My first 4plex in Rhode Island...now what?

9 Replies

Hi all,

So I just purchased my first buy and hold down in Pawtucket, RI. It's no taj mahal, but needs no major updates/upgrades. It came with 4 long term tenants (6 years to 19(!!!) years) on the property. All have paid on time (some bi-weekly/some 2 days late) but never had issues with a need for eviction, and are all tenant at will.

It's turning a profit, and I'm very happy with my purchase, but the average rent is 850, with the average rent for a 2 bed 1 bath in that area according to rentometer is 1250. I spoke with some locals, and they said 1150 is a bit more accurate. None of the properties have really been upgraded in a while, but with long term tenants I am concerned with raising the rent, but the former owner had not raised the rent in years. 

I'm looking to increase the rent to 900 in february. In a perfect world, I'd look to have them sign 12 month leases in August/September so if they move out it would be easier to increase rent. With that lease agreement I would be looking to increase rent again. I understand this would certainly rock the boat.

I have a few questions. I'm going to paint the interior hallways for sure, but I want to make some other improvements to justify raising the rent. I plan on painting the interior hallways and I originally wanted to replace the carpets with LVP, but I may wait until spring and get one last use out of the carpets. I was thinking of maybe updating a bathroom or a kitchen here and there, but interrupting the tenants could cause issues. In a perfect world, one would leave and I could fully update a unit, and rent it at a higher rate. I certainly don't want to rock the boat with the current tenants, but what other updates/upgrades have you guys done that had minimal impact on the tenant, but added equity to the property?

Any other ideas are welcome, it's my first time as a landlord and my ears are wide open to any and all suggestions.

Thanks!

Mark

Mark, first of all congratulations for acquiring your first property!

I would recommend that with inherited tenants (ones you got with the property, and were not able to screen & place yourself), you do NOT go with 1 year leases, but instead keep them month to month.

Of the tenant problems you will have in this game, I think you'll find most of the worst problems are with inherited tenants, and you do not want to be stuck in a 1 year lease with them if you have to get them out.

(I agree it's a good sign that some tenants have been there for a while, but they may have had a special relationship with the previous owner, they may "test" you and you may have different chemistry with them, etc. )

I think you're absolutely right to start improving the property as a way to justify increasing rents to the tenants.

Tenants aren't idiots, they mostly know if they have below market rent. But I do think it's an easier pill to swallow, psychologically, if they can see that along with the higher rent, at least the new owner is improving the place and (presumably) going to be response to maintenance and maybe even unit improvement requests.

If you are looking to upgrade the units strategically, one by one, then I would target specific units for higher rent increases and hope those tenants move out. It's kind of win win. If they move out, you get the specific unit you wanted to make improvements to, vacant. And if they stay, you're getting a significantly higher rent without having had to spend any money to get it.

Lastly, I wouldn't put too much faith in Rent-o-Meter, which it sounds like you already kind of know, from asking the locals. I'm not sure if you meant local property owners or tenants but local investment groups are definitely a place to informally check your rents.

In general I recommend people "look where the tenants look" to do their own market rent survey, for example Craigslist and Zillow. Put yourself in the mindset of a tenant "seeing what's out there" and wanting to make 3 appointments to look at 2 bed apartments in your area of Pawtucket, and see what the competition is asking, looks like, etc.

Again, congratulations on taking action, sometimes it's quite a journey just to get to that point, and it will hopefully only get easier from here :)

@Mark Green Nice job on the property. I don't believe rentometer. Slow down. Talk to more local investors. We don't have any 2 beds over $1000 in Pawtucket. Maybe you are in a better area. If you are going to raise rents wait until April or May when frozen pipe season is done. Especially with Tenants that have been with the property longer than you have. I own a few properties in Pawtucket. Nice area. You could also chat with Lyon Property Management. They are right there in Pawtucket. Jimmy will give you some honest advice for a cup of coffee. Good luck. Frank

@Mark Green . I would go slow on this. If tenants are MTM - I would keep that in place until warmer weather. Hopefully, at that point, you'll have a feel for Tenant's character and responsiveness. You'll probably know if someone needs to leave. Give them proper notice and then rehab unit for Higher Rent.

Congratulations and Good Luck.  

@Mark Green ,

Congratulations on your investment!

I'm in a similar situation with a 4-plex in Pawtucket and am certainly interested in this message thread.  

As someone noted, tenants know when they are getting a good deal, so you might be able to get away with an increase without making any improvements.  I just sent my first letter for a rent increase for February, and the tenant signed a 1-year lease right away.  She's been a fantastic tenant for the 9 months I've owned the property, but I agree with the other comments about keep tenants M2M if you just inherited them.

Some small improvements that can be made that are low-cost and not disruptive to the tenants might be updated light fixtures, new mini blinds (they get pretty dusty after 19 years!), programmable thermostats (free with RISE engineering).  These aren't big ticket items, and some folks may have the "don't fix it if it's not broken" philosophy, but are just small steps that show the tenants you care about the property and how it looks.

Keep us posted on how you end up handling this, as us newer investors are learning from each other.  Good luck on your journey!

@Mark Green as some of the other folks have said here, unfortunately, there's quite a bit of variance in quality of properties in Providence/ Pawtucket, it makes Rentometer quite unreliable. I have a four-family in the West End of Providence with 2 beds that rent for $800. A three-family opposite that has 2 beds rents for $1,150, partly because they pay for utilities, partly because they've got nicer finishes, partly because they've done better tenant marketing.

I've got a dozen 2 beds in Pawtucket and none of them rent for more than $850, but they're also C grade properties. 

Congrats on your purchase. I would immediately get yourself some paperwork and get them all started on month-to-month leases with YOUR stipulations included. Otherwise they are still under the old ones. This way if they turn out to not be a great as the previous owner says they are you can end their lease. 
When I bought my 8-plex I gave each tenant a form to fill out with any repairs that were needed in their apartments. Did you get an inspection? If not, do one yourself. Look under sinks, etc. to see if there are leaks or things like that that need to be repaired. Check for running toilet or drippy faucets that can increase your utilities.
Don't spend too much right off the bat on the common areas if you don't need to. Make sure you acquire a little nest egg for repairs if they come up. You never know when you will need a new fridge or stove.
After completing repairs in units, figure out when you want to bump the rent $50 and give them a couple of months notice. That way if they aren't interested in paying it they can start their moving process.
Once you have a little bit in the bank start doing the common area updates. Don't forget the outside, especially if you are going to be raising rents and people might be leaving. You want good curb appeal. That's another reason to have a nest egg. If someone does move out you might want to overhaul the unit so you can then bump the rent all the way up for the new person.
Good luck!

Between what I own in Pawtucket and what we manage, the 2 bed minimum rent w/o utilities included is $975.  $1150 seems to be the cap.  At these numbers I have very little turnover.  Having said that, we do typically spend a little more on our renovations when we purchase a property, but our ongoing maintenance costs are greatly reduced, and we are able to be extremely selective with what applicants we choose to move forward with.