Seller finance w/rent 20% below market

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Seller finance w/rent 20% below market

Shane BurkePro Member
Member since 2023 · 8 posts · 0 votes

Running numbers on a quadplex (this would be my 1st property) a 2…2b1b & 2...1b1b via seller finance. All 4 units are rented month to month right now!  Rents are at $500 on all 4 units… market rents are  average $700…. 3 of the 4 tenants have been there for years!  I would increase rents slowly.  Should I ask only to make principal payments for a few months or take the small cash flow $70 a month till I can get the rents up?? 

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  • Kyle Sosnowski
    New to Real Estate · NJ · Member since 2023 · 71 posts · 20 votes
    3y
    Quote from @Shane Burke:

    Running numbers on a quadplex (this would be my 1st property) a 2…2b1b & 2...1b1b via seller finance. All 4 units are rented month to month right now!  Rents are at $500 on all 4 units… market rents are  average $700…. 3 of the 4 tenants have been there for years!  I would increase rents slowly.  Should I ask only to make principal payments for a few months or take the small cash flow $70 a month till I can get the rents up?? 


     Hi Shane, awesome situation you have btw, congrats to you. 

    I have never been in your particular situation, but am curious to hear more. 

    What would say your plan is exactly to raise rents in the future, did you ever consider what you will add to your rental while raising rent? Or have you just thought of gradually raising the rent little by little?  

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  • Nathan GesnerBusiness Member
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    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Shane Burke:

    I would increase rents slowly. 

    Best practice is to raise the rent all at once, not in increments. Raising it slowly is more likely to cause confusion, your tenants will still be unhappy with you, and you may cause someone to hang on longer than they should before they finally realize they can't afford the rent and stop paying or leave.

    I suspect you don't have a good grip on what these are worth, just like the current Landlord. He's charging the same rate for a 2bed/1bath as he is a 1bed/1bath? Clearly there's a difference in value and you may be able to get $700 for the 1bed and $850 or $900 for the 2bed. I have no idea where your market is, but I recommend you really look around to see what market value is before making any changes.

    My other recommendation is that you terminate all the leases, clean up the units, then rent them with tenants of your choosing that are willing/able to pay market rates. It sounds like a lot of work and risk, but I can assure you will get much better results than you would trying to raise rents on existing renters.


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  • Shane BurkePro Member
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    Member since 2023 · 8 posts · 0 votes
    3y

    Thank you for the input.   Yes the comps for the 2b1b are in that ballpark. But half of the comps are coming from a larger town that is 18ish highway miles away.  The other problem is the seller has also taken over the electric and water for both 2b1b…. The gas is not separated but relatively cheap for western NY. (town natural gas). So if we can agree on terms, the tenants will be taking over the utilities as well!  This is why my thinking was to raise rents slowly!  I’m not looking to renovate 2 or 3 apts out of the gate.  Which I’m worried might happen if they take over utilities and I raise rents that drastically.  

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