Raising rents after closing

[Connor McGinnis]

Hello,

I am looking to close on a 36 unit deal. Finalizing terms now and will begin inspection period soon.

This will be my second deal of my career. I have an investor that will loan the down payment and so I am going in on this deal with no money down.

After negotiating price down, with current rents, I will break even on cash flow after year one.

The current rents bring in $33k a month. The pro forma has this bringing in $44k a month. By all my research and estimates, the pro forma is pretty accurate. Therefore, I will need to raise rents significantly to get closer to the pro forma market rent rate.

What strategies would you deploy to raise rents to get to the pro forma quickly without raising a ton of vacancies right away? Would you raise them slowly over the course of 3-4 years until we get to the pro forma or make bigger rent raises now with the risk of losing many tenants?

Looking forward to hearing how you all would handle this one so that I can see strong cash flow asap. Thanks.

[Mike Dymski]

I would raise unrenovated rents to market as lease maturities occur, and renovate and increase rents as turnover occurs.  If that does not organically happen fast enough, I would give a couple of residents at a time the option to (1) stay in their current unit at renovated rent levels and perform renovations that can be done in an occupied unit (2) move into a renovated unit at renovated rent levels or (3) move out. I did that with a 30 unit community and most selected option 1.