Long term tenants below market rent strategies

[Cameron Collins]

Thinking about purchasing a two unit property in Lowell, Ma that's within my budget (400k-500k). Toured it recently and it's in good shape other than some uneven floors from the foundation however the two long term tenants are paying 800 and 850 per month. The market rent is around 2000-2450 for 2 bed 1 baths in the area. I am confident that a light rehab could bring the rent up to just below market(1700-1900/mo) in order to make it cash flow but I'm not sure if this scenario is worth it. Could I make the sale contingent on the property being delivered vacant? Do I steer clear of something like this? Thanks 

[JD Martin]

Well, it depends how hard it is to get the tenants gone in that locale, how long it takes to turn a unit and how long you can afford to be without tenants. You'll have to start over with new tenants as my experience says you're never going to get these tenants up to anywhere near market rates. If the seller is willing to deliver empty, that's probably your best bet. This will be a hard sell, however, as lots of things could make the deal go south and the seller isn't going to want to be without the income if it does. So you'll probably have to get them gone yourself after closing, which is where you need to know how easy/hard it is to do so.