Raise the rent or remodel?

6 Replies

I purchased 5 duplexes in August. All but 3 units were on month to month leases. I’ve raised rents on 3 so far because they were ridiculously low. I have 3 others that I need to raise as well. Two of them need work and are in the same building. Each of them probably need $3k - $4k worth of work. They are at $775 and $750. The area rent for the same unit is $950 for a clean and updated unit. The question is... do I raise them to $825 or $850 to build up reserves and and not lose a months rent from each side or bite the bullet for something I won’t see the returns on for a year and a half or two? Thank you for your insights

I would raise the rents, and continue raising them (quarterly, semi-annually?) to close the gap between where you are and where you want to be.  You don't know where the threshold is, but the Tenant will tell you when they decide to move out at whatever level the raised rents go to that is beyond them.  Take that opportunity to renovate.

My reasoning behind it is that you will want to take advantage of the turnover between tenants to remodel.  Why kick out a perfectly good tenant to remodel when you don't know how high they are willing to go to bridge the gap between the low rents and the market rents?  You could get closer than you think without having to put 1 cent into the property.

Just my thoughts.

Michael,

I would recommend speaking to your tenants and gauge what kind of rent they would tolerate. Cara is right, you may be able to continue to raise rents without putting any money into it. I don't know how long you are planning on holding onto the units, but running the numbers and seeing what kind of cash position it would leave you at when you plan on exiting may help guide you to a decision.

Hope this helps!

You know your reserves. Figure the work cost plus the vacancy cost for the reno and if you have that in hand in addition to your normal reserves you are good to go. If that is true now or 30 days from now I would raise the rent. They will leave when you get too high and then you can reno.

Maybe you can turn them and set expectations going in - are any of the projects/work conducive to managing while you you have a tenant present?  That kind of management is what separates the men (and women) from the boys (and girls) in my opinion.  If you can manage tenant expectations and those projects cost effectively in that situation, then you deserve to collect the rent while doing the work!!!!

No idea what you have there but we've done that on a few projects and although challenging it is to be commended and is rewarding financially if you can pull it off.

The market rate in your area should set your rent...... if you are way below, then gradually increase it to slightly below market. If the tenants stay, then you are golden...... you aren't putting money in and you are close to market....best of both worlds.....if they leave, renovate and bump your rate to market rate for an updated/renovated unit

No point in kicking them out, dumping $$ in and then jumping up a lot to market

I would raise rents to whatever they should be currently, then end the leases in February and spend March renovating to get you to the $950-$1000/m rate.

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