How to Rehab a Fully Occupied Property?

[Shilpa Matlock]

I'm looking to buy a duplex, fully occupied at (drastically) under market rents in a small town. This is a long-distance, buy and hold investment. I want to rehab and raise rents. How can I do a rehab if there are already tenants in place? Do I have to wait for them to move out? What if they're long-term tenants, and they don't move for years to come? Or what if one unit vacates, can I rehab that side while the other side is still occupied? How do other investors handle this type of situation? I'm coming into this as a new investor, and any tips would be greatly appreciated, thanks!

[Nathan Grabau]

Depending on the state you are in, you should be able to chose not to renew their leases and then do the rehab work. I know some states like CA have pretty restrictive laws surrounding the conditions and notice you have to give to not renew a lease. You can do a single side renovation, I would just make sure you try to minizine things like early morning work. I would think of this like if you just owned one unit in a condo building and were doing renovations. I would also check city rules here too, I know some cities in Colorado limit how early we can start loud work, while this is rarely enforced, you could be accused of trying to squeeze out the other tenants by being having the construction noise be a nuisance for them. This is probably me being overly sensitive, but for the existing tenants this is home for them, that they are getting a great discount on, so the potential for an emotional response here is very possible. 

Depending on how quickly you would like to get started, or have to because you need to BRRRR the deal, cash for keys is another option here. You could offer the existing tenants money to leave. This might seem silly, but when you compare it to the value of the higher rents you will get, especially after the renovation, that is only going to get more expensive the longer you wait to do it, this could be a great option. As a BRRRR you are also protecting yourself from shifting market conditions. While I think the market is not going to go down, if it does, it will make the refinance less lucrative.