What should I do with this 16 unit building? (young investor)

Question

Hi everyone,

So I'm a young investor and I have a 16 unit building 30 minutes outside Boston. They are one bedroom units but they are small one bedrooms... I think they are around 550 sq ft. The currently class of tenants in there is probably around a C. A few of the units have been updated and look pretty solid, but most aren't that great looking. My avg rent is $832. One that I fixed up nice got $950 for a year but now is down to $900. My question is this: with that small a space, and this class of units what should I do with the the building? Should I just maintain the units as needed to make them solid or should I renovate the vacancies as they come up and make them alot nicer and try to ask for more rent? Are the units too small to try to do an overhaul on the building and tenant class?

Joel Owens · Answer

Hi Ryan,

How much does it cost in lost rent and fix up to re-image each unit??

If between lost rent and fix up you are at say 2,000 a unit then at 68 dollars you are a little over 29 months to break even on the money lost and spent rehabbing the units versus keeping lower and staying with the same tenant.

Where the 16 unit is are the CAP rates compressing as the local market heats up?? If so you might want to cash in and 1031 to a market where you can get more yield and move up to more units.

Is the tenant base mainly students next to a college for the 1 beds??

What do other buildings look like in the area?? You do not want to over improve this property and sink in money you will not get back in extra rents dollar for dollar or more.

Dennis Tierney · Answer

As you are from Texas you have it 3rd party managed. What does your property management co. say as to your ability to raise rents if rehabbed? They should know their market and if they can't give you direction you may not have the right manager. As a rule of thumb I try to avoid buildings with small units as it does limit your ability to raise rents. Having said that if you can do some updating to improve the appeal to tenants it should help raise rents if you are below market in the current rents.

What should I do with this 16 unit building? (young investor)

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