Just bought two duplexes, rent prices all over the place

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Just bought two duplexes, rent prices all over the place

Josh S.
Investor · East Texas · Member since 2019 · 6 posts · 1 vote

Just bought two duplex that are on adjoining lots. Quality of the units also vary.

Each unit is a 1/1. Two Buildings. 4 Doors.

All numbers are after capex savings, management, etc.

Need a strategy to get them all inline a little better with their value and the market.

Units:

A. Average Quality Unit renting at appropriate market rate. Rents for $500 tenant with a lease expiring in August. Gives me > 12% annual return on my money. 5k and I could get a market rate of $600/month. Plan to leave tenant alone and not upset the balance as new owner. Will make upgrades to increase rent if tenant doesn't renew otherwise only small yearly increases and small property upgrades to try to keep them happy as is for now. 

B. Nice old lady, been there for 25+ years. Probably never had her rent raised. Month to Month at $370. I'm losing 2% annually. Would need a significant rehab to bring her unit to market. 10k and I could rent for more than $600/month.  5K I could get it to $500. Need to raise her rent regardless. Feel terrible about it must happen. Might trigger a move and she is my biggest focus. If I am triggering one move, it must be this one for cash reasons. Advise on strategy to give her time but not too much?

C. Nice Unit. Rents for $445, tenant has just signed a new lease a few months ago. 6% annual return. Will need to increase rent later. But in the mean time...has 5 (FIVE!) small dogs. She maintains her apartment and dogs are in cages or outside, but the place smells like a kennel. She is technically breaking the lease as it states no pets, but nothing has been enforced by previous landlord. Plan to move towards pet rent and limit to two total pets in future but I'd be happy getting her to two dogs first. Then worry about pet rent on lease renewal. Give her options to rehome some of the dogs? 

D. Nicest unit. Renting for $475 month to month. 9.5% annual return. Could rent for $550 with no investment in unit. $600 for minimal upgrades . Not rocking the boat. Going to get the tenant on a lease with a minimal rate increase to lock in for a year. 

Thoughts on your strategy for my motley crew of units?

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  • Jonathan W.
    Los Angeles, CA · Member since 2019 · 512 posts · 301 votes
    7y

    @Josh S. Clearly Person C needs to be evicted. I highly doubt she will re-Home her pet but she could seeing as finding another place that will allow five dogs will be impossible. But I’m sure she’ll sneak em in. Either way this is not a tenant you want and if you truly think she’ll obliged then good luck with that.

    Person B, what I imagine is a lovely old lady. I would let her know that you plan raising the rent and if she can’t afford it then plan on giving her notice. I’d give her advance notice and I’d do it ASAP so your not kicking out an old lady on the middle of the August heat.

    She’s had a nice ride and I’m sure she’s a good tenant but you can’t be losing money for her.

    Person A and D I wouldn’t worry about right now but person D you could consider giving notice when the time is right. 75$ rent increase or about a 16 percent increase is worth the turn over in the long run.

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  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y

    I had several things like yours.  The old lady is a emotional item. But I’d give the required notice, maybe even an extra 30 days and raise it to market rent for the condition, probably another 75-100 a month. 

    Ask her if she could update anything in the property what would it be.  Maybe giving her a new X may make her happy for the next 25 years.  

    The dogs need to go.  I’d just give notice to remove the animals and then evict if needed.  Smokers and a kennel of dogs destroys properties faster then a tornado. 

    Overall just raise things to market rent when able for the given condition of each of the units and go from there. Turnover will happen but for each unit you have a plan to update and re-rent.  

    Good luck. 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    You're over-thinking it and throwing your emotions into the mix.

    For any tenant you want to keep, raise their rent to 10% below market. They will recognize it's still a good value and that it's cheaper to stay put than to try and move. If they don't, let them go and work your magic.

    For any tenant you don't want to keep, raise their rent to market rate and make them pay or leave.

    Do not increase rent in increments to try and soften the blow. Don't apologize. Nobody at the grocery store apologizes when meat prices go up 60% in three years so why would you apologize for raising the rent to market levels?

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  • Josh S.
    OP
    Investor · East Texas · Member since 2019 · 6 posts · 1 vote
    7y

    Thanks for the responses everybody.

    Dog lady will be more of a focus. I agree after sleeping on it, not the type of person I want renting when they are so flagrantly breaking the rules and risking the property. She will have an immediate requirement to remove all dogs or I will evict. I can easily clean and turn over her unit quickly in my market for more rent than she is paying. I just needed to sound this out and get some feedback.

    @Nathan Gesner

    @Nathan Gesner

    @Nathan Gesner Thanks for the simple rule on 10% below to keep, raise to market to turn over. Paralysis from analysis :)

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