By PadMint Pro

Better Or Worse To Sell Your Los Angeles Apartment Building With Vacancies??

This seems to be an interesting topic that we think is worth touching on.  We believe that peoples initial thought is that vacancies at the time of sale would definitely not get you top dollar for your building.  If owners have vacancies coming up and are thinking of selling their buildings in the near future they tend to think its better if they lease up that unit so the income of the building looks better on paper.  This can sometimes be true but it can also cost you if the building falls under rent control and you didn't lease the unit for full market rent, therefore, leaving potential income on the table.  Vacancies = less income = worse CAP rates and GRM's at the time of sale.  However, here in Los Angeles, because we have rent stabilization ordinance, it's an interesting point that I think is worth putting out there.

There are tons of multifamily buyers here in Los Angeles who spend a lot of time analyzing market rents, rehabbing units, and seeing what numbers can truly be achieved in a given market. When they have vacancies they typically try to do an extensive rehab so they can push the rents as high as possible in a subject property.  However, if there aren't any vacancies they can't just relocate tenants and rehab the units to "market rent."  On multiple occasions, owners sell their buildings with all the tenants in place and believe this will maximize the purchase price of their building.  Logical thinking but if there are tenants in the building that are not at market rent there is only one way to try and get them out.  Cash for keys.  This is another topic in itself but it is when the owner of a building and the tenant agree for the tenant to relocate in exchange for X amount of money (there are now specific guidelines in place which everyone is supposed to follow). This can cost an owner anywhere between $10,000 to $40,000+ per tenant depending on what they agree on!

In some cases, the owner may have just had a few vacancies and figured it would be better if they put a tenant in there (not at market rent cause they don't want to spend the money to rehab the unit appropriately) before they take the building to the market.  However, assuming the new investor would like to raise the rents to market rent he now needs to go through the process of talking with the tenants about possibly relocating and spending thousands of dollars if they are open to the idea.  Although it is correct to think that not having vacancies would increase the value of your building because the income is better I would suggest that you speak with an agent before making the decision to put a tenant in your building.  The vacancies can actually help the sales value of your building because its easier for the new owner to go in, fix up the units, and achieve maximum rent.  Here in Los Angeles, especially with the rent control rules, having vacancies isn't the worst case scenario! You could potentially save yourself time, energy, and money trying to fill up that unit while also receiving the highest price offer on your building! Granted, every situation is going to be a little different but this is for the people who might have some vacancies coming up and are thinking about selling their buildings in the near future!