Turning over a MF property with tenants that are way under paying

[Aaron Steinfeld]

Hi all,

I am trying to turn over a 50+ units MF property that the tenants are paying almost $200 a unit under the current market.

We bought it knowing this, and it was a value add property based off the rents needing a big bump. This property has tenants living there for 10-20+ years and there is never any vacancy (obviously). They are all on month to month leases.

From my understanding most tenants are on a fixed income and with a $200 increase I would guess 75% of the tenants would move, is that accurate? 

From the experienced MF investors out there what would we the best strategy to turn this property over? I am looking at a 2/3 year plan, with fixing up each unit after a tenant moves out, and starting to get higher paying tenants. I just would like to know what would be the best strategy and tips to putting this plan into action.

Like I don't want to come in day 1 and tell everyone there rent is going up $200 as then vacancy would be to high, and we would not be able to turn it over that fast.

Thank you very much for your time!

[Benjamin Aaker]

Here's my strategy:

I don't want to have too many vacancies at once for obvious reasons. An additional reason is that with $200 under market, you are probably looking at significant rehab to get up to market rents. You don't want 25 units all ready to rehab at once - you won't be able to get enough contractors in to do those and many will sit vacant. You can't pick and choose who to raise rent on, but you can do it for different unit types. For instance you might want to raise all the rent on your 2 bed 1 bath units, but not the rest. Once those are done you move on.

Another option would be to raise rent a little slower, like $100 for those going month-to-month, but decreased to $50 if signed a new lease. This way you know who will be leaving soon, and the $50 is steep enough that some will move but some will stay. Rehab the units of those who move, then ask market rent.

I don't recommend you raise rent $200 immediately due to the vacancies you will be seeing. Let us know how it goes.