Buing a 4plex and trying to decide whether to raise rents....
Investor · Anchorage, AK · Member since 2016 · 15 posts · 1 vote
Buing a 4plex and trying to decide whether to raise rents....
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Tyson CoxPro Member
Rental Property Investor · Soldotna, AK · Member since 2014 · 72 posts · 28 votesI have a few questions for you:
1) Is $995 already at market rent for the specific area your building is in?
2) Why is one unit at $915? Does it need work? Is the current tenant on still locked in with a lease?
3) Will the increase to $995 for the $700 unit actually get the tenant to move? If comparable rents are about the same, tenant may not move.
4) Do you really want the longterm tenant to move? They probably don't complain about much and are comfortable in their apartment.
I would consider raising the rent on the $915 unit first. If that tenant moves, I would offer it to the longterm tenant at market rent. They can choose to move there or move out. The more choices you can offer tenants, the easier things go.
11 Replies
- 10yTyson CoxPro MemberRental Property Investor · Soldotna, AK · Member since 2014 · 72 posts · 28 votes
I have a few questions for you:
1) Is $995 already at market rent for the specific area your building is in?2) Why is one unit at $915? Does it need work? Is the current tenant on still locked in with a lease?
3) Will the increase to $995 for the $700 unit actually get the tenant to move? If comparable rents are about the same, tenant may not move.
4) Do you really want the longterm tenant to move? They probably don't complain about much and are comfortable in their apartment.
I would consider raising the rent on the $915 unit first. If that tenant moves, I would offer it to the longterm tenant at market rent. They can choose to move there or move out. The more choices you can offer tenants, the easier things go.
- Investor · Anchorage, AK · Member since 2016 · 15 posts · 1 vote10y
Thank you for your response! I will try to answer your questions.
1. Yes 995 is in the range of fair market value for 99501.
2. I would say the unit that is 915 needs a little work but I believe they are paying less because their rent was negotiated after the current owner turned the property over to a property management company.
3. If the tenant did not move out and the rent was raised to 995 I would be surprised but happy that I was now getting market rate without having to invest in renovations.
4. I don't really want the long term tenant to move. I simply don't want to miss out on 300 dollars a month in potential income and therefore about 3600 a year....
- Member since 2016 · 13k+ posts · 12k+ votes10y
What are your regulations regarding your rights as a landlord to raise rents. If you are not allowed it is a moot point.
If it is allowed why do you want to supplement your tenants rent and why do you think she will leave, why do you care if she leaves. If replacement tenants are available why would you choose to losing money. This seems to be a strange way to operate a business and smells like charity.
Put on your landlord pants and raise all rents to market if allowed. This is what every tenant expects will happen under a change of ownership.
- Investor · Anchorage, AK · Member since 2016 · 15 posts · 1 vote10y
Thanks for your response. In Alaska it seems that rent can be raised with only providing a 30 day written notice. I will most likely be raising the rents to market value when I take ownership.
- 10yBlake ElderBusiness MemberProfessional · Wasilla, AK · Member since 2014 · 35 posts · 16 votes
@Nicholas Lehman- I live and work in your area in the real estate industry. Great work on your first investment property and especially getting in with the great rates and the down payment option the FHA program provides! My wife and I bought our first 4 plex a few years ago doing the same program. We are planning on doing it again this upcoming summer. I am representing the seller on a 4 plex that is closing with an FHA loan this week, and as you know, in our area it is very popular right now to invest in multifamily.
Since as a condition of your loan you have to intend to move in to one of the units within 60 days of recording, the lender will require a "notice to vacate" that was delivered to one of the tenants before recording. I would encourage you to learn, memorize and understand the Alaska Landlord Tenant act. Here is the link to it.
http://www.law.alaska.gov/department/civil/consume...
I am no lawyer, but the way that article 8 is commonly interpreted in the industry is that if as a condition of a loan you need to move in to the home, you are able to issue a "notice to vacate" to any of the units, regardless of the rental agreement you are inheriting with the purchase.
So to answer your question,
1. You can occupy any unit you would like, you just need to give them the "notice to vacate"
2. It would be encouraged to raise her rent to something that reflects more of a market rate.
3. Some people advise to wait to do anything regarding the rates until you have owned the place for a few months and learn more about how it operates. Just like buying a business. Other people take the opposite side and say, buy it and start immediately making changes. As a new investor though, it might be good to close and then move in and watch and see what is happening for a few months before making changes.
