Advice on buying with tenents

[Stephan Guna]

So quick questions guys I have somewhat of a situation in which I would like some advice. So just some notes this would be my first investment property. I been looking at houses for awhile now and recently found this duplex(multi-family) nearby which I liked a lot and seems like a solid investment opportunity. However, I learned that there are currently two tenants living there who are paying $650 a month each, which in this area is pretty low. If I kept these rents, I would barely break-even. 

Also, I noticed the lease is only month-month, so do you guys think it would be a good plan to buy the house and then increase rents as soon as I am able to. I plan to increase to $850-900 each to make some profit. Also, what are some contingencies if go with this particular plan(How fast am I able to implement after closing? Etc?

[Kevin Sobilo]

@Stephan Guna, since they are month to month in most states raising rent only requires 30 days notice. Also check your state to make sure there are no restrictions on the amount of a rent increase.

Separate of that, I would dive deeply into determining what you think is market rent because I think that is where many investors make a mistake. They see high rents advertised and believe that is "market rent" because that is the highest rent of a comparable unit and they want to believe it.

However, sometimes those rents get lowered to find a tenant. Also, many times the can't attract the best tenant with the top rent and even if they do often those tenants won't stay. The last part is important because vacancy/turnover is costly for a landlord. So, if you have tenants leaving every year you make LESS money than you would charging somewhat lower rent!

So, to my mind market rent is the rent that will readily attract good tenants and keep them AT LEAST 2 years on average.

One more issue to consider. Even if market rent is $900, can the current tenants afford that? They may have no choice but to leave or they may just fall behind until you evict. Also, tenants budgets aren't flexible many times. They aren't positioned to absorb sudden large increases. So, if you wanted to retain them a better approach would be to raise rent in stages over a few years. Otherwise, you may be better off nonrenewing them and starting off fresh.