Cash-Flow Neutral Property with Under-Market Rents - Strategy Advice Needed!

[Gal Dagan]

Hello BP friends

My wife and I recently stumbled upon a triplex property that we really like – great location, solid bones, and a lot of potential. We want to make an offer. However, its current cash-on-cash return is neutral/negative (we are very conservative with our analysis). According to the seller's agent, the existing tenants are paying significantly(!!) below the median rent for similar properties in this area. 

While we're excited about the long-term prospects of this property, we're trying to figure out the best strategy for addressing the under-market rents. We want to be fair to the current tenants, but also obviously need to bring the property to a positive cash-flow position.

Has anyone been in a similar situation? We're looking for advice on:

When is the best time to approach rent increases? (e.g., immediately upon closing, after a certain period, at lease renewal?)

What's a good approach for communicating rent increases when the current rent is so far below market? Should we do it incrementally, or go straight to market rate?

Any other creative strategies for optimizing cash flow in a situation like this?

We're open to all ideas and experiences! Thanks in advance for your insights.

P.S
With average rents, the cash-on-cash return increases to ~7%

Best,
Gal