Six bedrooms, four baths (and parking spaces), and two units in total for $1,695,000. The one little snag: two protected tenants as well.
∙ Listing: 472-474 Euclid (6/4) – $1,695,000 [MLS]
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Six bedrooms, four baths (and parking spaces), and two units in total for $1,695,000. The one little snag: two protected tenants as well.
∙ Listing: 472-474 Euclid (6/4) – $1,695,000 [MLS]
So these units bring in a total of $3563.20 in rent. What’s the mortgage look like for $1.7m?
I’m speechless. and given my blabbermouth that’s saying something.
I just don’t “get” rent control. If one can’t afford to live in a particular city/place, move to where you CAN afford it.
Go ahead, flame away.
So even if you do an owner Move in on one, you are still get at max 2159 of rent coming in.
And clearly the protected tenants are not allowing photos of the interior.
I dont really get the protected tenant law.
Surely landlords would have to be crazy to let an apartment to anyone who would hit protected status at any time in the near future (say anyone late 40s onwards..)?
Does it really protect them, or make it hard for older potential tenants to find willing landlords?
Surely they would rather let out places to say, late 20-mid 30 somethings with a 3-4 year probable tenancy term.
Having protected tenants (or indeed any long term tenants) must have a serious effect upon resale values – as we are seeing here. Buying this place at this price with these rents makes absolutely no sense.
If you are shopping for a duplex with a second party, this could be a good deal, no? Each party owner occupies and you create a TIC? Would there be a condo conversion path for this situation?
gross. I wonder what Barbara Callan’s advice for the new owner will be…
location:
I dont think both parties could owner occupy..maybe I am mistaken.
It would make for an attractive 1031 exchange property. Trade for location. Great building and location.
How protected is “protected?” Can’t you move in and booth their ass out (assuming you really did want to live in one of the units for a few years)?
That’s a pretty terrible cap rate for $1.7M.
Repornaddict:
I’m not sure of it myself, but I feel like I’ve seen it done. Does Sirkin read this blog?
The “protected tenants” could be Ellis-Acted out, but that would mean the new buyer would have to occupy or would be unable to rent either of the units for another five years. There is no law dictating that an owner may not occupy both units.
It prudent to pass the burden of Ellis-ing on the seller as a condition of sale.
Yes, I think thats it.
you can only owner move in evict one of the units, but you can Ellis both.
But that would mean having to have an empty unit for what looks like 5 years.
With a OMI you cant re-let for I think 3 years.
Sio unless you really wanted to have the whole thing to yourself(!) not a great option. OMI would mean you were still left with 1 protected tenant.
This is clear Ellis act bldg with all the preclusions that come with it relative to condo conversion.
It is highly unlikely that any Seller will execute the Ellis filing. Protected tenants are given 12 months to relocate from the date of filing. The seller might reduce the price or credit buyer for future legal expenses and get of it.
The single family home just sold next door to this place for over the $2.995 million asking price. This is Laurel Heights/Jordan Park a quasi- trophy neighborhood considering its proximity to Presidio Heights.
REpornaddict:
You would be able to create a TIC after Ellising both parties. You would only have to leave the second unit vacant if you did eventually want to rent it.
One could pursue the “Cwynar” challenge to defeat the one OMI per building rule. The “Cwynar” challenge is the name of a case in which the judge declared Proposition G (the one OMI per building rule) unconstitutional. Of course, litigation is often very costly, so you’d have to want the building reeeeaaaaally bad.
Of course, you could always attempt a tenant buyout, but you’d need counsel, as well. Often the tenants will attempt extort the landlord/owner.
Protected tenants greatly reduce sale value of properties.
@Darwin, you’re assuming that litigation is costly…unless you’re a lawyer.
Owner move in on 1 of them, then sell the other to your parents, who owner move in on it; then buy it back from your parents! Brilliant. I’m totally buying this place.
Limit: 1 OMI per building.
