Tenant Displacement for Rehab

[Mark Tabah]

Happy Sunday and holiday season all! I've got a duplex under contract with tenants who are paying WAY below market rent. The plan is to rehab one side at time to mitigate costs. One side is on a month-to-month and the other side is on a 1-year lease that expires in April. Is it a better option to stick with the current management to help displace the tenants or let my new management company take the reins? (I switched management at the beginning of the month for my other property and haven't established a strong working relationship with them yet.) Also, if anyone has any tips or anecdotes on displacing a tenant still under contract, I'd love to hear it. Thank you in advance for the help!

[Kyle J.]

Why would you want to renovate a unit of a tenant that's still in the middle of a lease?  You can't raise their rent during the term of the lease, so seems pointless to incur the cost/hassle of renovating their unit during this period.  I personally wouldn't renovate an occupied unit at all (whether they're on a lease or month-to-month).  

If they're on a lease, you have to wait until the lease expires to do any rent adjustments.  However, what I've done in the past with MTM tenants that are well under market rent, is just raise the rent (substantially but not to full market rent) without doing any renovations.  If they agree to it and stay, great.  I got the increased rent and didn't have to do any work.  However, if they decide they don't want to pay the new rent, no problem they can give notice and move.  At that time, once it's vacant, I'll do the renovations and increase the rent even more (to full market rent) and re-rent it to new tenants.  It's a win-win for you either way.

I would never do a big renovation mid-tenancy to the point where I had to displace tenants.  Now if it was a necessary repair to keep the unit habitable, that's different.  But it sounds like you're talking improvements vs repairs. 

Just my two cents.