Hi BP Community,
I have an interesting situation and was hoping for some help. I just got an accepted offer for a multi family (2 units) in a beach community near my hometown. Both units are currently occupied with long term tenants that pay $1,000 and $1,350 for their units a month. From a ton of research and analysis of the area I am sure I can get at least $1,200 and $1,800. Both tenants have expressed their want to stay. I have run the numbers and even at the current rents the property would still positively cashflow fairly nicely.
This is where it gets a bit tricky. As I mentioned this is a beach town (not predominantly but the units appeal is the location). The current tenants are month to month and will need 60 days notice before I can kick them out. My fear, and maybe this is where more expertise can weigh in, is that if I close on the home say late August and tell the current tenants to leave that by the time the 60 days is up it puts us in late October early November. Am I screwing myself by having an empty house on the off season where it may be significantly harder to rent? Do I leave them there and kick them around February in preparation for the spring/summer? Or do i just kick them and use the winter months to renovate so when the season comes I can maybe get more rent than anticipated.
Any input would be really appreciated.
Ask the seller to give them the 60 day notices now and deliver the units empty.
Hello Spencer, According to what you said the property is currently cash flowing. I will not Kick them out and if you need to gradually raise the rents in the winter.
@Anthony Wick Do you think even if I kick them now I would be screwing myself because we would be at the end of the beach season?
After closing you could explain to them that rents are way under market and that over the next year you will be raising rents gradually, starting in Feb or March (past winter). They would probably stay until that time which would get you past winter and if they decide to stay permanently you wouldn't have the turnover and vacancy expense.
I had a similar situation. I came in and said in three months rent will be raised $25/month. I did that every six months until I got to the right rent amount. both tenants stayed.
Well, I don’t know much about beach season, but you’re looking for year round tenants anyway. So I imagine there’s still people always looking. It can’t be as bad as when I had two units open in January in Iowa when it was record colds and snow fall from the year 1880.
And I would not take advice of “you’ll be making a profit so don’t raise rents to market rate right away”. Why would you ever give large discounts to people? Don’t you like making the best profit possible?
And why did you do that? Bad market? Can’t find tenants? Didn’t want to make the full profit your units are worth?
My two most recent situations: inherited tenant. Lease ran out in 4 months. I raised rent $75 to market value. They signed a 1 year lease. Another tenant was told I was buying duplex. Their lease was running out so seller would offer MTM (I wrote in purchase agreement no new leases beyond MTM). They knew they were under market on rents, and they decided to move before I bought the place. Their rent was $1,100. I bought place and immediate rented out for $1,430 rents.
Point being.....why are you buying property if not to maximize profits? I always rent at market rate.
@Spencer Joseph Just gradually increase the rent. You don’t have to kick them out.
@Spencer Joseph gradually increase the rent every six months but stagger them so unit 1 increases in January, unit 2 increases in April, unit 1 again in July, unit 2 in October. Doing it this way reduces the possibility of both units vacating at the same time. Removing the tenants will probably require some sort of renovations and money lost though vacancy. It will take 3 months of rent with the additional 650 to make up for each month of vacancy. Let them know up front that you plan on raising rents gradually until they are at market rate and let them stay until it they decide to leave.
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