Keep in mind that an “eviction of at least one senior (who has resided in a unit for 10+ years), disabled, or catastrophically ill tenant” would permanently prohibit converting these two units into condominiums. In fact, invoking the Ellis act adds at least 10 years to the waiting period for any conversion. (See Prohibition On Condominium Conversion Passes)
here are your options IMO:
1. Buy the building under an LLC so the Tenants Union and protestors can’t find you. Ellis the building on day 1, remodel when tenants are out a year later, and resell for TICs (that can virtually never condo convert), all while crossing your fingers that the market doesn’t tank in the next 2 years.
2. Wait for tenants to die or move, while running cashflow negative.
3. Put grease on the staircase or cut the supporting beams – effective but probably lands you in jail.
4. attempt a buyout and be very careful.
5. OMI one unit and make a whole lotta remodeling noise.
To make this work you either have to have a whole lotta luck or have a very solid profit upside built in – you’ll probably have to carry the house for at least 1.5 years.
As to what phatty said I believe you cannot use an OMI for yourself on protected tenats. You can, however, displace a protected tenant with your own parent(s).
See “Does My Elderly Parent Get Special Treatment,” here:
http://www.g3mh.com/downloads/2005TenantEvictionsBrochure.pdf
I think Fluj is right and my option #5 won’t work. Don’t think you can OMI anyone protected. In this case you’re probably stuck with both tenants (or more if it’s an extended family who decided to sneak granny in). And yes you could move in your parents if they’re elderly but be ready for Chris Daly and the Tenants Union knockin on the door once in awhile to make sure they’re really living there.
Can somebody provide more info on the “protected tenant” thing. I have a friend with HIV who lives in a 6 unit, rent-controlled building that may soon go on the market. Is he in any danger of being forced out? Although he is employed full time at a modest wage, I suspect he would have great difficulty finding anyplace else in SF at a rent he could afford.
So I am a landlord, among other things. About 85 units here in the city. I understand how frustrating rent control and protected tenants can be. I have both in spades. But you all need to understand that for these people, this building is their home. The reason rent control and protected tenant status exits is because of a failure, on the part of owners, to recognize tenant’s highly personal stake in the units. A “through the freeloading bums out” mentality is exactly the wrong attitude for this sort of situation.
You won’t make money quick on a deal like this, and clearly the rent roll does not justify a corresponding capital outlay that would make the payments affordable. A plan that combines depreciation and other cost deductions for tax advantage, along with 1031 benefits and the time to convert these units into a functioning TIC or similar vehicle will probably succeed. If making money quick is what the investor wants, or if this would be a first transaction, then it is the wrong fit.
For a small but expensive building like this someone needs to be patient and respectful to the people who are renting. Under no circumstances take any of the adverse actions that some of suggested. Any trick you think up has already been done, the rent board and the tenants union are already familiar with them, and the penalties are severe. But penalties aside, finding a way to evict an elderly or disable person is immoral. If a person is fulfilling their contractual obligations to the landlord, you leave them alone.
Like most investments, you will do well on this one if, more then the money, you have the time.
I think some of the posters are confusing an OMI and Ellis. While protected tenants are (not to be redundant) protected from an OMI, protected tenants CAN be evicted through Ellis-ing, in which case ALL tenants in a building must be evicted. If the tenant is 62 years old or is disabled or has lived there for AT LEAST one year, s/he is entitled to stay for an additional year and be paid relocation monies.
It is incorrect that one would permanently be prohibited from converting the units into condos. What happens when one Ellises a building is that one does lose the “fast-track” condo conversion. “Fast-track” condo conversion just means you can convert without having to go through the condo conversion lottery. Ellis-ing means you’d just have to take a number and … get in line … and possibly literally never win the lottery.
[Editor’s Note: Sorry, but that’s incorrect (with respect to the impact of evicting a protected tenant). Once again, see Prohibition On Condominium Conversion Passes.
Just discussing, Eoral. I would never evict an elderly/disabled person for investment/financial gain.
