New Apartment Building Purchase And Rent Increses

[Charles Heistand]

Hello BiggerPockets!

This is my first post on this forum and I am new to the world of real estate investing. I have been reading this forum for about 3 years and my wife and I decided to pull the trigger on a 6 unit apartment building in our town that the numbers look fantastic on and we are very excited and eager to get started but are also terrified because of the amount of money we are investing in this and want to ensure that we do everything correct and to have the greatest ROI that we can. The apartment building currently has 3 rented units and 3 empty units. 2 of the units that are empty can be rented within a couple of weeks of us closing in late July but the third unit is going to take some time to renovate because there was a smoker that lived in the unit for 13 years and nothing has been touched since she moved out... We will be renovating this unit over the next several months to get this one rented out by sometime in October. My question that I have is we want to raise the current rents on 3 current units but aren't planning on doing this until January 1st as to not make a potential 3 additional units empty and then we would be upside down on cash flow. The current rents for two of the units are $660 and we want to raise them to $725 and this is fair market rent for the size and condition that the two units are in. The third unit is currently renting for $825 and we want to raise the rent to $850 as this is fair market rate for the size and condition of this unit as it has been fully renovated by the current owners we are purchasing from. The one unit only going up by $25 is fine to do in one month jump from December into January when the new lease is signed but for the other units that are jumping $65 a month that seems like a lot for a one month jump. What would everyone else do if they were in this situation? Would you do the jump in one month or would you spread it out over say two months? I would greatly appreciate any insight that current landlords would do if they were in this situation.

Thanks!

[Jon Kelly]

@Charles Heistand I would NOT give month-to-month tenants notice in July of a rent increase in January so they can "prepare" for it. It will only give them 5 months to pack up and look for another place to live. Personally, I wouldn't even think about giving notice until you rent out the 2 vacant units that are almost ready to rent. 

I would also stagger your rent increases, so you don't give notice to all 3 at one time. I'd start with the $825 because it's only a 3% increase. The other 2 are 10% increases, which is a bit high. Maybe you go to $700 and then $750 the following year? 

It all depends on the demand in your area. If you're very confident you can fill the units quickly then you can be more aggressive. You'll get a good sense of the demand when you fill the 2 vacant units within a month. 

It's also important to remember that in most markets the demand is much higher in the summer months and lower in the winter months.