You get rid of the tenants first then reno and find new tenants at the new higher market rents.
Ideally you want to raise the tennats rent to market when you purchase and do nothing in renovations until they decide to leave. There is no reason to spend money on existing tenants. Tenant turnover is when you do improvements but only if it will raises your market rents for your next tenant. If renovations do not result in higher rents you only do a lipstick reno at turnover.
You get rid of the tenants first then reno and find new tenants at the new higher market rents.
Ideally you want to raise the tennats rent to market when you purchase and do nothing in renovations until they decide to leave. There is no reason to spend money on existing tenants. Tenant turnover is when you do improvements but only if it will raises your market rents for your next tenant. If renovations do not result in higher rents you only do a lipstick reno at turnover.
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
8y
You do what's required for habitability till you can turn it over and do a real job. I had low-life legacy tenants go all crazy that I was renovating another unit while theirs was crappy. She actually complained in one sentence about the water damaged walls and her son's asthma. Right, I'm going to gut out old plaster where an asthmatic kid lives!
The most I've done generally is flooring, painting cabs and putting on a new countertop.
Columbus, GA · Member since 2017 · 88 posts · 115 votes
8y
Echo the above, but it also depends on your long-term plans. Are you flipping the property, or holding it long term? I subscribe to the philosophy of not creating artificial vacancy. If it is cash-flowing when you buy it, then no need to upset the occupancy just to say you are rehabbing units. I keep the rents the same, and let natural turnover create the vacancy. If I know that in order to raise the rents $100, I need to do about $10k worth of work to a unit. That'll take me 8 years to make my money back. So it doesn't really make sense to remove someone from a residence.
As a counter argument, depending on the scope of the project, it may make sense for economies of scale to have everyone out at once.
*Side note: I realize that many may pick apart the reasoning of spending $10k for a unit rehab that only nets $100/mo more, but there is a specific reasoning for that. A $1k rehab won't demand more rent, and maintains the status quo. A $5k rehab may get you $25/mo more, but that's all. A $10k rehab creates demand for the unit, which reduces turnover, and increases the quality of tenant. It also has a cumulative effect on the perceived value of the complex. Attracting better tenants makes it a better place to live for everyone.
Rental Property Investor · Olympia, WA · Member since 2014 · 777 posts · 744 votes
8y
@Thomas S. has it right. Just to extend the thought... If you have a timeline on doing a refi you need to get it done sooner than later to justify your increased value for a new appraisal (appraiser will want a list of improvements completed).
I did a 10-unit a couple years ago. We raised everyone’s rent substantially - but not to full rent. That created some vacancy that we took advantage of. As new units came online existing tenants saw the writing on the wall and began looking for new places.
We did 10 units and a refi in 9 months, increased income by over 30% and doubled the value.
Newport Beach, CA · Member since 2017 · 18 posts · 3 votes
8y
In this case, multiple tenants have rented these units for 5/6 years-I figured keeping long term tenants is a priority, but what I am hearing is initial turnover is not necessarily a bad thing. My exit strategy is 4 year cash flow, sell 5th year.