How should I approach new rent?

[Victor Padilla]

So, my wife and I just purchased our first multi-family property in El Centro, CA. It is a four unit property, with each unit having two beds and one bath. Each unit also has stackable washer and dryer‘s. Each tenant is currently paying $700 a month, on a month-to-month basis. That is what the previous owner had set up. One tenant has lived there for three years, and the other for close to 15 years. I have no idea how long they have been paying $700. I live in one unit, and my twin sons who are seniors in high school are in the other unit. So just to be clear two of the units have tenants, and my family is occupying the other two units. House hacking.

We are currently in the process of renovating each of the units we are occupying, to include LVP flooring, recessed lighting, new paint, trim, etc. We are also going to add a tall wooden fence to provide privacy to our tenants from the other property.

We have been doing some research on the rents of similar properties/units in the area and it seems to me that the going rate for two bed one bath in the area is between $750-1100. There is a new four unit three minutes away that has less amenities than our property and they are asking $850. They don’t have washer and dryers (or hookups), our property does, we also have a small front area with grass the tenants can let their kids play in, etc. 

When both of our units are finished with the rehab, we plan on charging $900 a month to the new tenants, but what should I do about the other units with the tenants in them? Granted those units are in really good condition, but Won’t be as updated as the ones we are working in now, even still, I think that their current rent is far below the going market rate. And just to reiterate, they are currently on a month-to-month leasing agreement from the previous owner. How should I increase the rent to $800 or 850 if they are currently only paying $700?

Thank you in advance for all of your comments and suggestions. I really do appreciate each and everyone of you.

[Nathan Gesner]

Assuming your numbers are correct, here's how I approach it.

Determine market rate of a renovated unit. Tell the existing tenant they can stay where they are for 10% below market rate or they have to move out so you can renovate and get a new renter that pays the full rate.

I have a renter right now that was paying $475 in an apartment that needs to be gutted. She's been there 16 years. I wanted her out so I could renovate and bump it to market rate of $675. She begged me to let her stay. I told her she could pay $600 a month and stay put without any renovations and she agreed. So I'm making $125 more monthly without any expense and she gets the benefit of not having to move. Win - win.