New Investor: question for raising rents

[Logan Olsen]

Hello BP community,

I am strongly considering putting in an offer for a 4-plex. I've run the analysis and the numbers work well for my defined criteria (CoC, Caprate, cash flow, etc). The one catch is, the current rents are well below market rate (current: $475/unit, market rate: ~$750). The current tenants have been there ~5 years. I don't have details regarding the tenants financial situation but I imagine bumping the rent to market prices would have a big impact on them. I'm struggling a bit with this ethically. I do not want to be a "slum-lord" or "penny-pincher". I also don't want to displace long-term tenants. But I think it's a good deal and I'm fairly certain if I don't buy it, it will be bought by another investor who will also raise rents. Does anyone have a good way to approach a situation like this?

Thanks,
Logan

[Tanner McGrew]

Currently dealing with a similar issue. Current tenant is a friend of the owner and is renting a couple hundred below all 3 other units. My plan is to make the increase gradual over the next 6 months on a month to month lease and then try to lock in market value for a full year. I like the idea the other person proposed of renovating and having an up to date unit to show.