Should you post a “For Rent” sign on your building?

No.

Or, at least, not unless your building is on a high traffic street.

Why? Because posting a sign does two terrible things:

  1. It makes your building look cheap. Useful signs are large enough for people driving by to see. Signs that large are almost always tacky and horrible. Do you want your building to look tacky and horrible?
  2. Posting a “For Rent” sign is a signal to your other tenants that you have vacancy. This is a golden opportunity for them to come to you for a rent reduction. Do you want to have all your tenants ask for rent reductions?

Given the above, why would I post a “for rent” sign on a building on a high traffic street? If you’re on a high traffic street, and particularly if you’re on a corner, the benefits of posting the sign (in the form of increased rental inquiries) probably outweigh the drawbacks.

But not all signs are created equal.

A good “for rent” sign is done in tasteful colors that attract attention without looking cheap. A good sign has a strong call to action: It tells the person who sees the sign how s/he can can proceed. If you are on-site, a good sign tells people to come on in to see a unit. If you’re looking to get phone calls, then give them a number to call.

If you do end-up posting a “for rent” sign, just remember to take it down IMMEDIATELY after the vacant unit is rented. Leaving it up ensures that you pay the costs of having it posted (see above) for no reason. And that’s just dumb.

Why Westlake Won’t Gentrify

Westlake won’t gentrify for three reasons: the housing stock, the density of apartments and rent control.

Regarding the housing stock: Westlake is comprised mostly of apartment buildings built around 1920. Some 1920’s buildings are nice, with great lay-outs, beautiful details, and, in some case, parking.

The buildings in MacArthur Park are not those kinds of 1920’s buildings. Far from it. They are, as a rule, center hallway buildings (where all the tenants access their units through a long, shared, central hallway), full of studios (some without kitchens), with no parking. These are generally not pleasant places to live; they are run-down, smelly (due to neighbors’ cooking smells and leaky garbage bags) and inconvenient (where do you park?). So you’re not going to see organic gentrification, where adventuresome renters seeking cheap / cool places move in on their own.

Now, it’s possible to gentrify a building or neighborhood “by force” by spending a lot of time and money to make bad old buildings good again. But it’s not worth anyone’s time to do this in Westlake, because the density of apartments in the area makes it almost impossible to command the high rents necessary to justify the cost of renovating. After all, prospective tenants will be comparing the units you’re offering to the extremely cheap ones next door. The supply is just too great to have any real pricing power, even with newly renovated units.

Finally, rent control. Face it: There are some criminal elements in this neighborhood. That’s a fact of life in a lot of neighborhoods all over the country. But LA’s rent control ordinance makes it almost impossible to get rid of bad apples in a building. So once you have a concentration of them (and Westlake definitely does!), they wreck the neighborhood and there’s very little that landlords (or anyone else) can do about them.

So if you’re looking for the next Highland Park, look elsewhere. Westlake ain’t it.

Is Silver Lake Twice as Cool as Highland Park?

It might be, because it costs twice as much to rent a two bedroom apartment in Silver Lake. A 2 bed / 1 bath apartment goes for $1,100 in Highland Park, which is nearly 2x the $2,195 it costs in Silver Lake.

We’ve just completed our February Rent Survey for Highland Park. We looked at all of the apartments listed on Craigslist labeled “Highland Park” on Friday, February 10, 2012, then used the LA Times Neighborhood Map for Highland Park to check whether the listings were, indeed, in Highland Park. Here are the highlights:

  • The Median 2 bedroom / 1 bath apartment in Highland Park goes for $1,100 / month (and all of the apartments included in the survey came with parking)
  • Adding an extra bathroom, for a 2 bed / 2 bath, adds $50 per month (median of $1,150)
  • Median rent for a 1 bed / 1 bath was $925 / month (and, again, all but one of the 12 units had parking)
  • Median rent for a studio was $800 / month
  • Only three 3 bed units available, with prices ranging from $1,250-2,300

The most interesting units we found were a pair of live-work lofts on Figueroa going for $1,745 / month (for 940 sq ft) and $1,375 (for 850 sq ft).

Interested in the raw data. Here it is: Highland Park Rent Survey February 2012

The Time I Tried to Give Mr. X $5,000 and He Refused

My voice was quivering when I made my final plea: “Please, Mr. X, just take the $5,000 and move out before the sheriff gets here.”

The guy refused. He and his wife stayed right up until the sheriff arrived to lock him out of the apartment. I had to appreciate the pride he carried within him, even if the stupidity made me sad.

How did we get to this point? When we bought the eight unit building on Clinton St. where all of this happened, all the units were occupied. We negotiated voluntary vacancy agreements with the seven of the eight tenants, paying them thousands of dollars to move so we could renovate.

We didn’t even try to negotiate with Mr. X, because he was paying $500 / month for his large apartment. We figured there was no way he’d take any amount of money to leave. But then a strange thing happened.

When the first of the month came around, Mr. X didn’t pay rent. We posted and mailed a 3 day pay-rent-or-quit notice. Still no rent.

I couldn’t believe it. We went to Dennis Block and filed an unlawful detainer case. We went to court.

Before the trial, I offered Mr. X a deal: Take $12,000 and agree to move out before the trial. He refused. I raised my offer to $15,000. He refused again. I asked my lawyer to review the evidence. He thought it was an open and shut case. I offered one more time. Mr. X’s wife asked him to accept. He refused. We went to trial.

We got the judge’s decision in the mail two weeks later. Evicted. Feeling awful, I offered Mr. X $5,000 if he would just move out before the sheriff came. There was no real need to offer the money. But I hoped it would ease the move and, also, my conscience. (In retrospect, I shouldn’t have felt bad. Why should someone get to live in my apartment without paying rent?)

Mr. X declined my offer and moved out. But not before teaching me something terrible but true about being a landlord.

How to keep the IRS from stealing your sh*t

Bad news: The government wants to take 50% of the profits from your building.

Good news: Some nice legislator long, long ago stuffed the concept of depreciation into the tax code, keeping the tax man from succeeding.

What’s “depreciation”? It’s a fake loss that allows you to use to reduce the amount of income you’re taxed on. Here’s how it works:

Example: Say you buy an apartment building for $500,000. Your accountant will divide that $500,000 between the value of the land and the value of physical structure that you’ve purchased. Say he divides it 50-50, $250,000 for the land and $250,000 for the structure.

As we all know, buildings age over time. To account for wear and tear, the government lets you take a paper loss each year equal to 1/27.5 of the value of the physical structure at the time of purchase. So your $250,000 structure depreciates by $250,000 / 27.5 = $9,091 each year.

That $9,091 sets off against your income. So, if, after paying your expenses, you have $10,000 in profit left over, the government would allow you to deduct $9,091 from the $10,000 and then only tax you on the remaining $909. So instead of paying 50% tax on $10,000 (which is $5,000), you pay 50% tax on $909 ($454.50) and keep the rest for yourself.

Note: I’m not an accountant and this is not tax advice. Don’t be cheap. Get yourself a good accountant who knows about real estate and do what he says.