Should I Propose A Buyout to My Landlord?

by | Oct 25, 2012 | Tenant Buyouts

I live in an old 12 unit Victorian (1890s) in San Francisco’s Haight Ashbury district.

Tenants in our building suffered through the Lembi years where some of my neighbors were offered $25k to move (poor timing on my part).

The new owners are currently renting upgraded units for $3200. I would like to propose a buyout to the owner and see if they would be interested in my unit.

My rent is $1140 for a large 2 bedroom. We have a middle man management company that facilitates all correspondence. Should I send the request to them or is it a better tactic to try and locate the actual owner’s contact information to send the proposal letter to?

I have no idea if the owner would consider offering a buyout, but figured a good pitch may make them consider it considering after upgrades, they would yield a $2k profit monthly.

As you may know, I help tenants negotiate buyouts all the time. I’ve written four articles that illustrate the negotiation process, strategies to obtain the best price and the provision that should be contained in a settlement agreement:

Tenant Buyouts
Tenant Buyouts: Your Absolute Bottom Line
Tenant Buyouts: Strategy for Success
Tenant Buyouts: The Agreement

99.9% of buyout offers are initiated by landlords accompanied with a vague or overt threat of an Owner-Move-In (OMI) eviction or an Ellis Act eviction. Landlords rarely move into 12-unit buildings and almost never take them out of the rental market using an Ellis eviction because 12-unit buildings cannot be converted to condominiums.

The Lembis offered buyouts four or five years ago as a part of their scheme to inflate the projected income of their buildings to refinance them using collateralized debt obli­gations (CDOs), “a strategy that made their holdings more attractive to all that practically free short-term money—hundreds of millions of dollars—flowing in from around the globe.” Danelle Morton, “War of Values,” San Francisco Magazine.

In my experience, I have successfully negotiated only one tenant-initiated buyout. That was a unique situation in which the same landlord had previously offered the tenants a buyout and after several years they essentially reactivated the negotiation.

Most landlords will smell a rat when a tenant, on her own initiative, offers to move for a payment of money. Correctly or not, landlords figure that a tenant offering a buyout may be ready to move voluntarily anyway–as in already found a new place and wants some quick cash to exit.

Your management company may exacerbate that problem. Even if they will faithfully communicate your offer to the owners of building, I believe that a better strategy might be to try to make you offer directly to the landlords. Who knows? The owners might simply refer it back to the management company. Or they could get perturbed that you contacted them directly. Before you initiate the offer you should try to find out as much as you can about the landlords.

Your analysis of the potential income from your unit might serve to convince the owners to buy you out, but their apparent lack of motivation does not bode well for a lucrative deal.

Let’s say you could convince that landlords to offer $25,000.00 with a move-out date in three months. Unless you are buying a place or already know where you’re going and you’ve done the math, you should understand that $25,000.00 won’t go very far in this market.

To replace your current apartment you will likely have to spend at least $2,500.00 per month (and I may be guessing low). In about 18 months your money will be gone and you will still have to come up with $1,360 per month more to rent a similar apartment. Using your market calculation, the money will be gone in about a year.

So, I suggest that you think long and hard before you voluntarily enter into buyout negotiations with the landlords.

Be careful what you wish for.

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