Oh, YES! I mean NO. I will not frame this article in the old tired, “Conservative Vs. Liberal” framework. My intention is not to discuss whether government intervention through floor or ceiling prices is a good policy. As Rosie O’donnell said “That, my friend, is another show”. This show is about what it is. I always joke with my staff and say, with the City Government Policies and Bureaucracy you have two choices.
You get mad at it.
You get used to it.
I choose the second, because wearing down my body with unnecessary stress only makes the case worst. I have heard many of my investor clients call it The People’s Republic of Santa Monica. No comment.
Investor’s looking for a deal, sometimes may be tempted to buy an apartment building with long term tenants paying significantly lower than market rents. For example, a 2 bedroom apartment should be renting for $2,400 in 2016 in the open market, but the tenant has been there since 1971 and pays $847.32 in rent. This happens because the market rents grow faster than the Consumer Price Index grows. (Google It!). So a landlord may think… I can evict the tenant, remove the unit from the rental market, and move in my sister or brother. A year later they can move out and I can raise that rent back to market rents! They are ok paying relocation fees, and hiring an attorney to help them. That attorney is happy to bill some hours and make some money. Problem solved!
Well, not really. If you somehow evict the tenants, and move your family and then move your family out a year later, and re-rent the property… you are required by law to rent the property at the same amount of rent the low paying tenant was paying before your magic trick happened. Uh? -Example: In the case above, your tenant was paying $847.32. You hire an attorney for $10,000. You give the tenant $20,000 and evict them with the excuse that your son is moving in. Tic, tac, tic, tac a year goes by… your son “moves out” and you rent the property for $2,475! BAM! Excpt, the board investigates, and orders you to rent that unit at $847.32, because your son’s moving in was a sham. You get mad. You talk, talk, talk… the attorney listens and agrees with you and you give him another $20,000 to file a lawsuit under some noble theory (because he is smart and he went to law school).
Then I’ll be darn… the pitbull attorney alleged some sort of constitutional right of free speech and other things and they got a judge that said “O.K” and won a favorable verdict. You are happy! Justice has been made! (This attorney guy is good.) :-) -Happiness! Profit!
A few months later you get a letter. Your case is going to appeals. You buckle down, and pony up more cash… once in appeals the new judge reads the case and law and reverses the case and orders you to comply with the law. Your unit is back at $847.32 rent per month… ah, and one more thing: You have to pay the Rent Control Board’s Attorneys Fees. Lots of fees!
See the well funded Santa Monica Rent Control Board was not born yesterday. They know what goes on, and unlike the City of Los Angeles, they have a much smaller playground and relatively stronger resources. If you try to do one of these “Sham Tenancies” they will file a lawsuit and come after you. If you hire a pitbull attorney, and get lucky and beat them in the trial… well they will file an appeal (your pitbull counsel will be glad to collect more attorney fees from your pocket)…. Is this confusing to you? Well let me put it in simple terms: Do Not Do It. Don’t Pick a fight with the Santa Monica Rent Control Board. They have been playing this game before you even thought about it and they win.
Here is a case that inspired me to write this Blog Post (there are many other cases)
If you don’t believe me, then it is your right to fight the establishment. When you are done with it, I will be glad to list your property for sale and sell it for top dollar and give you the best service! That is what I do. I am an amazing (and humble) Real Estate Broker, and I lead a pack of incredibly gifted agents that are #PaintingTheWestSideGold
I, Ron Escobar, am a Licensed California Real Estate Broker (BRE Lic. 01460645). I have been an investor, a tenant, an agent, a manager and even a repairman. I have been to a couple of these barbeques and my tales are intended to provide value to you. If you want to learn more, take to lunch and let’s talk shop.