For a small but expensive building like this someone needs to be patient and respectful to the people who are renting.
Thank you for saying what no one seems to remember anymore. San Franciscans care about our neighbors, our community, our tenants.
Making money in Real Estate is about time.
I’m a bit surprised the seller didn’t Ellis this place before putting it on the market as two remodeled vacant TICs. His carrying costs during the waiting period are much lower as, presumably, he paid far less for the place. Much harder and more expensive for the new buyer to do this.
Eoral, I see your points and I wouldn’t have the stomach to evict these tenants. That said, I don’t think there is anything immoral about such an eviction (one could also argue the flipside, that it is immoral to force the property owner, who also has a personal stake in the units, to subsidize the tenants). The tenants are entitled to what their lease and the law provide — no more and no less. This is the same old debate over who should subsidize such tenants, the individual landlord or society as a whole. While there are valid arguments on both sides, neither position is immoral.
To be more specific, Ellis-ing means having to WAIT 10 years, and THEN taking a number … and then getting in line … and taking your chances of never winning the lottery.
[Editor’s Note: And for the last time, that’s true except for when protected tenants are involved (in which case conversion is then altogether prohibited).]
How does a prospective buyer determine whether or not the existing tenants are protected ? And if one could make such a determination before placing an offer (and factoring in the protected/unprotected status) couldn’t an unprotected tenant receive protection if a doctor declares that they have a medical condition that classifies them as protected ?
It would be a shock if a buyer made an offer only to have one or more tenant switch status after all contingencies have been removed, but before eviction. Of course that pales in comparison to the shock that the tenant received from their doctor’s diagnosis.
This seems to be a risk when making an offer on any property with unprotected tenants.
so… i’m new to the housing “game” in the city here. please forgive me for the most basic of questions.
just a little background… because housing in SF is so darn expensive, it makes more sense to pool money with family members and thus i’ve started to look into houses with 2 units just like this.
so, let me get this straight. if i go in with my parents, and we purchase this house for us to live in together, (my family upstairs, parents downstairs) does the Ellis Act or the OMI allow for us to kick out both protected tenants? what if the tenants decide to damage the units before leaving? i’m sure their piddling “security deposit” won’t cover that much…
This house is next door to (sorry to reference another site):
http://sf.curbed.com/archives/2008/06/12/claws_out_at_450_euclid_redux.php
That alone says alot about it!
I guess we can keep arguing about whether rent contol and protecting tenants is morally right and whether evicting tenants is morally wrong. (Personal I disagree with both) And, Eoral, if you chose to be a social policeman rather than a profit-maximizing businessperson, that’s your choice.
However, the question at hand is “What’s this property worth?”. I guarantee the answer will be determined by the highest bidder who will be a profit-maximizing landlord that has to make the numbers work. And I’ll bet the building is bought by someone that offers the tenants a buyout on day 1 and, if not accepted, files for the Ellis on day 2.
There are two sides to the coin of rent control. The side that proponents don’t want to hear is that evicting protected tenants in SF is highly profitable. And in an uncertain market like this it’s one of the few safe ways to make a money in real estate. They highest bidder will take that route.
aaa ooo – I think you could move your parents into one unit but you couldn’t move in yourself to the other unit. And your parents have to be over the cutoff age, I think 65.
You could offer both tenants a buyout first and see if one bites. Then move in that vacant unit yourself and put your parents in the other. Can’t remember the rules but if your parents leave or pass away you may have to offer the unit back to the original tenants at the original rent before doing anything else – and you parents can’t leave for a certain period of time – forget the number of years.
As far as damage I wouldn’t worry about it. It probably needs to be gutted anyway and there’s no way a protected tenant can cause more damage than the increased value of having them leave.
As someone who just went through the trouble of getting two units in a 3-unit building empty, I have only one piece of advice: don’t do it.
Not only do you open yourself up to so much litigation, the timesuck and irritation isn’t worth it. Sellers do not figure the real cost of the process into the list price, and, unless you’ve done it before, you have no idea what it’s worth.
