Getting my MF and got questions regarding MTM tenants in CA

[Nhi Nguyen]

Hello BP.

I'm looking to buy a 12-15 units MF in NorCal.  One of them has 100% MTM rents at lower than market price (about 15-20%).  The condition of the units are pretty rough.  So if I remodel/fix them up, rents can be even higher.

What are some of the best game plans to tackle this, short term (within 6 months of acquiring the property) and long term (1-3 years)?  I'd love to remodel the units and raise rents, of course :)

thanks much.

[Nathan Gesner]

Without knowing the details, the first thought is to really crunch the numbers. You'll have to purchase, renovate, and raise rents. What's your return up front vs. after repairs?

With that many units, I would really investigate the condition of each unit and the quality of each tenant. I would prioritize based on bad tenants followed by bad units. Get the tenant out, renovate the unit, place a quality tenant at a higher rate. Work your way through the list.

Consider the exterior and common areas. If the interiors are rough, the rest probably is, too. It doesn't do much good to have nice apartment with a crappy common area or dirt parking lot or whatever. At the same time, you don't want to make it too nice and have bad tenants trash it again. I would consider a minimal spruce up until the majority of the units were renovated, then I would really work to raise the quality. First impressions are important.

Know your laws. Run-down units usually have bad tenants that can't seem to educate themselves on anything except how to pull one over on others. Some of them may know the law better than you. Know the law and how to get rid of them. 

Also expect the unexpected. You may give notice to two tenants and suddenly three more tenants decide to leave. Do you keep them vacant and accelerate your renovations or do you fill them again?