Moses Kagan on Real Estate

The $100,000 eviction

with 2 comments


I got a call from a regular reader the other day about his building in Los Angeles. I’m going to share his story and I hope he won’t mind.

This guy has several great, normal tenants and one low-paying, rent controlled tenant who has a kid with pretentions to gang-bangerness. The kid has done all kinds of awful stuff to the building and the neighbors, enough to get the police involved multiple times. He told me he had initiated an eviction case, but that the problems with this tenant were driving him to the breaking point and causing him to consider selling.

I wanted to be sensitive to his situation, so I restrained myself. What I really wanted to say was “You’re an extremely lucky guy”. If I had, he wouldn’t have believed me.

So, instead, we did a back of the envelop calculation on the effect of winning the eviction case.

I’m not quite sure that he believed the numbers. But here’s how they work: The tenant was paying something like $500 for a $1500 apartment (actually, I think he could get more, but that’s just me). That’s $1k / month and $12k / year of potential rent increases. If you apply a (very) conservative 10x GRM to that number, you get $120k in value.

Now, obviously there are some costs associated with cleaning the unit up post-eviction. Let’s say he needs to spend $20k to make the unit really sing.

I know this guy’s time is valuable, but I’m pretty confident that all those hours of dealing with this miserable tenant were worth $100k.


Written by mjkagan

09/27/2012 at 10:57 am

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