So I found a triplex for sale in the Madison area that has three units and each one has been occupied for 15 years. It is clear to me that the rent has not been raised in a very long time. The gross rent is currently $1060/month. I feel that the rent should be raised significantly to gross at about $1700-$1800. This deal would only make sense if the rent were to increase. Any advice on how to manage this situation? Do we raise it slowly each year? Would we let them know before we buy the property? Any help/advice would be appreciated!
"I feel that the rent should be raised significantly to gross at about $1700-$1800."
You answered your own question. As a new landlord the best option in your case is to rip off the band aid and move all rents to market asap. Clean house and if necessary find new tenants that can afford market rent. Based on the time of year you could move it up over the next 6 months but getting your business on track quickly should be your priority. Doing it now before you know your tenants is much easier to do.
Some may suggest that long term tenants are golden however tenants that pay under market requiring the owner to supplement their rents are a definatly a liability not worth keeping.
Your other option is to place the best interest of the tenants ahead of your business and lose money.
I'm sure they (the tenants) know they are under market and probably dated! Depends on what you want to do with each unit, how much rehab is needed, and when their leases end. I usually try to do one at a time. If your ready for all to go vacant at once, then give them ample notices per you request Wisconsin landlord tenant laws, and get them all rehabbed at one time
You need to determine if the juice is worth the squeeze. Figure out how much the rehab will be and how quickly you can return your cash you just invested into said rehab. It also matters if you have the cash to rehab or not. If your borrowing on credit cards to do rehab may introduce a different risk vs rolling benjis on the bills.
"...the best option in your case is to rip off the band aid and move all rents to market asap"
@Thomas S. I can't say that I necessarily agree with this. I agree that it is important to not lose money, on the other hand, and I face this issue constantly, there is a personal aspect to real estate that you don't find on a P&L statement. There is no easy answer, but the way we have faced this in the past is...
a) Buy properties that don't require a 65% increase in rent in order to work
b) Raise rents somewhere in the middle where it makes sense for both sides, and continue to increase rents over the years
c) When units eventually go vacant, then it is your opportunity to rent it out at full market rent. If they've lived there for 15 years, maybe this won't happen for a while.
Many people would definitely side with Thomas, but you'll be the one that has to live with kicking someone out of the place they've lived for 15 years so you can make an extra buck.
Again, not an easy problem to face.
It's a business, no place for emotions when it comes to money.
Difficult to understand if tenants could not care less about the financials of their landlord why their landlord would care about them. Caring is a one way street.