Author Topic: Can I raise rents if I buy a multi-unit in rent controlled area?  (Read 1184 times)

FruGal

  • 5 O'Clock Shadow
  • *
  • Posts: 15
I currently rent a studio in an old victorian that is divided into 11 units. I'm looking into buying it and facing some potential issues: unknown maintenance issues are a concern, but more so are the current rents. I estimate that I am paying at least 50% below market value. While this is good for a renter, it's not great as a potential landlord. I'm trying to determine if I'll be able to raise rents. Also, I live in Oakland, CA where there some pretty strict rental laws.

About the house: it was originally a 6br house (and still is according to Trulia) and was subdivided into 11 studios at least 30 years ago. The 11th (basement) unit is currently being used as storage, the manager said this was because the ceilings are too low to legally rent the space. The studios have varying amenities. All studios have their own bathroom, some have full kitchens and some have only a microwave and a fridge. Additionally, there is a shared kitchen on the main floor. Studios are not submetered.

About the other residents: the majority of the residents have been there for over 5 years. We have a fairly even spread of age groups from 20s to 60s. The owner just tried to increase one man's rent by $30, the renter refused to pay more, and now the owner is trying to evict him, but hasn't yet been successful. Basically, the other residents are holding onto this house (and the cheap rent) with all they've got.

This house has so much potential from an investment standpoint, I just don't want to get tied up battling tenants over rent increases. So, I'm trying to figure out if there's a legal way to do it without too much headache. Also, there's the issue that the house probably wasn't legally divided to begin with... although maybe it's grandfathered in by now? Let me know if there are more details you would like me to provide. Any advice, especially legal, would be appreciated. 
« Last Edit: October 19, 2015, 07:17:30 PM by FruGal »

sparkshooter

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Can I raise rents if I buy a multi-unit in rent controlled area?
« Reply #1 on: October 19, 2015, 07:30:58 PM »
Quote
Any advice, especially legal, would be appreciated.

I know nothing about the laws in California, but I can tell you with 100% certainty that the only way to get a meaningful answer to your question is to pay a lawyer in California to provide you with those answers.

As a lawyer in a different country, I can almost guarantee you that the answer is "it depends". Further, even if you can legally raise rents/evict people, the reality is that this will be an expensive and/or laborious process for you.

gimp

  • Handlebar Stache
  • *****
  • Posts: 2359
Re: Can I raise rents if I buy a multi-unit in rent controlled area?
« Reply #2 on: October 19, 2015, 07:36:30 PM »
As a landlord in Oakland, the answer to "Can I ..." is probably "No."

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4511
Re: Can I raise rents if I buy a multi-unit in rent controlled area?
« Reply #3 on: October 19, 2015, 08:17:15 PM »
If the publicly available records show the property is a six bedroom single family house, the conversion was probably done without permits and may not conform to the property's zoning.  Unlikely such a conversion would be grandfathered, as there are probably safety and other code violation issues.  Raising rents would be minor in comparison to the other issues.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1736
  • Age: 39
  • Location: Kauai & Denver
Re: Can I raise rents if I buy a multi-unit in rent controlled area?
« Reply #4 on: October 19, 2015, 11:13:09 PM »
You have to find out if it's rent controlled and if so at what rates. Until you find that out, nothing else really matters.

babysteps

  • Stubble
  • **
  • Posts: 119
  • Location: Southern Tier NY State
Re: Can I raise rents if I buy a multi-unit in rent controlled area?
« Reply #5 on: October 20, 2015, 08:24:04 AM »
If the current rents actually keep the house maintained over time, and if you are more focused on housing security than on making a profit, you could consider creating a cooperative (if allowed under local law, and would be lots of paperwork and possibly legal fees).

Seems like it is likely a big regulatory project and/or legal challenge, but if the price is right and it makes your lifestyle sing, go for it.

Based on what you've shared, it sounds like the current use is probably not legal (imo there's virtually no way that 11th unit counts as a unit!). 

This suggests the owner will be unlikely to be able to sell for much $ to anyone without an emotional tie to the building - unless it's worth it as a tear-down.  So you might have time to brainstorm.

If the current underlying zoning allows SRO or rooming house use, that probably makes legalizing the layout possible (still might require a lot of fire safety retrofitting...)

If the current zoning doesn't allow SRO or rooming house use (some do, but not many), count up the kitchens and that may be the highest likely unit count, assuming you're willing/able/allowed to bring up to current code...You could get creative with "congregate housing" to meet the letter of the law (IF layout allows...) - at a minimum, everyone would need access to a full kitchen (at least technically), and unit separation would need to make sense.  Since local zoning is quite particular, find someone who knows.  And be willing to read the entire relevant parts of the zoning and building codes, sometimes there are elements even the building or planning dept doesn't know or hasn't seen used enough to remember.  Or, depending on sf minimums and budget, you might be able to increase the unit count by installing "full" (a kitchen sink and a range, where we live) kitchens in some additional units...