Rehab While a unit is occupied?

Question

Hey team!

I am in CT and I am looking to do a BRRR and have a duplex in contract.  However, how do I do a rehab when a tenant is occupying a space? I can tell they have been there for a while and the wear and tear on the unit show. I want to give them a great living experience. Not looking to to crazy with the rehab but general updates the previous landlord did not do.

Scott Mac · Answer

Hi, Tony,

One strategy you could choose is:

Turn the empty unit and improve it during the turn.

Tell the renter you are going to improve the other unit beforehand, but do not talk price.

Tell them when it's done, because they are "Such good customers" they can have 1st choice of the new unit (if they want it).

When it's done, tour them through the unit, and ask them if they like it, then tell them it's $XXXX month, and ask them if they would like to move in RIGHT NOW....if not then other potential renters will get it.

Don't tell them the price until they see the finished product.

If they move, turn their old unit and improve it too. Bingo--both units re-habed.

Good Luck!

Julie Hartman · Answer

The short answer is you can't do a rehab with a tenant in place. It doesn't make sense and is very inconvenient for both you and the tenant. In order to do it properly, you would have to wait until it is vacant so you can do it quickly and efficiently. Which means doing a non-renewal at lease end, complete the rehab, and re-renting it for a higher rent amount. Or wait until they elect to move voluntarily. Either way, the property needs to be vacant in order to do it right.

Lynn McGeein · Answer

For our long-term tenants, we try to schedule certain updates around their vacations or ask them when it would be convenient, but those are for things you can do without moving furniture or a large amount of personal property, like new roof, a window or sliding door, replacing a deck, updating a bathroom, etc.   For major updates, we prefer to wait until vacant.

Jon Kelly · Answer

@Tony R Fox take care of any safety related concerns. You can put most other things on hold. The current tenant may not want renovations because they don't want to pay higher rent.

Jairo Paredes · Answer

@Tony R Fox What are your other reasons for wanting to improve the space? You mentioned improving their living experience. Do you plan on raising the rent following completion?As others mentioned, renovating during occupancy is not ideal. You can make some touch-ups, IE paint, new backsplash, glaze bathtub or bathroom tile, deep clean the entire apartment..

Joey Smadar · Answer

By Far waiting for the next turn would be ideal.

If you still insist to rehab while a tenant is in place you will need to do these steps:

1. Calculate how long would the rehab take.

2. Finding a housing solution for the tenant while rehab is taking place (you need to add cost to your total including the rehab)

3. In case it takes longer to have already an agreement with the tenant with terms in that situation. (No surprises)

4. Increase rent with tenant that is signed as an addendum to the initial lease agreement.

Good luck!

Tony R Fox · Answer

@Scott Mac

I really like this strategy. Only thing is that the 1st fl unit us a 2 br 1 bath and the 2nd unit is a 4 br 1 bath. So the existing 2nd fl tenant will not have enough room.

Think I can have the tenant stay in the 1st fl space while I reno half of the 2nd floor unit?

Jake Wiley · Answer

If you need to get the rents up, it's likely that it might be with another tenant.   I'd be thinking about getting your ducks in a row for a turn on the lease renewal date, and then 60-90 days out having a conversation with the tenant about the need to increase rents and update the unit.   It's a business, but you also want to be fair and give them a chance to start looking for a new place if they aren't up for the updates.

I think we are all speculating based on the fact that you say there is a lot of deferred maintenance and updates and the tenant is okay with it at the current rent level, that the current rent level is very affordable and a $600 jump would be massive.

If you are trying to do the renovation while the tenant is in there to reduce the downtime from a cashflow perspective, you are likely much better off having a turnover plan staged and ready to go into effect the moment the tenant is out of the unit rather than trying to work around them.

Nathan Gesner · Answer

Big mistake. Huge.

First, it's difficult to renovate properly on an occupied rental. Second, do you have any evidence the tenant can handle a $600 increase, or would be willing to do so? They're OK with living in a lower-quality rental for lower rent, which indicates they may not be in a position to pay more. You have no idea if they will properly maintain a renovated property. Just because someone does well in a C class single-wide mobile home doesn't mean they will do well in a B-class single family.

Move them out, renovate, then start with a fresh rental and fresh tenant.

Brian Black · Answer

Address any safety issues immediately. Take care of any preventive needs next. Do any outside work that you can while tenant in place. Those can happen regardless of tenant status.

I would also wait for most things and certainly a full renovation. With a tenant in place, you could: Upgrade appliances. Touch-up paint. Repace needed light fixtures/covers/GFIs. Add a backsplash if the kitchen cabinets and layout will stay. Add new technology features such as a nest or similar thermostat/keypad entry. Those could all be done fairly easily with the tenant in place but could be awkward. I do find it's good to investigate needs and try to address what you can to show the value the day you take over.

I would not do more than that until you have full access. Wait until the current lease is up, then increase rent based on the updates/repairs that you offered above before the lease expired. Make it worth your while and theirs even if you don't move up to full renno/market price.

Do full renovation at next turn.

BHB

Rehab While a unit is occupied?

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