Advice needed on bringing rent to market value.

[Jeff Owens]

I apologize for the length of my post, I wanted to provide as much information as possible to hopefully get the best advice possible.

I am currently under contract to pick up a small 20 unit complex of 2 bedroom units. The complex contains 6 units who have tenants who have been there over 10 years, and a handful that have been there 4 or 5 years. All of whom pay on time and are good tenants, so I do not wish to lose them. I do however want to get rents up to market value.

I am in an area that enjoys a low cost of living and the rent roll ranges from 500 to 700 a month on nearly identical units features and square footage wise. Floor plans are different in the 4 buildings in the complex. Historic buildings built in 1908 as part of a college who closed down in the 30s, converted to apartments some time ago, so every building is unique.

I know that I can't close on this and just jump half the complex 200 a month the day I close, I was thinking of doing some meaningful to tenants type improvements adding a few amenities, like for example it's on 3.5 acres of park like land. I was thinking of putting in a picnic area with park grills, and a fire pit, and a covered picnic table area, maybe a few gazebos that overlook the spring on the property, I noticed that some tenants have kids, maybe a little play ground. I also have to do some repairs to the outside of the property that have been neglected in the past, about 100k worth of work. I am hoping that when tenants see a lot of work going on for a while, they will understand when I raise rent by 10 percent a year on the underpriced units until they are in line with market value.

I don't have this problem on my other properties as I always raise rent yearly by amounts so small that it doesn't offend tenants, instead of allowing large gaps to occur like the current owner of the property did. This is my first property so out of line with market value, and I am not sure the most appropriate way to adjust while still retaining good tenants.

Any and all advice is very much appreciated!