Or, you can be like Eoral, and wait them out. His/hers is probably the best post in the thread so far.
Also, this thread has taught me to never rely on socketsite for tenant type issues and laws. Several, if not half, or more, of the posts in this thread are substantially factually inaccurate.
[Editor’s Note: If there’s anything we’ve posted that you believe to be factually inaccurate, please call us on it. If you’re talking about an anonymous reader’s comment, of course you should consider the source (and whether or not it’s being offered as an opinion or fact). And if you have direct experience and relevant knowledge (which it sounds like you do), it would be nice to think you’d be willing to share with the community to help clear up any of said inaccuracies.]
“waiting it out” is a very noble approach to this building, but at a 37x GRM no rational NEW buyer will pay that much to be noble. just guessing, but the current owners are probably ok with those abysmal returns because they’re long-term owners who just don’t care about the money.
For a good perspective on Landlord issues, I recommend
http://www.sfaa.org/
There are monthly meetings, 3rd Monday each month, and the first our is a legal Q&A, open mike style, with several private practice attorneys who specialize in exactly these sort of things.
I find being a socially policeman, as you say, absolutely essential when dealing with tenants and being successful as an apartment owner. Not sure if I would phrase it like social policeman, but it works a bit. Tenants are a very special type of customer, they are like few, if any other type of business because that is there home. A home is not something you can mess with, even if you, and not they, own it.
I do not necessarily agree that evicting tenants is highly profitable. I can be, and it has been for some. So is the lottery, which reminds me I must check my numbers tonight. But it can also be extraordinarily costly if there is a huge fight, if you make a mistake and the Rent Board makes a tasty snack out of you, etc etc.
Milkshake, if you want to do a dual use thing as you describe, get a good attorney on board in addition to whatever nice agent you are using. God Bless agents, but they may not give you the proper occupancy advice you need, and the $$ are too big to make a mistake here. And make sure they specialize in Landlord Tenant issues IN San Francisco, expertise even in Daly City or Oakland will NOT cut it.
” If a person is fulfilling their contractual obligations to the landlord, you leave them alone.
Like most investments, you will do well on this one if, more then the money, you have the time.
Posted by: Eoral at July 16, 2008 4:44 PM”
Actually, the tenants don’t meet their contractual obligations. Virtually everyone signs a month to month lease or a fixed term lease, typically for one year. Absent rent control once the term is up, the landlord can retake possession or they can give the tenant the option of staying at the market rent. Under rent control, tenants have a *lifetime* lease (with narrow exceptions such as OMIs or Ellis)and landlords can raise the rent by only limited amounts. In essence, rent control states that tenant’s *don’t* have to perform their contractual obligations.
Another contractual obligation contained in most leases that tenants don’t have to meet and prohibitions on subletting. Rent control had largely invalidated them.
Of course, rent control has not eradicated any landlord contractual obligations. Indeed, if the landlord is alleged by a tenant to have violated those obligations and a biased SF jury that has been told nonstop from Day One (Day One of their living in SF, not Day One of the trial) that landlords are greedy, but tenants are innocent, altruistic and helpless (after all, we know that no tenant has *ever* profited from subletting their below market apartment and no tenant has ever tried to cover up/lied when caught doing so in order to keep his subsidized lifestyle going), is convinced that the landlord even *attempted* to regain possession, the landlord is liable for triple the tenant’s damages, punitive damages, and the tenant’s attorney’s fees.
Tenants’ contractual obligations? What a joke.
(BTW, the juries cannot be told that their award will be tripled and attorneys’ fees awarded so that a $10k “slap in the wrist” that they aren’t even sure is really warranted ends up costing the landlord $100k. It’s happened time and time again and would happen even more except that landlords with intelligent counsel end up paying whatever unwarranted demand they make to avoid this situation.)
aaa ooo – you can do an ellis act in the building. The stipulation is that you will not be able to rent the building (or any unit) out to anybody for 5 years if the tenants are not 65 years or older or terminally ill. Otherwise, you will not be able to rent the building or any unit out for 10 years.
