rehabbing a multi-family

12 Replies


I've listened to several of the rehabing podcasts etc shows 2,12,18,21 but no-one makes mention of rehabbing a multifamily. How does rehabbing a occupied multifamily (say 3-4 units) work if youre working on a timeline to pay back lenders in a tenant friendly state. I assume its going to take several months to get the current tenants out. Even with a cash for keys. This is not guranteed if the tenant does not want to move. Do you calculate paying a high enough amount that the tenant would move or do you calculate holding for holding for long enough to get the tenants out. In my area most houses are multifamily. Or are there anything else to do?

Im closing a 12 unit this week and all 12 units need cosmetic rehabs. New entry doors, paint (on everything), flooring, light fixtures, replace all switches, receps, GFCI, countertops, backsplashes and appliances mainly. Nothing too crazy. My plan is wait until the 1st vacancy, which sounds like it will be very soon due to a pending eviction. I'll update that unit and then hopefully move a current tenant from another unit in at the higher rate and then rinse and repeat to get them all done in 12 months or less. I have 3 years before I need permanent financing though.

I would think there is no reason to get out tenets that are currently happy with their living environment.  I would suggest fixing after tenets have vacated, versus forcing evictions and adding unnecessary costs.  Keep performing units performing!

@Mike Mitchell  

We like to have 1-2 units in a smaller building and, 15-25% in a larger building (until we hit our velocity limit), vacated when we begin renovations - or shortly thereafter.  As units are completed we give those tenant whom we would like to keep first opportunity to occupy the newly renovated unit  (keep in mind that there is usually a rent increase involved here).

You can do outside reno's fully occupied, but we go the route spoke of in a couple of the other replies: Wait until a vacancy. We have a "one man" team anyway so it works nicely to have one full apartment renovation at a time which can take 1-3 weeks depending on the depth of the upgrades. 

We also "layer" our improvements. 123 Main St. Apt 1 might get new vinyl and light fixtures with its first tenant. Two years later when that tenant moves out, maybe new paint and windows, and so forth. We try to keep things as synergistic as possible. For example it's often cheaper per window to put all 9 windows in a unit vs. replacing the 5 worst now and the other 4 later.

@Frankie Woods   This would be on a fix and flip my intention would be to get this done in a few months and resold unoccupied.

@Roy N.  @Brandon Hicks   That is a great idea for when i'm ready to hold multi-families.  But this wouldn' t work for a flip. to Move the tenant with the ultimate goal of getting them out to sell vacant.

@Mike Mitchell  

The above approach could also work with a flip. Unless you are looking at a residential (SFH - part of the rehabilitation of a multi-family building is to fill it with quality tenants and have it on its way to stabilisation when you sell it.  

You will command a better price for a {partially} filled MFH, than an empty one (provided you have placed quality tenants).  Rarely would a buyer want to purchase a 16 - 50 unit building that was vacant.

@Roy N.  yup it would be for a residential property possibly 3 units. I know for larger buildings flips are usually a value added play to increase rent over time and resell

Ouch!  Didn't catch the flip part, sorry.  I honestly would plan on holding for as long as the longest active lease period.  You may also need to account for an eviction if they do not want to leave. 

However, you could always consider working with the tenets and conducting rehab work while they still live there if the cooperate.  Perhaps they'd like to stay with the new owners?

Originally posted by @Mike Mitchell :

@Roy N.  @Brandon Hicks   That is a great idea for when i'm ready to hold multi-families.  But this wouldn' t work for a flip. to Move the tenant with the ultimate goal of getting them out to sell vacant.

This would not work well.  You will need to prove the rents to get the higher selling price.  Lenders don't like to lend on vacant properties.  Buyers like to buy full properties.  Why on earth would you leave it vacant after upgrading?

@Steve Olafson from buying my first property retail last year. All of the rehabbed 2-3 families I looked at were fully vacant and fully rehabbed selling to owner occupants. From my understanding on a 3-4 family the selling price would still be based on comps like a SFR.

Originally posted by @Mike Mitchell :

@Steve Olafson from buying my first property retail last year. All of the rehabbed 2-3 families I looked at were fully vacant and fully rehabbed selling to owner occupants. From my understanding on a 3-4 family the selling price would still be based on comps like a SFR.

Must be different where you are located.  In my eighteen years of apartment investing, I have never seen this as a strategy.

Lenders do like to see income.  If you don't have rents established then the lender will figure this part on their own.  Income still matters.

For what it is worth... I use comps to determine the value of 100 unit properties but will adjust that value based on the occupancy.

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