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Question:

I plan on renovating my building, which is under rent control for the city of Los Angeles. Is it proper grounds to request that my tenants vacate? The building is really dilapidated and this renovation is quite necessary. I need to upgrade all the plumbing, electrical and roofing. The heating system must be replaced in addition to painting and replacing old appliances. This work cannot be performed with tenants in possession.

Answer:

Incredulously, that is not grounds for eviction for the City of Los Angeles. The City, by its actions, is encouraging buildings to become degraded. You can ask the tenants to leave for a temporary period of time. You would have to apply under the program entitled, “Tenant Habitability Plan”. You would have to pay for your tenants to be relocated. This would entail paying for alternate housing and other accommodations. After the tenants return, you would have to apply for a capital improvement rent increase. This is based on the cost of your renovation, amortized over a five-year period and divided between the units in the building. There is limitation to the amount of this increase. Based on these criteria, there is not an economic incentive for a landlord to upgrade.

Author
~Dennis Block: Source

Whether or not you believe we are in a recession, there is no denying that the word recession is now a part of our vocabulary.  Whether you are out and about shopping, listening to the radio or watching television, it seems like that word is inescapeable.  The Los Angeles Times recently ran an article titled “Shoppers play it cool in January.” Guess what word appeared in the article over and over again? That’s right, “Recession!”

The article examined the retail market, analyzed sales numbers for January and predicted what will come for the year ahead.

“Discounter Wal-Mart Stores Inc. said shoppers held on tight to the gift cards they received over the holidays or used them to buy milk and bread rather than toys or iPods. High-end Saks Inc. said customers shifted more of their spending to “promotional events” - making purchases when items were specially priced.” L.A. Times

The above quotation reflects that the entire nation is feeling a financial pinch, not just a certain economic class. The working class is beginning to pull back substantially and spend their money on necessities, while the upper class are actually looking for bargains. No one is spending money like before.

“Whether we are in a recession or not, things have slowed,” said Michael Niemira, chief economist for the International Council of Shopping Centers.

The National Retail Federation said the slump would affect U.S. ports where products destined for shopping malls are unloaded. “We’re going to see little increase in cargo on the docks,” said Jonathon Gold, the federation’s vice president for supply chain and customs policy. “Container traffic at the ports is a leading economic indicator because it reflects retailers’ expectations for sales.”

So what if we are in a recession? How does that affect me as an apartment owner?

Take the above quotation for example. The VP for the National Retail Federation is stating that the decrease in sales is going to directly impact all U.S. ports where merchandise is delivered and unloaded.

Sales have been weak and retail stores are experiencing a major slow down. If you have been out shopping recently, you will notice the lack of employees in these stores. Retailers have already reduced their workforce. The next step is for them to cut down on their stock and reduce their product orders. 

That means less work for everyone. Take into account the various jobs that will be impacted due to lack of sales….sales personnel, shipment personnel, manufacturing personnel, corporate personnel, etc., etc… It’s the ripple effect.

If there is less work, then there is less money in our tenants’ pockets. As money becomes tighter, it becomes more difficult for them to make their rent payment every month. Suddenly, they find themselves forced to look for a less expensive place to live.

You suddenly find yourself with a vacancy or two. Being an owner for quite some time, this is part of the business that you are accustom to. You put your sign up, place an ad, yet the calls do not come. While driving your area, the amount of vacancies catches your attention. As you think of ways you can stand out from the others, you decide to offer 1 month free rent. The unit is going on the second month of vacancy. Last year, you had a waiting list, this year you don’t even have a call back list. Time goes on, expenses remain, maintenance issues develop, you feel desperate. Weathered by the amount of time and work you’ve invested trying to rent out the unit, frustration takes over you.  Forced  by the market, you lower the rent by $150-$200 just to fill the place.

‘What’s going on?’ you ask yourself…The Recession.

As lending guidelines continue to become more stringent, real estate investors are facing new challenges everyday. It’s now more important than ever to have a professional mortgage consultant that has an in depth understanding of lender guidelines and specializes in financing for investment properties.

Below are six important things every real estate investor should be aware of.

1. Loan to Value Changes

Some lenders have recently reduced their maximum loan to value guidelines. Very Few Mortgage Companys can still offer up to 90% financing for stated income investors, however as market conditions continue to deteriorate; this could soon become a thing of the past. With today’s favorable interest rates, we recommend not waiting any longer to take advantage of these programs.

2. Title Seasoning

There are two main issues when it comes to title seasoning. The first involves refinancing an existing property to appraised value. Most lenders require 12 months on title in order to refinance a property based on current appraised value, however, there are still some products available for non-seasoned refinances. Secondly, the length of time the seller has been on title needs to be taken into consideration when purchasing a new property. Lenders will typically require that the seller has been recorded on title for at least 90 days; however, no seasoning is still available on a limited basis.

3. Declining Markets

Foreclosures are one of the driving forces behind most declining markets. There is no standard industry definition of what constitutes a declining market, and is within the lender’s discretion to determine if the appraisal accurately reflects the current market value. If the lender determines the property is located in a declining market they may reduce the maximum loan to valve.

4. Appraisal Comparables

Many lenders are now requiring up to two closed sales within three months and one closed sale within six months. They may also require comparable pending sales validating the market is stable.

5. Stated Income

Lenders are becoming increasingly cautious regarding stated income borrowers. Many lenders want to see three to four times the monthly stated income in reserves. Although these are unwritten guidelines and typically only six months PITI is required, it is the underwriter’s discretion. This is especially relevant when stating income as a full time real estate investor.

6. Holding Title in the Name of an LLC or Corporation

Although there are benefits to holding title in the name of an LLC or corporation, few lenders will allow it. Recently, some lenders are requiring the property being held in the individuals name for a minimum of 90 days before it can be refinanced. This is something to be aware of if purchasing property in a company name with the intent of refinancing it immediately. You should always consult with a qualified attorney or CPA regarding holding real estate in an LLC or corporation.

By Rein Mortgage Co.