MFH Rehab Marketing: To place tenants, or not to place tenants...

[Jonathan Williams]

We are beginning a rehab of our Duplex + 2 studio apartments on the East side of Houston, Texas around Lockwood & I-45. Given the amount of money we will invest in the rehab and our interest in the rehab piece of REI (among other things) going forward, I expect we will sell the property via 1031 exchange to an investor and do it again. The logistics of rehabbing a multi-family to any great extent are always complex if there are tenants in place. But the stars aligned for us to be able to go in and do the whole thing at once. We'll end up with a "new" property built in 1925 by the end of it.

After the remodel, I expect to be able to improve our revenue considerably. I won't get into the numbers because that's not the intent of my post. I've recognized an appetite for high(er)-end MFH's that have been done well and all systems in & out replaced to reduce/eliminate any near-term Capex going forward. And porcelain wood-look tile (no maintenance?!), open concept kitchen/living, in-unit laundry, yada yada. I think it should be very desirable for both renter and investor looking for this type of property in a part of town with still a huge upside for appreciation. After all, it is "East End Revitalized", but I've never liked the finality of that tag.

My question: Should I place tenants in the property or market it as newly-remodeled? Everything in me says I should place tenants. We've screened tenants before and take that very seriously, so there's not much doubt we can place quality tenants. Secondly, this "proves up" the investment that otherwise me, you, and everyone we know could speculate on what exactly it will generate. Third, it gives me cash flow during the marketing phase since no one knows when it will sell and at what price. Tenants bide me time, and that I like. And I project my investment in the rehab will yield me 12% cash on cash so I'm in a good place no matter the result. Instead of refi'ing out, I'd prefer to sell and do it again.

But maybe there are investors out there (likely locals only) who like to place their own tenants? Secondly, having tenants in place require property showing after an accepted contract and are never perfectly tidy to preserve the showing integrity of the space(s).

Any thoughts?

[Mario Tavares]

Hello Jonathan.

As an investor, I like to put my own tenants in the property, unless you are willing to keep records of the caliber of person(s) you had occupy the resident.  I would need:

Employment Verification, Rental History on the last two Leases, Credit, Criminal, W2's (Month), License or Passport Photo and SSN Photo, if any negatives I like letters of explanation from the tenant(s).  ...and I like for this information to be within 90 days of verification.

If you can supply those details, I'd have no problem buying the property.

FYI, be sure you get the correct amount of rent...A loan will depend on it.