Tenant buyouts, also referred to as "cash for keys," have become a prominent strategy in Los Angeles' multifamily real estate landscape. Tenant buyouts, often referred to as "cash for keys," have become a common strategy in Los Angeles. With rent control policies tightening, landlords and property owners are offering tenants lump-sum payments to vacate their units voluntarily. These buyouts allow property owners to regain control of rent-stabilized apartments and eventually re-rent or sell the property at market rate. This article delves into the process of tenant buyouts, the top Los Angeles zip codes with the highest buyout activity, and a breakdown of buyouts by dollar range, offering insight for investors navigating this unique facet of property management.

Process of a Tenant Buyout in Los Angeles

1. Notification: Landlords must inform tenants of their rights during the buyout negotiation process, including their right to decline the offer.

2. Negotiation: Both parties agree on a buyout amount, which varies based on market factors, tenant tenure, and the urgency of the buyout.

3. Formal Agreement: Once terms are agreed upon, both parties sign a written agreement that specifies the buyout amount and timeline for vacating.

4. Execution: The tenant vacates the property, and the landlord pays the agreed-upon amount.

Data Overview of Tenant Buyouts in LA (2019-2023)

Buyouts by Year (2019-2023)

The data shows fluctuations in tenant buyouts over the past five years. The following table highlights the number of tenant buyouts for each year. Despite the overall trend of rising buyout cases, the numbers reflect slight dips during certain years, likely impacted by external economic conditions such as the COVID pandemic, Measure ULA tax, and rising interest rates.

• 2019 - 1,209

• 2020 - 1,100

• 2021 - 878

• 2022 - 892

• 2023 - 832

Top 15 Zip Codes for Tenant Buyouts

• 90004 (Koreatown/Mid-Wilshire) - 380

• 90026 (Echo Park) - 264

• 90019 (Mid-Wilshire) - 243

• 90006 (Koreatown/Pico-Union) - 380

• 90016 (West Adams) - 172

• 90027 (Los Feliz) - 145

• 90028 (Hollywood) - 137

• 90036 (Fairfax District) - 123

• 90018 (Jefferson Park) - 112

• 90029 (Silver Lake) - 105

• 90046 (Hollywood) - 90

• 90024 (Westwood) - 80

• 90013 (DTLA) - 76

• 90049 (Brentwood) 70

Why are Koreatown, Echo Park, and Mid-Wilshire Leading Buyouts?

• Gentrification and Redevelopment Pressure: All three neighborhoods are undergoing rapid gentrification, with developers and investors seeking to redevelop older buildings into modern apartments or commercial spaces. The growing demand for new development projects in these areas drives landlords to offer tenant buyouts to free up rent-controlled units, enabling them to capitalize on the rising property values.

• Proximity to Employment and Amenities: These neighborhoods are highly desirable due to their proximity to employment hubs, cultural landmarks, and public transportation. Investors view properties in these areas as prime real estate, which adds to the financial incentives for tenant buyouts. Koreatown and Echo Park, in particular, have seen significant increases in property values, pushing landlords to seek buyouts as a way to maximize the potential of their investments.

• Older Housing Stock: Much of the housing stock in Echo Park, Koreatown, and Mid-Wilshire consists of older buildings that are subject to rent control. Landlords often find it financially advantageous to offer buyouts, which allow them to renovate or redevelop these older units into modernized, higher-rent properties. Additionally, many long-term tenants in these areas pay significantly below market rate, making buyouts a more lucrative option for property owners.

Buyouts by Dollar Range

• $0 - $5,000 / 259 buyouts = $896,398.37 total amount paid

• $5,000 - $10,000 / 573 buyouts = $4,913,181.72 total amount paid

• $10,000 - $15,000 / 764 buyouts = $9,893,972.69total amount paid

• $15,000 - $20,000 / 634 buyouts = $896,398.37 total amount paid

• $20,000 - $25,000 / 1,286 buyouts = $29,423,058.62 total amount paid

Tenant buyouts in Los Angeles have become an increasingly common practice as property owners seek opportunities to vacate rent-controlled units and maximize property value. For multifamily investors, tenant buyouts can offer an opportunity to maximize the value of rent-stabilized buildings. However, the costs can add up quickly, especially as the average buyout exceeds $24,000. Investors should also consider the legal complexities involved and ensure compliance with the city’s regulations.

Disclaimer: I am not a lawyer or legal expert, but I strive to offer the best insights to serve my clients' interests. Always consult with a qualified legal professional for any legal advice regarding tenant buyouts and rent control regulations.