Changing Rent A Few Times During The First Year?
Hi all.
I am currently trying to put together a deal for a 3 unit via conventional means.
Rent in one of the units has been 300 for a 2 bedroom unit since 98. Her rent has not moved since then because she is close to the old owner. As a matter of fact she didn't pay a security deposit. She has been a great tenant from what I undersatnd, but marke rent should have her at at least 500 plus utilities.
At the current rent roll I stand to make about 250-300 per month for the three units. I belive that with mild increases in the other 2 and a 200 per month raise in unit 1 I stand to make 350-450 per month.
Can I raise 2 of the units 5-10% in 2 and over the course of a year raise the other 200 dollars wihout alienating this tenant if market rent shows that this is reasonable or should I offer to raise all at once and give her a chance to check around for somwhere else to move to see what I should be charging.
On a side note here in my area of Harrisburg PA buying multis already rented gives very very little room for any profit with debt payment at 0 to 5% down.
I guess my main need is to find pre rented multi's with a bit of cash flow until I can quit my job in a few.
Bri :-?
When you raise rent from $300 to $500 a month you are going to tick of the tenant. Wouldn't you be mad if one of your monthly bills almost doubled because of a change in ownership.
But if the market will truely bare $500 then she may or may not move. For that type of increase it would be worthwhile even if she leaves and you have to find a new tenant.
If you want to keep her on your side give her facts about market rent, and a 'favor' to her keep yours a little below. Also give plenty of notice (more then the required 30 days).
Good Luck!
Well, If I buy I wouldn't change the rent right off the bat becuse I surmise that all tenants fear that upon management change.
But the rent is indeed very low. I want to keep her but also show that she cannot find a better deal anywhere close, thus I want to offer her the option to look around.
I really need to raise the rents to make this property profitable and I also don't want to have to find a new tennant for a few months if I don't have to.
I really, really need to buy into cashflow however little at first but fear slim margins. I know that at end of year I will pick up tax benifits but cannot subject myself to much of a loss to soon.
The prop cash flows but by raising rents to market I can get to where I need to be.
Maybe some of you could tell me how you have made out buying non rented multis and setting them up. I have reserves but not more than 2-3 months.
Sorry to run on but I really fear buying unrented units and trying to get them going..
please advise
Bri :-?
Bri,
Congrats on the property? Is this your first?
I do highly recommend you raising the rents next time the lease is due. About 60-90 days before expiration, let the tenant know that you are moving the rent up to $500 + utilities for the next lease period and was curious if she plans to move or stay. Don't pressure her for an answer--just ask her to get back to you.
You're likely going to have to find someone knew--which is a challege to avoid any vacancy. Start marketing early and sign up a new tenant WITH a security deposit!
GOOD LUCK
Thx Myfrogger
I didn't buy it yet but, my offer was verbally accepted. I am sooo nervous as this would be my first rental. I just want it to be right.
Bri
Dont be greeeeeeeeedy !!!!!!!!!!!
it will get you in the end
Not trying to be greedy, but I was hoping for about 100 per unit profit. That is I guess my goal.
I am still looking at singles also but can't get to where in my area you can buy a house and cash flow it at all by buying convetional.
Bri
Do as myfrogger suggested. I don't put much stock in a seller telling me that someone has been a great tenant or a bad tenant. I listen to that, but ultimately, I'm the new landlord and everyone starts off with a clean slate. Who knows, maybe the seller thinks she was a great tenant because they were sleeping together or they were doing dope together. My point is that you don't know everything that went into the seller making this decision about who is a good or bad tenant. So don't worry too much about loosing this particular tenant. What’s important is that you have a good tenant who pays a fair rent for their apartment. If that means getting a new tenant, so be it.
Once the purchase offer has been signed, go through and speak with each tenant. Introduce yourself and let them know you're buying the place. Ask them a little bit about themselves and answer the question each of them will be most concerned about; are you going to raise rents. This is also a great time to let them know if you're planning on doing some general repairs to the place. Don't commit to anything they ask for. Just let them know you'll look into it. But tell the tenant in the 2-bdrm apartment that you'll be increasing the rent to 495 per month. She'll be shocked and will let you know that she thinks this unwarranted. Tell her that you understand her feelings, but that this is the market rent and unfortunately, you can't afford to charge less than the market rent. She'll probably move out. But that's okay, because you let her know before your closing. This means that you'll need less time to find a replacement. Besides, long term tenants who were particularly close to a previous owner sometimes have a difficult time getting used to life under a new owner. You’ll have your own rules and your own procedures and I’m pretty sure you don’t want to spend the first six months chasing this tenant on various issues and always hearing, “Oh, sorry. That’s not the way the previous owner did it.” Also, I'm willing to bet that this apartment hasn't had a lot done to it since 98. So here's your chance to freshen it up and get a fair price for it.
As for the other two, I would suggest not increasing their rents until this apartment is rented at a fair market price. Then you can go ahead and do some tweaking to the other units.
Good luck
If my rent was half of market I'd be a great tenant too.
So my advice here is my advice in most tenant situations, Go talk to the lady. It may be that she already knows what a bargain she has and that her friend has told her that she's selling the building and should expect a rent increase. She may already be making plans to move. You really just need to have a conversation.
Bri;
You say she hasn't had her rent increased since 1998? I would say that she is expecting the rents to go up. How long ago were the other tenants rent increased.? They have to figure that each year it will go up a little to cover expenses.
You can try telling her it is going up some, maybe splitting the difference for about 6 months to see if she is really worth less rents or maybe she can do some work on the property for the difference. DO NOT buy it if it's not a positive cash flow. It's your money and you deserve a good return.