Tenant background check after Multifamily repositioning

[Herve Francois]

BP family - need thoughts!... I’m looking to purchase a fourplex that is currently 100% occupied with tenants that have been paying rent $600-$800 below current market rents. The units are in decent, livable conditions but could use some cosmetic upgrades (i.e., kitchen, bathrooms, paint, floors, etc...). Tenants are currently on a month to month lease and after the upgrades, I plan on raising rents from $1,000/mo to $1,300/mo (in thIs city you can’t raise rents by $600/mo overnight, it has to be step function). If I were to try to keep the same tenants, shouldn’t I check first if they can afford the higher rent (i.e., monthly income at 3x rent) or just market the units to the public and rent out to whomever can afford it best? And another question - In BP‘s BRRRR calculator, how do you account for pulling your money out at the refinance stage (at 9-12 months after purchase) and as well raising rents through the years of ownership? Both would inevitably have an impact on your cash on cash return and all components of your CAP rate, correct? Thanks for your help and best of luck with your investing!!

[Nathan Gesner]

I believe you should since you don't know how they were screened by the previous owner. Notify each tenant in writing that you intend to increase the rent and require them to apply and meet your standards. Tell them what your standards are up front so they don't waste your time. Then let the numbers decide who stays and goes.