Rehab With Existing Tenants

[Nicholas Q.]

I have a 2 bd 1 ba SFR in Seattle. The basement is partially finished, but I plan to spend ~$35K to put in another bedroom and bathroom in the basement. I figure I could increase rents by $500/month (17% Cash on Cash Return).

The problem is that I just signed a year long lease agreement that doesn't expire until next April.  Is there any way I can remodel and raise the rents before then or do I need to wait until the lease is up?  Seattle seems to have a process for terminating a lease early due to rehab, but it is a 6 month process and may ultimately require me to pay the tenants a $1,600 fee for relocation benefits and I can't start the rehab until the property is vacant.

They are amazing tenants, so even though I'm excited about increasing value and cash flow ASAP, I think it might be worth keeping them through the year.  At this point, I'm wondering if I can wait until early next year to start the rehab, give the current tenants a discounted rent to stay through the rehab, and then asses a rent increase when the lease expires.