Purchasing a Unit with a tenant way under market but on month to month lease
I'm looking at purchasing a rental property with a long-term tenant who's been there for about 40 years. They're currently paying around $1,000/month, but market rent is closer to $1,500.
For those of you who have been in a similar situation, how did you handle bringing rents closer to market?
I'm trying to balance being fair to a tenant who's been there for decades while also making the numbers work as an investment. I'd love to hear what strategies worked well for you and any lessons learned.
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- Property Manager
- Royal Oak, MI
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How much are you paying for it?
Seller will probably want max price, so will base it on market rents.
Challenges with doing that:
- Getting property in market condition to get market rent
- Getting rid of current tenant that may:
--- Force you to evict
--- Cause additional damages on their way out
How long of a Rent Roll is seller providing?
Look it over to determine last rent increase and history.
Instead of just getting rid of tenant, disclose market rent and ask how much more they're willing to pay.
It may be cheaper to bump their rent to say, $1200 and then 3-5% annually to keep them instead of spending $x thousands to rehab property to market standards.
Key will be buying it at a price based on the "$1200" increase in my example.
- Drew Sygit
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