Convert 3 BR back to 2 BR to keep good tenant?
I have a three family in New Britain. The ground floor tenants are good - pay their rent on time, quiet, no trouble. When we bought the building, it needed a total gut rehab, so we converted the units from big 2 BR to small 3 BR, which yields about $150 - 200/month (about 20%) higher rent for each unit.
I've had a good family on first floor. They now want to move after a year because the rent is too high (it is, and I offered to drop it $50/month for lease renewal), they wanted some minor repairs (we're doing them right away), and now they've told us that they want us to convert it back to a 2 BR for them. Hubby wants to, in order to keep them. I don't.
My rationale is that in our low end market, you really never get anything from tenants if they break a lease, because they have nothing. So even if I have them commit to a multi-year lease in exchange for doing this remodel, it doesn't mean a thing. And removing the wall between BR#3 and the living room decreases the resale value (we expect to sell in maybe 3-4 years), and if they leave, it decreases the re-rental value. Hubby says it's an easy thing for him to make a very big opening between BR#3 and the living room, and it's easy to convert it back. But his back isn't great, and if (when) he has to convert it back, I don't know if he can do it himself. Then it's gonna cost us. And even if they stay, if we don't convert it back before we sell, we'll lose on the sale. And frankly, even with the decrease in rent for the next year, once it's back to a 2 BR, the rent will be too high again!
I say wish them the best and get a new tenant. First floors are very easy to rent. Hubby says do the remodel and hope they stay. I say IF we do it, should be in exchange for a longer lease, but as I said, poor tenants can break leases, and you can't get anything from them, cause they don't have it, so I really just don't want to do it.
Advice?