Buying a Tri-plex with under Market Rents

[David Louthan]

I’m buying a truck-plex and the rent for each unit is under market value by $125-$150.  

1. What is the best way to raise rents?  The contracts all end at different times over the next four months.

2. Is there a way to force those contracts void as part of the sale? Is that a good idea?

I am at the beginning of the process my offer was accepted 2 days ago and I just looked at the place today.

[Twana Rasoul]

@David Louthan Congrats. It’s great that leases don’t all end same time. As they expire, renew each one at market rent. If unit needs work to get to market rent and tenant decides to leave then do whatever cosmetic work needed and get new tenant. Rinse and repeat as unit leases come due. Best of luck!

[Ernesto Hernandez]

How long has each tenant been in place for? $125 a month is $1500 more a year. 

A vacant month, turnover costs, paying your PM to fill the unit. 

Isn't worth it to me. A moderate increase is fine but don't be in such a rush to get too dollar. It doesn't come free.

[David Louthan]

@Ernesto Hernandez thanks for the insight, two have been there for about 1.5-1.8 years and the other for 6 months.

[David Louthan]

I forgot about this post... fast forward 5 years and I have converted this to a 4-plex by adding a kitchen and bathroom and a bathroom to one of the other units.  I also added 4 new basement windows that provide proper egress, rewired the basement and landscaped the yard.  Rents are at market level now and I paid off the loan from the proceeds of another house I sold.  I also own the duplex next door and have paid it off and added a 3rd bedroom to each unit.  

Needless to say, I am very pleased with these units.  @Ernesto, I was conservative with increases at first and my renters were flexible with me as I did the remodeling with them in the units.  I had a few months of vacancy for remodeling in the basement unit as I converted it to two units but outside of that, I have been very fortunate to keep them rented.

[Robb Almy]

Congrats! So great to hear it worked out and so good of you to give an update. Sometimes we never hear what comes of things. Happy investing!