Transitioning Inherited Tenants During Property Renovations

[Ivan Cortez]

I am currently under contract to purchase my initial duplex, which will include two long-term tenants who are presently on month-to-month leases. Each unit is currently leased below market value at $595 per month and both would require substantial renovations, should I have to rent it to new tenants. Although it would remain profitable to keep the current tenants, I do not wish to displace them during the renovation process. As such, my plan is to transition them to a new month-to-month lease at their current rate for the first 90 days, after which it would increase to $675. This approach would provide adequate time for the tenants to determine whether or not they wish to continue their residency. If they choose to stay, it would be ideal as it would generate more cash flow without having to completely renovate. However, if they decide to vacate, I would have the opportunity to renovate the property while not forcing the the tenants to vacate, and could increase rent to at least $850 to new tenants. Potentially more depending on how it looks after the renovation. I welcome any feedback or suggestions on whether this strategy is appropriate or if there is a better course of action to pursue.

[Richard F.]

Aloha,

If you are saying you plan to renovate with existing tenants in place, plan on it costing at least 30% more. Also, you need to get current applications from the tenants and properly screen them BEFORE offering them any type of renewal.