Newbie: based analysis on current or potential leases?

[Jon Krombein]

Hey everyone, I’m a newbie and looking and some smaller multifamily deals (6-10units). So far what I’m finding are buildings that are leased at below market rent. My question, should I do my analysis based on getting them up to market rate, or should I do it based on the current leases? Also, once I take over, what does the process look like to bring the rents up, do I just announce it at the end of each units lease? Anything else I need to consider? Thanks.

[Sam C.]

I would think both. Without knowing all the particulars of the investment, any analysis and purchase price should be based on current rents if for no other reason than a negotiating strategy. If the purchase can only make sense financially with the rent increases, your offer should account for the time and risk required to get the rents up enough to make the purchase profitable. 

Any increases will have to be timed with lease expirations/renewals. What does the lease say about it?