Seeking Advice for my 2-Bedroom Unit

[Steve T.]

Hi everyone

I'm a landlord from Stamford, Connecticut, and I'm seeking some advice about my two-family home. Here's a quick rundown:

• Location: Situated on a nice dead-end street, just 0.7 miles from two local parks/beaches.
• Property Layout: I reside on the first floor, and I rent out the second floor.
• Second Floor Unit Specs: It features two bedrooms, a full bathroom, an in-unit washer/dryer, access to the backyard, and one parking spot in the driveway.
• Tenant Background: They've been dependable and quiet, currently in their third year. Their lease is due for renewal on 3/1/2024.
• Rental History: The rent was $2000 in 2021, increased to $2040 in 2022, and is currently $2150.

In assessing the local rental market, I see rent is trending way up in general. While not many specific examples of 2 family homes..I've noticed a significant number of high-rise apartments charging between $2900 to $3300+ for two-bedroom units. These are modern buildings with additional amenities, making it challenging to accurately price my somewhat dated unit. While these high rise buildings have amenities, I do think their should be value places on residential. Some people look for that. Also the high ceilings I have are not standard in any of these places. Given the changing market dynamics, I'm contemplating renovations to bring the unit up to current standards. This includes LVP flooring, quartz countertops, new paint, and modest bathroom upgrades. Say I were to spend 10k on renovations, which I think is more than what I'm actually going to spend..Post-renovation, if i were to raise rent to $2800, which seems fair.. I'd be able to recoup that money spent on renovating in a little over 1 year.

I want to get your input on the following:

1. Renovation vs. Rent Increase: Is it more advisable to renovate or to simply implement a modest rent increase to around $2250 (about a 5% or more hike)?
2. Managing Tenant Transition: If I opt for renovation, my plan is to communicate clearly with the tenants, showing them the proposed upgrades, and offering a preferential rent rate for the renovated unit. Additionally, I'd propose a rent discount during the renovation phase. Does this strategy sound fair?
3. Post-Renovation Pricing: Considering the high-rise apartments as comparables, how should I price my renovated unit?

Thank you

[Cathy B.]

Steve,

Unless you have some pressing maintenance items in that unit, I'd keep the good tenants and raise the rent slowly on them.  Then do the renovation after their tenancy ends.  You'll get longer use out of the existing build this way. There is no guarantee that you will be able to keep them with higher rent putting you into a situation where you might have to find a replacement tenant and they may not be as good of a tenant.

I'm also curious about your comparable being high rises.  Are these in your neighborhood?  Seems odd considering how you've described your setup.  My guess is that the high rises might demand higher, or different, rent due to their proximity to other things like coffee shops, restaurants, mass transit, etc.

I'm not super familiar with your market, but would suspect your rent, if renovated, should be somewhere (maybe halfway?) between newer apartments in your neighborhood and single family homes nearby.  Generally, people like the peace of fewer neighbors and more privacy.  I 'm not sure how this will work for your duplex property, but I use the "price my rental" feature under the Zillow Rental Manager portal.  Its free and you can see what other similar units that were rented recently look like. 

Another thought . . . I'm not sure what your intention behind "modest bathroom upgrades" are, but to be on par with new construction, I looks like it might need to be gutted -- all new fixtures and finishes.  You could also aim for a step below new construction if that is what you wanted, but you'd get less rent.

Last thing, check your local laws regarding raising rent.  Do they allow you to raise rent on existing tenants 30%? (what you are proposing) Where I am we are quite limited on the percentage, but can definitely raise them to whatever between tenants.

Good luck!

-Cathy