Increasing Rent on Long term tenants: JC Heights

[Antonio Porta]

Hi all, 

We have a 2 family in JC heights, until recently my family asked me to manage the property. One thing I would like to do is increase rents on long term tenants (2 bedroom tenant has been there 11 years) and the other tenant who occupies the 3 bedroom for 7 years.   2 bedrm tenant only pays $1050 when comparative market rent for a 2 bedroom in the JC heights is at least $1500 (and thats conservative, but given the apartments somewhat dated condition, I am ok with.) The 3 bedroom pays $1475, from my research I found that our unit, in its current condition can likely rent for at least $1,650.  

On one hand, I would like to renovate the inside of the apartments  and raise rents to market value. (With a 2 bedroom renovated, I would rent for around $1600 and the 3 bedroom for around $1950.) I would do 1 apartment at a time.. ie serve a notice to quit to the 2 bedroom, after they move out, renovate, then rent it out. Then after 1 is rented, I would then serve a notice to quit to the 3 bedroom, renovate, then rent it out.  I know this would maximize the amount of money we can get from the property and I am leaning toward doing this but I am facing resistance from my family because they want to keep the current headache free long term tenants; which I can understand. 

On the other hand, If my aim is to keep my current tenants, My thoughts are to increase the 2 bedroom rent to $1400 without renovating completely, I may offer to paint the apartment and throw down new carpeting in the bedrooms.  Even at that, there is no guarantee they will stay, though in their situation, if they are looking for another 2 bedroom in the area, they will NOT find a better deal than $1400.  By doing this, I realize I am leaving alot of money on the table, every year but I do get to keep a long term headache free tenant.

For the 3 bedroom, again my aim would be to keep current long term tenants so I would increase their rent an additional $150, from $1475 to $1625. Again, I will not renovate at all, but offer to paint their apartment. 

I would like to hear others thoughts on this. I am leaning toward the first option because long term, again I would be leaving alot of money on the table and ALTHOUGH it is more work up front (renovating each apartment) I do believe our long term return will be greater. 

Anthony Porta 

[Nicholas Sheridan, Jr.]

It seems like although you are going back and forth on this that you already made up your mind, do the renovations. Your area is extremely populated so don't worry so much about the month or two in between doing the renovations and finding tenants. You will be able to fill that property easily especially if your rent is under the market rate. Yes it is great if the long term tenants have been wonderful but you need to draw the line somewhere because at the end of the day you are not doing this for free, you are doing it for the money. Maybe you should talk to your current tenants about raising the rents and see if they are okay with it?