Sometimes I come across an article about a landlord/tenant relationship that does one of two things: 1) makes me think, “Gosh, how did that landlord ever get into that situation?” and 2) “How can I make sure I don’t find myself in that situation?”
Such was my reaction when I read a recent article about a master tenant who failed to pass on $41,000 in subtenant rents to the landlord, which put all the subtenants at risk for eviction, and obviously shorted the landlord on money owed to him.
My first reaction was “wow, that poor landlord,” but after further reading, I figured out that the landlord had to be an accomplice in the situation or at least some sort of participant in the wrong doing.
My first clue was that the article stated that German Maldonado, the purported master tenant and property manager, was the master tenant on all four units in the building. This is an odd arrangement, and as anyone remotely familiar with the Rent Control laws would suspect, not an arrangement you want if you wanted to legally maximize your return on investment.
What I believe was happening is that the landlord and Maldonado at some point came up with an agreement that Maldonado would pay some sort of rent to the landlord and, in turn, would operate the whole building as some sort of boarding house in order to get around rent control laws. In essence, getting more rent from each individual subtenant than the owner would have netted had he rented out each apartment to a tenant, and perhaps circumventing rent control laws in the process.
However, obviously the plan backfired on the landlord when Maldonado decided to withhold the rent payments.
The subtenants currently have legal representation and there is to be a trial in the coming weeks to decide their fate.
I bring up this article because I am always faced with landlords who think they have found a way to make an extra dollar or circumvent rent control laws. More often than not, these plans are illegal, or are so risky they don’t make sense in the long run. There are countless landlord attorneys in San Francisco, who spend their days trying to interpret laws so their clients can make the most of their investment. Chances are each scheme a landlord can think of has already been tried, and either failed or was deemed illegal and they were punished.
So I encourage all my landlords to walk the line and realize that owning investment property is not a race to deep bank accounts, but rather a long saunter that will pay off after years.
You can read the full article here.