Rental Property With Tenants

5 Replies

Hello Friends,

I am about to go to contract on my first investment property. I am very excited about deal. One cause for concern is that it is a duplex with tenants in the house. I have received a copy of the leases and all looks good. From what I have heard the tenents seem to be good. One tenant has been there for 4 years and the other for 15 years. The problem is that their rents are way under valued. The tenant who has been there for 15 years pays 1300 and should be paying 2000. The other tenant pays 1100 and should be paying at least 1600. Leases run out 4 months after I acquire property. How should I handle this?

I am afraid the woman who has been there for 15 years may consider it "Her House" and will refuse to move unless I evict. Should I raise rents slowly and try to keep them? Should I just not renew leases? Should I see if they can pay the new rents? What else should I be concerned about with inheriting tenants? I dont want to start with 2 tenants not paying rent.

I would not get rid of both tenants at the same time! If you do that, the property is not generating any income! You can raise the rent on one side first if they go for it great... if not let them go. This would give you a vacant until to upgrade if needed and relist... then repeat. Good luck!

@Tim Ger welcome to BP.  There is no magic answer here.  You might ask the seller his opinion after the deal has closed.  If you are self managing you will have to make the call yourself.  If you have a property manager ask their advice.  A lot will depend on how much rehab will be needed after one of them moves out.  If you have limited money then you only want one at a time out.  If your funds are in good shape you might want them both out at once to get a fresh jump on the rehabs.  The last 4 plex that I bought where I had the same problem, but not as bad, I raised everyone's rent some, and talked to each tenant and explained what market rents were and asked if they would want to stay if rates went up that high.  I also took note what one kept the property up the best.  I lost 2 tenants which were staggered out over 4 months, and 2 stayed.  I kept rents just a bit below market so I could get good tenants fast and because I self manage and time is limited.  Long term tenants are worth more than an extra $50 or $100 per month.  Your situation may be different and you must follow it accordingly.  Either way good luck.

If you want to try to increase rents as much as you're saying, you should plan on having the current tenants leave.  That's OK.  You should (must, really) have cash reserves to handle your mortgage payments in a case like this.  Maybe not pleasant, but, assuming your evaluation of rents is correct, you're "losing" $1200 a month.  If you lose a month of current rent ($2400), you'll make that up in two months at the new rent.

OTOH, maybe you want to keep the existing tenants.  If they leave, you will have significant make ready expenses.  Especially in the unit that's been occupied for 13 years, but even after four years you're looking at complete paint and flooring at the very least.  The 13 year one I'd assume all new appliances, too.  Your higher rents almost certainly assume a fresh unit, not one that's just been vacated after 13 years continuous use.  So, you need to consider that cost, too.  You might want to consider a smaller, but still significant increase, like $200 or so for each unit.  If they accept, you  get more money and avoid the vacancy and make ready.  If not, well, you have your answer.

Personally I would put the rents at what they should be at when their renewals are up.  

If they move out I would immediately renovate and put up for sale. 

@Tim Ger congrats on jumping in!  You're one step ahead of me but not for long haha.  I used to live in a duplex and the lady that lived upstairs had literally lived there for 23 years and I am almost positive she was a hoarder.  From what I've read and heard, the tendency is that people who have lived somewhere for that amount of time (15 years) are pretty hard on the property itself.  I'm guessing you have been inside each unit so you've seen the condition of the property first hand and hopefully its not too bad.  I would talk to the previous landlord about each tenant and then feel them out one on one and see who is more likely to pay the increased rent.  The 15 year tenant might just surprise you and pay a much higher rent (doesn't sound like they like to move!)

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