Long-Term Tenants vs Higher Rent

[Bryan Quinn]

I looked at two duplexes (C Neighborhood). One of the duplexes has long-term tenants in place (years) but below market rate. If I were to buy, should I hang on to them assuming I can make some sort of profit or raise the rate and possibly lose them? If they were to move out, I would definitely have to update the units to get market rates. This will be my first rental property. A little nervous!!

[Kevin Sobilo]

@Bryan Quinn, I would think of market rate rent as what I can get for a unit pretty much as-is. Otherwise you have to factor in the cost of the value-add rehab into the equation.

So, if you are paying for a fair price for units in less than top condition and the rents make sense for the price (generate good positive cashflow), then you really don't have to worry about tenant turnover. Ride the current tenants at the current price and when the units turn over be ready to do a value-add rehab and raise rents to market rate for their new condition.

Also keep in mind good long term tenants are like gold. Vacancy eats your profits fast. A good long term tenant is actually an asset worth protecting in many cases.