Renting a single family home $1000 below the average rent

4 Replies

I just found out that my in-laws have been renting a 5bdrm single family home that does not cash flow. They want to sell the house because the rent doesn’t cover the monthy mortgage and they have been losing about $400 each month.

My husband and I checked Rent-o-meter and realized that they could be renting the house for nearly $1000 more. We wanted to make a suggestion to them of possibly evicting the tenant, making a quick upgrade (the house is in a pretty good condition), then find a new tenant and adjust the rent accordingly. We have been listening and learning from BP but are pretty new to real estate investing and not sure if this is the best way to go. Any suggestions would be greatly appreciated!! Please see the breakdown below.

Mortgage $2500 Rent $2100 Average rent for the area $3484

Yes, we also realize that they are the “Mom & Pop property managers” that BP always talks about!!

Thank you for checking our post, and we look forward to hearing from the BP family!!

First, Rentometer is great for a ball-park figure, but it doesn't take into account a lot of information on the house (type [SF vs. duplex], square footage, condition, finishings, etc.)I would recommend reviewing rental listings on Zillow/Craigslist that are comparable to your in-laws house so you can get a better idea of what rents would be. 

Second, I'd remember that cashflow isn't just Rent - PITI. You should also be factoring in maintenance, capital expenditures, vacancy, applicable utilities, and typically property management. After you look at Zillow/Craigslist, I would recommend running the numbers on the BP Rental Property calculator to see what kind of profit/ROI they would be getting on the property.

You can't just evict a tenant because you want to have higher rents. Do they have a lease? When does it expire? You could not renew their lease. That is not evicting. That is not renewing their lease. You could also simply give notice that at the end of their lease the rent will be increased by $1,000, which would probably have them move out anyway at the end of their lease. Many options here. Simply evicting with no cause is not one of them. 

Also, I don't know your area, but I would use several valuation methods to determine market rent, and not just rentometer. Craigslist, Zillow, Realtor.com, etc.