Avoid problems with the Los Angeles Housing Department

Pro tip: You don’t want to buy a building, only to find yourself in the middle of a war with the Los Angeles Housing Department (LAHD).

Under the standard California real estate sale contract between seller and buyer, the seller has a duty to disclose any on-going issues that may effect the value of the property, including any problems with regulatory agencies like LAHD. However, it is downright stupid to entrust yourself to the seller’s sense of honor or propriety in this regard.

Fortunately, LAHD does provide an online system for checking if there are problems with the building. Unfortunately, they make it kind of a pain in the ass to find.

So here’s how to do it:

  • Go to http://lahd.lacity.org/
  • Click on “Code Enforcement” on the left side of the page
  • Click on “Prop Info / Complaints” in the gray window that opens on the left side of the page
  • Click “Property Profile”
  • In the boxes that appear: Type the street number and name of the street (exclude any directions, like “North” or “N.” and also the type of street like “Ave.” or “Dr.”
  • Click on the address of the property

At this point, you’ll get a list of complaints, violatons, etc. Understand that almost all rental properties have had violations before, so you shouldn’t be scared off. But here’s what to look for:

  • All complaints should include the words “Complaint closed” or “All violations resolved date”. If they don’t, they’re still open and you could be entering a world of pain;
  • If you see the word “REAP”, proceed with extreme caution – this is a serious city program that you want to avoid unless you really know what you’re doing;
  • If you see lots of complaints, you need to be aware of two potential issues, neither good: (i) the building could have a lot of deferred maintenance issues that will require you to spend money fixing, or (ii) there are one or more tenants who delight in causing trouble for the owner by calling in bogus complaints;

The city being the city, there is no guarantee that the list you see on the website is comprehensive. There could be complaints that have been made that have not yet made it into the system. But checking online is a good place to start and I highly recommend doing so BEFORE removing your contingencies on a property.

How you improve the neighborhood

Sometimes all you need to do to improve your neighborhood is to yell at a priest.

My brother and I own a 16 unit building on Reno St (the one from this story) that’s across an alley from a new church, one of those Latin Pentacostal deals.

The street itself isn’t the nicest one in LA, but it’s not terrible. We try to do our part by making sure that the strip of grass outside our building looks like this:

And here’s how the same strip of grass looks outside the church:

The last time we had our building appraised, I was literally on my hands and knees picking up trash up to the minute before the appraiser arrived because I was so paranoid about the impression the trash would leave on her. (See how glamorous it is to own a building?!)

I’ve been steaming about the trash for months.

Finally, the other day, I was at our building picking up the laundry money (again, the glamor!) and decided on a whim to call the church. I figured I’d get some voicemail, leave a message, and no one would ever do anything about it.

Turns out I was wrong. The minister got on the phone right away and spoke to me (in Spanish). He was super nice and understanding. He assured me the church would clean up. And they did.

Now our litte corner of “Silver Lake -adjacent” is a little less gross. I wonder how many other owners out there would benefit from doing the same thing.

Should I hire a property management company?

Not now, maybe later. That’s it, in a nutshell. Here’s what I mean:

On your first building, likely a 2-4 unit building acquired with an FHA mortgage, you don’t want or need a manager. First, you need to learn a bit about the business –  what it’s like to fill vacancies, collect rents, deal with maintenance issues, etc. Second, the 5% of the rents that you pay a management company is money you want to help pay your mortgage. So I recommend against hiring a management company at first.

But I definitely recommend hiring one later, and here’s why: Management doesn’t scale. As you add more units, you add more headaches. This is why my parents, who’ve owned apartments for 40 years or something, never got to be really big landlords. They always insisted on managing themselves. They got every call in the middle of the night, dealt with all the tenant BS, etc. And because of that, they never felt like going to the next level, because it would have added a ton of stress to their lives.

They should have done what we did at first: Hire a competent management company and focus energy on finding and buying more units. In LA, you can get a good management company for roughly 5% of the rents collected, plus expenses (for things like materials and labor for fixing problems, etc.) – that’s a small price to pay to get back your time.

(Incidentally: keep in mind that managers rarely make money on that 5%. Instead, they manage in order to develop a relationship so you’ll use them as brokers when you buy or sell, which is where they make their real money. Read the management contract closely – you’ll almost always find that it includes the manager getting the right to act as broker should you choose to sell the property during the course of the management contract. This is not necessarily unfair, but you should always be aware of what you’re agreeing to before you sign.)

So go manage your first building yourself. But when you’re ready to move out and buy another one, consider hiring a good manager to take over for you. It costs more in the short term, but it’s the only way you’re going to have the time and energy to buy a lot more units. And that, after all, is what this is all about.

Open Challenge to East Hollywood Landlords

Guess what we get for one bedrooms with no parking on Westmoreland in East Hollywood. Give up?

$1,500 / month.

Here is an ad for the 2 bedroom unit that we have on the market now. We’re asking $2,000 and we’ll definitely get it. [Edit: We got it.]

On a per square foot basis, those rents rival anything landlords get in West Hollywood. How is this possible?

Two things are going on, one any owner can control and one that’s just dumb luck:

1. We have amazing units. We gutted the building when we bought it and completely turned the apartments into little homes that people are proud to live in. A lot of that is just good design; it’s not like we spent a ton of money on high-end appliances or designer tiles. Here’s an example:

2. Location. East Hollywood is very close to Sunset Junction, which is one of the coolest, most walkable parts of LA. It’s not rocket science. Given a choice, most young people with money to spend on rent want to live near enough to bars and restaurants and cafes that they can have a great life without getting DUIs. Here’s where we are relative to Sunset Junction:

 

So here’s my challenge to my fellow landlords on Westmoreland and all over East Hollywood: Why aren’t you getting the same rents we are? Why not spend a bit of money on your buildings and turn them into the kind of places people actually want to live.

Make them more like this:

 

And less like this:

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.