Buying a duplex with long-term tenants

[Tyler Junger]

Hi all - My wife and I are working on our first deal. Our plan is pretty typical - FHA our way into a duplex and live in one unit for a short period of time, then move to a single family and rent both sides out. We've identified a property, but I'm looking for advice on dealing with the tenants on-site. Both have lived there quite a while and are on month-to-month leases at substantially less than market - something like $100 under per month, each. Obviously, we need to end one of the leases because we need a place to live. The other tenant is the issue. I've thought about approaching this in three ways. First, we could leave the tenant as it is. This really isn't an option. While he takes good care of the unit, the property won't cash flow with his rent where it's at. The second option would be to raise his rent upon (or sometime after) closing. I think this has both upsides and downsides. On the upside, he might be expecting an increase at that time anyway, so there's less of a surprise. On the downside, it makes me look callous and I have to live next to him for at least a year. The third option would be to end both tenancies and find a new tenant from the get-go. This is likely the safest option and the best in the long run, but I do run a risk of not getting a tenant in for a month or more after closing. It would give us a chance to get into his units and make some cosmetic updates, but those won't be necessary until the unit comes vacant - so by ending his tenancy, I'd just be bringing those costs on myself sooner. Any thoughts? Thanks, Tyler

[Paul Kuegle]

Hi Tyler, great job getting your 1st duplex! My thought on the second tenant situation is if he is a great tenant & you are wanting to only raise the rent by $100 per month it may not be worth it. You'd be better off just increasing it a little every year until it's caught up. If miss out on 2 rental payments and you find a renter @ $800/ month for only 10 months you 1st yr that's 8k/yr. Where if you leave it at the $700/ month with a stable great tenant that's $8,400 for your 1st year. $700 x 12.