Inheriting Tenants- variables of a deal?

Question

Good day BP.  I have been working to get info on a potential deal that finally came today(this property sure shed some light on why some properties sit for so long... trying to get info from listing agent was impossible, whether it was her or the owner at fault not sure).  It is a two unit property..... cash flow keeping current tenants and current terms is around $300/month... with less than $100,000 investment... the dilemmas being

*both units occupied on month to month leases... one has been in place for 4 years, the other 2 years

*One unit is very underutilized as is currently a 1 bed, easily could be converted to 2 or possibly 3

*Rents are a bit low, could be increased easily

My dilemmas..

#1- love that they are occupied on only month to month, meaning instant cash flow without long term commitment to tenants

#2-I think a limited amount of rehab could greatly improve one unit creating a $200-$300 per month rent increase, but would mean current tenant may have to go, which would mean some vacancy

#3- These are two separate units... so 2 of everything that could need work, repair, replacement, etc.

For the seasoned folks.. inheriting tenants.. how has that gone?  Does the month to month lease make it easier?  Does it make more sense to just leave as is and start cashflowing vs. improving property for higher rent?

What would you more seasoned investors do?

Brian Ploszay · Answer

You clearly want to reposition this investment deal, so it makes more money.   So you'll have to raise the rent.  And you possibly want to fix the units up in a way that gets more money.

Meet the tenants and get a feel for them.  Raise the rents on them and request a lease.  There is a 100% chance they will complain.  But less than 50% chance they will leave.