We are in the process of acquiring a four-plex through an FHA loan and will be house hacking the property.
After assessing the market through the MLS with both properties that are up for rent and that have closed within the last 6-12 months we found that the current tenants rent are well below market value, Approx. $200-$400 below.
I have read about increasing the rent gradually over time in order to keep the tenants and not have a mass exodus. As far as increasing rent I know that there should be some upgrades to the property but the properties are in great condition and are current/comparable with all the other properties that have closed in the last 12 months for the increased rent amount.
I am hoping to gain some extra nuggets of information about how to handle the current tenants and be able to bring up the rent to fair market value. We want to be fair to the current tenants as they have lived there for over 5 years but also need the numbers to make sense for investment purposes.
Thank you all in advance for your time and input!
$200-400 may be a lot or barely anything, depending on the base. What are actual market rents and what are these units renting for?
Since you are going to be occupying one of the units, there's nothing more important than having quality tenants, because bad tenants are going to make your living conditions miserable. So, if it were me, I would probably assess who is in my building and go from there. I'm not saying don't bring rent up to market levels, but sometimes there's a trade off between easy and profitable. More profit *usually* = more work. How hard do you want to work?
For the most part, I bring units up to market when they go vacant. I have had a couple that I moved along as things went, but that was also a subtle hint that I wanted to overhaul the unit or lose the tenant.
Current market value is around $1500-$1600 a month. Current tenants rent range from $1025-$1200, the tenants that are with the lower rents are already on a month to month status.
Thank you for the input, i’ll definitely consider that once we take possession and meet with the tenants.
If you want to keep the same tenants, I would suggest no more than a $50 increase the first time around. After you have a year or so under your belt with them and established a rapport, you may be able to raise the rent by $100-150. I would have a conversation with them where you explain how much you value them but let them know how under market they are and how high your expenses (mortgage, taxes, etc.) are. In other words, if rents should be $400 higher, then a $100-150 increase doesn't seem so crazy and conveys that you care about them. I just wouldn't do that in year one until they know and like you. (I have successfully applied this method.)
Thank you for the input, we definitely want to go about it in the right manner which aligns a lot with your approach.