Hi everyone, I recently purchased a 4-plex in Kansas City and I’m navigating my first set of renewals. I have a significant rent gap between units in similar "poor" condition.
The Data:
The Risk:
The building has deferred maintenance (siding and roof issues) that no immediate attention needed but they are heading to the end of their useable life and I’m planning to address "as I go" since everything is currently functional. However, if Unit A rejects the $130 increase and moves out, I’ll be forced to spend roughly $10k on an interior renovation to hit the market rate. While the ROI on a $10k flip to gain $400-500/month is great, I'm trying to balance my capital reserves while dealing with the exterior deferred maintenance.
Questions for the community:
If $940 is truly $300+ under market I don't see you having issues with them renewing. Maybe let them know you are doing exterior maintenance to help the increase. What part of KC is it in? Are you using a PM? I would prioritize the roof/siding before updating interior units. Not doing those can lead to water damage and further issues.
If $940 is truly $300+ under market I don't see you having issues with them renewing. Maybe let them know you are doing exterior maintenance to help the increase. What part of KC is it in? Are you using a PM? I would prioritize the roof/siding before updating interior units. Not doing those can lead to water damage and further issues.
From what I understand, the current tenants are long-term, so the interior is somewhat dated. However in order to bring it up to market rent, I will need to spend extra money to renovate the unit completely. Yes, the property is currently overseen by a professional PM. While the roof and siding are currently functional, they are approaching the end of their service life and will likely require replacement within the next few years. So currently no damage or whatsoever due to these two items.
Good question and you are already thinking about it the right way by weighing the turnover cost against the rent bump.
Here is how I would frame the decision. The $130 increase on Unit A comes out to $1,560 per year. If the tenant stays, that is pure upside with zero capital outlay. If they leave, you are looking at $10k rehab plus 1-2 months vacancy, so call it $11,500-13,000 in total turnover cost. The break-even on that spend is about 8-9 years at the higher rent, which is a long payback.
That math tells me you have more room to negotiate than you might think. If Unit A pushes back on $940, meet somewhere in the middle like $875-900. You still get a meaningful bump, and you keep a paying tenant in place while you address the exterior. A bird in hand when you have deferred maintenance looming.
On the capital allocation question, Caleb is right that roof and siding should come before interior upgrades. Water intrusion from a failing roof can wipe out any value you create with a $10k interior flip. Get the building envelope tight first, then worry about maximizing rent on individual units.
One thing that might help: frame the rent increase to the tenant as being connected to the exterior improvements you are planning. Something like "we are investing in the property and need to adjust rents modestly to support that." Tenants are more likely to accept increases when they see tangible improvements happening.
How long has Unit A been there and what is their payment history like? That context matters for how hard you want to push.
Good question and you are already thinking about it the right way by weighing the turnover cost against the rent bump.
Here is how I would frame the decision. The $130 increase on Unit A comes out to $1,560 per year. If the tenant stays, that is pure upside with zero capital outlay. If they leave, you are looking at $10k rehab plus 1-2 months vacancy, so call it $11,500-13,000 in total turnover cost. The break-even on that spend is about 8-9 years at the higher rent, which is a long payback.
That math tells me you have more room to negotiate than you might think. If Unit A pushes back on $940, meet somewhere in the middle like $875-900. You still get a meaningful bump, and you keep a paying tenant in place while you address the exterior. A bird in hand when you have deferred maintenance looming.
On the capital allocation question, Caleb is right that roof and siding should come before interior upgrades. Water intrusion from a failing roof can wipe out any value you create with a $10k interior flip. Get the building envelope tight first, then worry about maximizing rent on individual units.
One thing that might help: frame the rent increase to the tenant as being connected to the exterior improvements you are planning. Something like "we are investing in the property and need to adjust rents modestly to support that." Tenants are more likely to accept increases when they see tangible improvements happening.
How long has Unit A been there and what is their payment history like? That context matters for how hard you want to push.
Alex, thanks for answering my question. I believe the tenant's been there for more than 5 years based on the talk with the agent and the condition of the unit.