To Raise or not to raise?

[Gregg Hull]

So I am analyzing a deal on a property and notice that a lot of tenants are subsidized and I want to move away from that and think the property could support higher rents. Is there a best practices when raising rents and non-renewing tenants? The current CAP is at 5.8% but with the increase could be closer to 9%.

[John Warren]

@Gregg Hull this is a very common issue to run into when doing a value add play. I am about to run through this myself with a 19 unit apartment building. You have to take this case by case. You should know pretty quickly which tenants are nice folks who you can deal with versus the ones that you need to move out quickly. Here in Illinois, I try to avoid evictions as they just cost too much. Instead I try to work with people to get them out. In most cases this has worked out just fine. 

If the numbers tell you to move into all market rate tenants, just try to move the property that way gradually over the first year so you don't disrupt cash flow more than you have to.