Boot Month-to-Month Tenant

[AJ Aviles]

Hi BP Community. For those who have ever been in the situation on booting a month-to-month tenant to remodel unit and rent for more cash, this question/situation is for you :)

I currently have a side studio to my single-family home that is being rented out for $700. The tenant has been there for 5+ years and has never been an issue and always pays on time via Zelle. She was the previous owners friend. And if I bump rent +$150, I do not think she will go anywhere and accept to stay because of convenience to her mom and work. 

Due to my 2-1 buy down, on April 2024, my mortgage will be going from $2,546 to $2,803 and then to $3,071.25 in April of 2025. That amount includes Principal, Interest, Property Taxes, Home Insurance, and PMI. I currently cashflow, $50 on the full property (3bed-1bath + separate entrance studio) with the $2,546 mortgage payment but will not be able to once April 2024 comes up.

So if I were to put ~$12K worth of renovations to the studio (new kitchen counter tops, cabinets, furniture, paint) and based on my research, I should be able to rent the place to a mid-term renter for $1,000-$1,300 per month (+$300-$600 more than what it is now).

So based on my situation, these are the current option I am thinking of:

a) Lowest Level of Effort: Bump my tenant's rent by $150 with no renovations or value adds to the unit. This will leave me at negative ($107)  cashflow per month.

b) High Level of Effort + Vacancy Risk: Perform the remodel (I already have a trusted contractor) and find a mid-term renter which is very obtainable given the B+ location of this property in Florida.

Which route would you take and why?

Thanks,

AJ

[Kim Meredith Hampton]

AJ, I would try the rent increase first and foremost. Bird in the hand……

I caution you on the mid terms for a couple of reasons and things to consider;

1. Is this a legal conforming studio rental?

2. STR and MT terms have slowed down significantly, so I caution you in figuring 100% occupancy in your calculations

3. Downtime for rehab should always be figured into your equation with regard to cost and vacancy during this time

4. Do you live in an HOA whom allows MT rentals?