OUT-OF-STATE investing: 15% rent increase and PM hiring once we close OR manage ourselves?
Hey guys!
We are purchasing a 3-br SFR out-of-state (NOT a turn-key), and current tenant, being on a month-to-month basis, wants to stay until his house is built in 5 months.
His current rent is 15% below market rent, and we were wondering what would you do in this scenario:
-Hire PM (property management company), have PM sign a new lease that reflects 15% rent increase. OR
-Sign a distant lease with the tenant and manage the property OURSELVES until tenant moves out. Once he moves out, hire PM for the next tenant.
My concern with not having a PM watching over the property is that it seems risky since we are out-of-state. Nobody to perform an initial inspection to make sure to hold the tenant accountable for anything that's destroyed once he moves out.
In the same time we want to accommodate the tenant and NOT increase his rent since he lived there for 2.5 years now, and we will HAVE to increase to cover the costs of hiring PM.
Will the property cash-flow positive without the 15% increase?
If so, then you may want to leave the rent as is to maintain a good, positive relationship with your current tenant, even though they are only staying for 5 months. They may go out of their way to care for the property knowing that you're doing them a small favor.
I also think it's a great idea to use a property manager regardless of your situation. If you're going to need one sooner or later, then why not get a good relationship started now to cover the existing tenant? You might also strike a deal with the property manager to waive or reduce their lease-up fee in five months knowing full well that this is a temporary tenant.
Good luck! :-)
You inherited the tenant, therefore, the only loyalty should be to yourself as a responsible investor. I think you already answered your own question
"My concern with not having a PM watching over the property is that it seems risky since we are out-of-state. Nobody to perform an initial inspection to make sure to hold the tenant accountable for anything that's destroyed once he moves out."
In addition, I would definitely raise the rent, where else is he going to go? He only has a few months to go and you are going to want a PM afterwards anyway so be proactive, avoid any problems and get the PM now.
@Marco Santarelli and @Jim Biggs , thank you!
Unless you're planning on a sugnificant rehab, I think I'd try to negotiate very free access to showroom new tenants at reasonable times etc. I'm sure that you have to give done notice to raise rent.
So 4 months at 15% more or maybe one month less vacancy. I'd rather have the quick turnover. Could go for both but raising rents 15% may not sound appealing to new prospects.