property and live in the other of the two houses.

The current tenant was a friend of the very elderly seller, who let him stay for very little money, presumably because her mortgage was paid off (she bought the place over 50 years ago). It is very clear that the unit is delivered with the tenant, so the contingency isn't an option... In fact, in the multiple bid scenario we are in (we have to decide by tonight if we want an offer), it would help us not to mention the back unit at all, we were instructed, since the seller and tenant are friends.

However, I can't imagine the seller thinks anyone can get a huge mortgage and not have market rent... I wish I knew more about the tenant's situation. While I have friends who would like to rent the unit, I wouldn't be opposed to him staying in it. The only other sticky point, though, is it needed maintenance like yesterday. It is clear he can't adequately clean it and the house needs about $15k of work... The roof is going, pipes are leaking, and it hasn't been updated since 1970. But I would be wary of redoing the whole house only for it to continue to deteriorate without regular cleaning. Sigh.

SandyCo · 10-26-2014, 09:16 AM

Woodsart, rather than buy this property and raise this man's rent or kick him out, why don't you find another place to buy? The seller must have no conscience if she's willing to risk her friend's living situation by selling the property; that alone would make me very nervous about doing business with her. This doesn't sound like a great situation for you; it would probably be more trouble and more expensive than you think.

woodsart · 10-26-2014, 09:31 AM

I don't think the seller feels she has a choice. I didn't ask, but she is well over 90 years old and living by herself. No idea why she isn't helping him relocate, but it seems more an issue of old age with no one apparently to help care for the property than anything else.

SandyCo · 10-26-2014, 09:35 AM

I'm wondering if maybe the rental income she's getting from him is the only source of income she has besides social security, but it's no longer enough to meet her basic needs and keep the property maintained. Of course, you have to do what will work best for you, but this purchase has potential complications and headaches written all over it.

woodsart · 10-26-2014, 10:06 AM

Thanks for the feedback. It helps. I will talk to a few more people today as well. For me, the complications are an issue, but so is what I feel I can do ethically. The LA market is brutal to everyone, and I am not that kind of person.

BeatAngMoh · 10-26-2014, 10:38 AM

You are not a welfare agency. The guy can find replacemet housing easily. If he's on month to month tell the seller the sale is contingent on him leaving before the sale so she does the dirty work as she knows him best. His children are responsible for his welfare not you. When you do this you are subsidizing his children's lifestyle.