Screen Existing Tenants?

[Carl Rowles]

This is my first BP Forum post - please be gentle! 

Looking to buy our first invesment property. One we're looking at is a multi-family duplex. Tenants have been there for 7 and 10 years respectively, but rent is is about $350 under market value. They're on month-to-month leases. How would you proceed in this situation if you were to pursue the rental? I still have to see what's happening with utilities, but right now it would cashflow anywhere from $150-$300 (depending on the loan type and DP we select) with a CoC ROI between 9.9%-10.8% (lower than some other options we're looking at, but it already has tenants...)

Thoughts?

[Nicholas Coulter]

What are your tenant right laws like in Cedar Rapids? Can you end the lease and get new tenants in at market rents? In my experience land lords who have that length of tenant and they can show rent rolls of payments on time are ok with sub market rents because the tenant is so "easy". With you paying market price you may not feel the same. 

[Nathan Gesner]

Quote from @Carl Rowles:

As a rule of thumb, I prefer to remove any tenant that is currently 20% below market or more. Why? Because the typically can't afford the increase. Even if they can afford it, they won't be happy about it and you may have more problems down the road. It's best practice to remove them, spruce the place up, and put in new tenants at market rate that have been screened and approved by you.

[Brandon Polcawich]

I'm still learning a lot about this and our initial thoughts were to find a place with tenants. However, we just looked at our first property last week that had tenants and our minds changed.  Now other properties could be different, but we are now looking for duplexes with 1 vacant unit so we can rehab and get market rates and then move the other tenant out after the rehab.  It was definitely an eye opener especially because the pictures online showed a completely different picture of the state of the units.