Ellis act of a 2 unit works OK if it’s a situation where a 2 generation family wants to live together in the same building, one generation occupying each unit.
In summary, if you Ellis the building, these protected tenants will have one year to move out. Once they move out, you cannot rent either unit, but you and your family can live in them. Or you can sell them as TICs. No condos. It still might make business sense.
“In summary”
actually I have a different summarization. RE rules in SF are out of control. just look at this conversation.
it’s amazing that people think that SF RE is expensive because there’s no land on which to build. SF RE is expensive because of this labrynthian process.
When I left town for a coupl years — I left my place vacant. It is soooo much easier not to rent. And, potentially cheaper.
If you are a landlord — don’t rent your units out! Think of it as a SF pied a terre.
Kudos to eoral for his/her reasoned and reasonable approach. But mentioning morality and real estate in the same paragraph? I’m shocked.
Editor called me out in a note on my last post, probably fairly. Let me extend what I wrote a little bit more to address those things.
First, the site and editors haven’t posted anything inaccurate. It’s all in the comments that follow. I can post a little bit about my story, but in terms of correcting the inaccuracies, other posters are doing a good job; I would just assume it would be a little confusing for someone trying to figure out what the rules are just by reading the thread. Besides, I’m just a random internet guy too. Why trust what I say any more than anyone else?
Along with Eoral’s URL, I would add http://www.sftu.org/. (The SF tenant’s union). They have a lot of good straightforward information about how/when you can evict and why. Plus, you are getting the perspective from the other side.
If you want to know how evictions and other actions affect condo conversions, check out http://www.ticlawyers.com/2007/02/condominium-conversion-in-san-franciso.html , which is a writeup published by Andy Sirkin and his associates at their firm, who are outstanding from my personal experience as clients.
We entered into contract on one unit of a three-unit building as naive buyers unaware of all of the SF tenant laws. At the time we entered contract, unit one was owner occupied, and units 2&3 were full of tenants. This left us with problems, as we couldn’t OMI both 2&3, but the owners of one refused to consent to an Ellis. We eventually ended up negotiating tenant buy-outs such that the building was empty at the time we closed escrow.
Negotiating a buy-out can be a favorable solution because no evictions are recorded. However, you can very easily get coerced or blackmailed into paying far more than you thought you would have to. According to several of the attorneys we talked to, tenants can accept payment, sign an agreement to leave, and then later reverse course and refuse to leave, and the original agreement is virtually unenforceable. As a result, tenants can continue to keep asking for more and more money.
Of course, once they leave, they can have second thoughts and sue you claiming they were coerced or threatened. This aspect is what made it bad for us, as if the tenants had left after we took ownership, we’d legally be landlords, except that it would have been very difficult to get insurance to cover unlawful eviction and related litigation. We ended up insisting they leave before we closed escrow as the previous owner had such coverage. That put us into a 70-day type escrow situation.
In the end, between the 4 parties, we must have consulted 10 different attorneys, and most said just walk away. We were stupid, but we were eventually able to reach a solution that made all buyers happy. The tenant’s eventually capitulated, I think, not because they were happy with the money but because we had made their lives miserable enough that they just wanted to be done with it.
I wouldn’t do it again, ever. We got lucky, but there were about 100 ways it could have gone very very wrong.
[Ryan] your story is really excellent, and I am glad for you that it worked out. I think you are correct, there are 100 ways it can go wrong, but it sounds like you did things the right way, and I hope it pays off for you nicely. You will certainly have earned a bit of a pay off!
JS, tenants do have contractual obligations. They are just very, very narrowly defined. The SFAA has a new lease specifically designed for SF apartments. I highly recommend this lease as it is designed for this city’s laws and will help protect everyone, landlords as well as tenants.
