56 unit apartment complex - raising rents and submetering timing

[Serge S.]

Hello BP Nation - I am happy to report that I will closing on a 56 unit complex this week. I will post more details regarding numbers but the short of it is as follows:

56 unit, class B building in class B area, submarket of PHX (Pinal Co), 50 2bd/2ba 1000 sq feet w washer/dryer hook ups and 6 3/2 1300 sq feet units. Cost was approx $35k per unit and average rents are around $600.

This is a quality 1986 complex, well built and maintained w approx $100k max in deferred maintenance. 92% occupied at time of closing and I'm purchasing at roughly a 8.5% cap on actuals.

The reason I liked this project was the relatively easy value add that would bring the project to a 12% cap and over 16% cash on cash within 12 months. These include:

Approx $5000 in loss to lease. Last landlord has not raised rent on the most seasoned tenants. New tenants are paying $640 but there are 15 tenants paying in the low $500s. One unit is used as an office, another as storage both of which will be put into service.

Property tax is over assessed by $24k. I will be fighting the assessment which says the building is worth double what I paid and appraised value. Per my lawyer, this should be a slam dunk.

Submetering - currently landlord pays for water, sewer and trash. I will be submetering and recovering approx $40 per unit after bad debt.

So ... my question to you guys out there is how aggressively would you go after the rent increases and submetering. Submetering will cost each tenant approx $45-$50 per month. My concern is raising rent simultaneously could lead to tenant loss and turnover. Would you do it slowly upon natural turnover or do it at all once? The loss to lease number is big so its hard to see that unrealized. I've done a detailed competitive analysis and nobody on the market has the sq footage, washer dryer hook ups and is charging less than $650 plus $30 RUBS. I will still have a competitive product after the increases. All leases are currently month to month. There is a lot of development and population growth in the city and demand is there.

I'd love to hear some successful war stories and strategies.