I'm looking at buying a 30 unit complex. 100% occupied, the current owner has them all month. The rent is anywhere from $50-200 too low when compared to similar apartments nearby.
What's the best approach at raising rents in this situation, while avoiding a mass exodus? Making them sign a lease? Only raising 2-3 tenants rent per month?
A little more background, they are mostly older tenants, & many have been there for 5 to 10 years.
I'd suggest a gradual rent increase in conjunction with cosmetic upgrades to the building, then rehabbing units (if needed) afterwards.
One at a time. Start with the lowest rent first and raise halfway to market rate. Move on to the next if tenant stays or rehab unit and raise to market rent if they move out. Move on to the next. Good luck.
you raise rents because the cost of doing business has gone up, not because you want to make more money without regard for the folks there, right? Calculate what the unit costs are, what you need to make to be profitable, and work to get the rents up there 10% at a time. Most people will understand the necessity to raise rents to keep up with increases in taxes, maintenance or other costs; they may not be as understanding or accept an increase because you just want more money, especially if they perceive you are not improving the units. Solid tenancy, 100% as you suggest is worth a great deal; what is your vacancy cost? If you lose 10% of you tenants for 3 or more months, how long does it take to recoup with your increase in place?
I would start by raising all of them $50/month. This is the ice breaker as a new landlord/owner. Each year after that another $50 for every tenant still below market and raise all those at market each year to maintain them at market as well.
Some may leave but unlikely. Every tenant that leaves will be replaced by a new tenant at full market. Low paying tenants that choose to leave is a bonus for you. Win/Win.
Did you say current owner has them all on Month 2 Month, if so what a bonus for you.
I would across the board give increase to each and all the same amount.
If some ask if you for a longer lease term then I'd inspect the apartment before you commit to that.
I'd probably inspect each unit anyway with conditions sheet, and all new paperwork for the tenant and you.
Then 6 months out I'd do it again with another increase, start with the worst apartments first, with the next increase and or non renewal's and start renovating those units for up to market rates.
I'd say a 50 to 60 bucks to start and increase to 100 within 6 months, you'll have to see what your turn over is but with winter you'll have the majority stay, with vacancies more likely spring, summer.
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