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Updated 24 days ago on . Most recent reply

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Melissa Johnstone
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11
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Duplex has two tenants with FAR below average rental rates

Melissa Johnstone
Posted

I am searching for answers to the situation we are finding ourselves in. I am in the Far Northern California area and are looking at a duplex that we think would work for our family. The issues are that both apartments are filled with residents. One is on a M2M with a $650 rent and the second one is on a lease till December 2025 for $750. Both these rents are extremely under median for the area. The lot is selling for $299K yet we have no idea (but are trying to learn) how to properly get access to one of the doors (so we could use our VA loan) and vacate the current tenants. The property is priced well for its potential, but we keep finding these multi-family homes with crazy low rents and long leases while the owners are trying to sell at top dollar. Using the BP calculators this is just a wash with a loss of $800 a month as the property sits- can you help us understand what we can do? Any options, recommendations or guidance would be so incredibly helpful. This is the third place we have found with this same situation, but in three different towns. Were baffled. We need a place sooner than later, and most of this market is still saturated with outdated and very overpriced homes.

if there are podcasts, youtube videos, books, websites or a real human that you think could help us, we would be forever grateful. 

  • Melissa Johnstone
  • Most Popular Reply

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    55
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    Cara Murray
    • Investor
    • Redding CA
    24
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    55
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    Cara Murray
    • Investor
    • Redding CA
    Replied

    Okay I am also in Northern California and please note...... The Cap rate is not 10%. As we all know California laws/regulations are always convoluted.
    "annual rent increases of 5% plus local CPI but no more than 10%, whichever is lower."
    I believe your cap rate as of today is 8.8% 

    There are a few options for you to do this. If I am understanding you right, this is what I would do. Ask the seller to give notice to m2m tenant. Requiring the unit to be vacant at close of escrow.  60 days prior to your lease ending with 2nd unit give them a notice of increase (based off of current max allowed increase). Or give them notice if you desire to do so. (Make sure to research your requirements to do so and your obligation to the tenant if you decided to go this route. AND what you can re rent the units at after a no fault lease end)

    I have come to find that landlords that are renting far under fair market rents do not want to give notice to vacate. They feel bad for the tenant. My standard practice is to take ownership with the units rented and give notices on my own normally because of health and safety standards of the units, and do full remodels. I don't know if you finances or your funding will allow you to do that. 

    Best of luck and congrats on dipping your toes in the water. 

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