Purchased a 4 unit Multi Family - Rents WAY below Market Value

[Bud Gaffney]

Hi all,

I recently purchased a 4 unit multi family property in Taunton, MA. I bought the property in September 2019.

They are all 2 bedroom 1 bath and approx. 1,000 ft2. The units are rented way below market value (It was an older owner who seldom raised the rents) I inherited all the tenants with these low rents. The rents are covering all expenses with ~$100-$200/month total to spare. (15 year note, 14 years left)

The rents are $870, $925, $950, and $1000.

The market value is ~$1250-$1300/unit. I have a big heart, but I also like to think I have a big brain. The holidays are coming up, so I’ve already dismissed doing much of anything until after the new year. Do you have any advice what I should do without upsetting my tenants too much? How much would you raise the rent? All comments are welcome please. Thank you in advance!

[William Nelson]

Hi @Bud Gaffney - I’ve experienced this a couple of times and found a neat win-win situation:

- I give my tenants a 90-day notice that rent will be increasing to market value in the area.

- I provide the logic/numbers behind how I determined the market value rent for each unit

- Give them the option to select an improvement project within their unit for our staff to complete (up to $1,000 that both of us agree upon).

While this initially might cost more money that you had planned for, but it allows you to:

- raise rents and increase cash flow

- increase the value of the property while the tenant still lives in the unit

- show the tenant you plan to take care of the property

- build a relationship with the tenant (I find this VERY important when taking over a new property)

- provide an upgrade to the unit that the tenant desires

- reduces tenant turnover (which saves you money and time)

- 90-days provides the tenants time to adjust and prepare for an increase in rent

I hope this helps - feel free to reach out if you have any other questions about this method. Regardless, best of luck!

Best,

Will