4. The point has already been made, but 1 month of vacancy is the same as renting the unit for $100 less for 9 whole months, so act cautiously when making adjustments! Hope this helps, and congrats again on your purchase!
RMG Real Estate538 Reviews - Real Estate Investor · Anchorage, AK · Member since 2015 · 117 posts · 42 votes10yNicholas, Congrats on getting your first 4-plex under contract! I did the same thing 3 years ago and it was the best decision I ever made! When I moved in, the rents were also under market. I lived in the property for a few months just because I was busy with work, didn't have a chance to sign new leases and raise rents. This was a good thing I think. I signed new leases and raised rents $50, but gave them a 3-month head's up. As inexperienced as I was at the time, this ended up being a very good move. I was able to get to know my tenants for a few months and for them to get to know me. Then, I gave them time to adjust to a new rent rate and I still have two of the same tenants today after another rent raise (one tenant bought a house). I have a friend that bought a 4-plex and raised the rents right away. The tenant they raised the rent on that was a good tenant moved out. They then had a month vacancy before they found another tenant. Not the worst thing in the world, but just something to consider. - Connor
- Member since 2016 · 13k+ posts · 12k+ votes10y
You will make your transition much easier and cost effective if you boot the long term tenant paying $700. Many reasons.
1) she may leave anyway when you raise her rent (if she doesn't then what is your plan)
2) if you move in there you are only out $700 a month on rental income
3) it requires the most reno work which you intend to do.
4) moving into one of the other units and not raising her rent immediately cost you an additional $300 + a month in lost income.
5) smoothing over any hard feelings with the other tenants will be easier when you explain you need to reno her unit rather than dealing with their reaction to you jacking her rent and forcing her out.
It's a matter of perception so if you want her apartment just take it and move forward. That fixes everything.
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes10y
Congratulations @Nicholas Lehman. I also just bought my first 4plex. I would suggest studying your rental market very hard before doing anything on rents. I looked at every rental unit in the newspaper, Zillow, Craigslist, I called 2 realtors who managed units, and a local landlord who had multiple units. Based on that research I decided where my rates had to go in order to get them where they belonged. There is no substitute for knowing your local market.
- 10yTyson CoxPro MemberRental Property Investor · Soldotna, AK · Member since 2014 · 72 posts · 28 votes
If you have to move into the building as part of the loan you plan to utilize, then it would definitely make the most sense to occupy the longterm tenant/low rent unit. If this tenant is not on a current lease or has a month to month agreement, you are only required to give a 30 day notice to leave for renovations.
I did this with one of our buildings and longterm tenants in Soldotna (gave them 60 days). I explained to them that the apartment really needed fixed up and these renovation would not be possible with them living there. They were very upset at first, but agreed that the improvements were necessary. I have seen them around town since then, and they say they like their new place a lot because of the proximity to stores. Sometimes it takes someone else forcing change for change to happen.
It sucks to have to be the one to tell people they have to move, but that is part of being a landlord. I just try to do it in the most respectful way possible. Always keep in mind that people are very emotional about their homes.
- Real Estate Broker · Anchorage, AK · Member since 2015 · 170 posts · 46 votes10y
@Nicholas Lehman Congratulations! Great first step on your real estate investing career!
I would only advise having her vacate the premises if you:
A. ) Need that extra cash flow to make the property make sense.
B.) Plan to renovate it right away.
C.) Plan to owner occupy that unit.
I doubt that unit has seen upgrades in some time, so it would need attention right away if you plan to have her leave and move in a new tenant. If you are owner occupying, a lot of times owner-occupiers will live in the unit that needs the most work as they can stomach living in a less than ideal condition unit due to cash flow and leveraging. Not to mention you can renovate at your own pace.
As I think some one stated previously, you must owner occupy one of the units according to FHA guidelines. I will say, having one of my tenants lived in one of my units for 9 years, it's awesome to have them there as your eyes and ears, not to mention they are little upkeep. They tend to take some responsibility in the property due to living there forever. Worse case scenario, you have a lifer who pays you rent on time very month.
I would advise to raise rents, but take caution. Owner occupying as a landlord is a different beast. Tenants, can, at times, grow to despise their landlords. Doesn't make it fun when you're living right there! Give them ample notice and do it in a polite way that is not so matter-of-fact.
Good luck and congratulations!
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