Rookie Rehab Dilemma 2-Family

[Justi Moor]

Hi BP! I just bought a duplex fully occupied and the tenants are paying; but well below market rent at $1000 and $800 for 4-bedroom units. Both units need a new kitchen and bathroom. I have decided to renovate one unit at a time. 

I originally decided to evict the tenant paying $800, first, because they are paying less and there is a minor water leak that is very hard to access currently. But the dilemma is that they are elderly hoarders so the eviction process will likely take a lot longer than it would for the other tenant, the renovation will be more significant and more costly. My idea was to renovate one unit and create cash flow through Airbnb, then renovate the 2nd unit. 

[Greg Scott]

The term "eviction" implies that you are further down the process than you are.  You did not specify, but assuming they are month-to-month tenants, you can simply non-renew their tenancy.  If both residents are mid-lease, you have less of a choice.  A paying resident who is in compliance with the lease cannot be evicted. The hoarders you can hit them with a lease violation for hoarding and indicate they need to resolve it or leave.  Some residents move out on their own without having to go to court.  Only then, if they do not move out are you evicting the resident.  Either way, the timeline should be fairly fixed in your area.  It would be simply your choice if you want to drag things out.

You made the comment that you hoped to generate cash flow before renovating the 2nd unit.  I hope your business plan is not dependent upon that.  A mistake many investors make is to try to fund rehab out of cash flow and one hiccup gets them in trouble.  Suppose you get the elderly couple out and immediately thereafter your other resident decides to move, could you still execute your business plan?   If you could, there really isn't much of a dilemma here, your timeline just got pulled ahead.  If you couldn't, best to start preparing contingency plans.