First time investor, looking for advice

[Rajat Bhadauria]

Hi Everyone,

I am looking to invest in a commercial property for the first time and need some advice from all the pros here. It's a 7-unit shopping plaza, all units are rented to local/ neighborhood businesses. With current rents and purchase price, it has a cap rate of 8%.

CURRENT TENANT SITUATION:

- Main tenants have been at the same location for 5-10 years.

- These are the tenants who are paying 85% of the rent, and occupying all bigger units.

- All the leases for main tenants are signed till 2030 and also specify the rent they will be paying until 2030, without any clause for rent increment. So, same rent for the next 7 years

- None of the leases are notarized. The seller's agent says that since they are not notarized, legally they are considered month to month and gives me an opportunity to make changes in rent or tenant

QUESTION: 

Considering the above conditions, how do I increase the valuation of this property? I was thinking of the following two options, but not sure if this is doable or not.

1. Increase the rent - As leases are not notarized, legally I should be able to increase the rent. But my agent says, in this case, if the tenant decides to take me to court, the court will most likely favor the tenant

2. Find a new tenant - If the tenant does not agree with increased rent, find a new tenant (maybe a national franchise like Chipotle), with higher rent. OR, open a new business like a laundromat as this location is good for that. Again, this is possible only if I am allowed to ask the tenant to move out.

I would really appreciate any input on this. Thanks in advance!