Absent rent control a lot of things would be different, but rent control is the Real Politik of the neighborhood, so that is what we have to deal with.
Subletting is a persistent problem, but there are remedies for it. Rule one is never to accept rent from anyone whose name is not on the lease. The acceptance of rent establishes an implicit contract and puts the new person on the original lease at the original terms. If a new person replaces a roommate for example, you simply collect rent from the remaining tenants (now called master tenants) and serve the new person with a form (1016? I think, cant remember atm) that acknowledges that you know they are there but that they are not on the lease. When the master tenant(s) leave, the unit can be raised to fair market value.
There are procedures for tenants who are using a rent controlled unit for a ped a tier was well, and also provisions for nuisance, dogs, waste, smoking, etc etc. Bottom line is that landlords are not allowed to rule their building like feudal lords, imposing whatever rules they think are fair. But tenants are also not allowed to go hog wild. Good communication, timely responses and attention to local ordinances will protect everyone.
And if there is an unfortunate situation that requires strenuous action, then you fight. But only when there is absolutely no other options. Few people ever “win” in court, judgments, however, do get handed out.
Can you make an offer contingent on reaching a buy-out agreement with the tenants?
Has anyone done this?
every so often you actually learn something from reading this posts – thanks Eoral and Ryan
anon – sure you could make that a contingency but i think no rational seller would ever accept it.
anon-
resp is right. Besides, you are better off putting a ‘vacant at close’ contingency down, because it’s much easier to define, and, as described in my earlier post, the seller probably has insurance to cover tenants suing, while you as buyer probably do not.
You could add something to your contract about paying for half or all or whatever the tenants agree to take as a result of the buy-out, as well as specify a cap on that amount, but you still want seller to do the direct negotiating and better off letting the tenants stay the sellers tenants. If the seller can’t get them out, or won’t, it’s just going to be worse for you.
I highly doubt that many of the sellers have the insurance to cover the tenants suing. Why would they?
i’m gonna guess the seller is old (or dead) and if they wanted to get involved in tenant evictions they would’ve taken care of it before listing the property. they could’ve sold for a lot more. your offer isn’t going to wake them up to that. they’ve probably owned the bldg for a long time and don’t want to be the ones to “screw” their tenants. all my speculation of course, but have seen it many times.
also i expect Barbara Callan makes a ton (too much) money on her reputation and is not about to get involved in a contract with a “dirty” eviction.
A buyout agreement is as clean as it gets when it comes to evicting tenants. Much better than an ellis or OMI.
@resp:
“the could have sold for a lot more.”
Even if the seller had dealt with evictions, you think this place would sell for more than $1.7m? I’m asking out of curiosity, I don’t know this neighborhood.
the code states that the owner “may not endeavor to recover” the unit; that means you cannot approach the tenants with a buyout offer. however, if the subject has been broached by the tenants then its okay to negotiate a buyout.
its these little wrinkles that make ‘wrongful eviction (insurance) coverage’ both necessary and common.
lolcat – i haven’t seen the house so don’t know if it’s even worth 1.7M but i’d guess the house would be worth somewhere around $200K more vacant vs. with 2 protected tenants. + or – $50K.
anon @12:56
Any prudent SF landlord would have the coverage, and I speculate (but have no data) that many mortgage lenders on rented residential would require it.
sold in 5 days. bye bye tenants.
I have rent control and am a disabled person in San Francisco. Rent control is the only way I have been able to stay here. I have lived in San Francisco for 13 years and watched rents triple in those years. For those who say don’t move to a city where you can’t afford to live, I didn’t. I moved here when it was affordable.
I do not have any family anywhere in the U.S> and this is my home. This is where my connections are for 13 years. I plan on staying and thank god for rent control. Not everyone has a million dollars and those who don’t should not have to live in a slum.
annie,
you said
” I plan on staying and thank god for rent control”
i think you should be thanking the owner of your building who is more responsible for your monthly windfall than god. maybe thank god for making your landlord sympathetic to your plight.