Below market rent

[Ron Averill]

I am considering the purchase of a duplex (my first rental purchase).

I have run all of the numbers on it, and found the following.

Based on current rental income and asking price, the cash-on-cash return is about 1%. In other words, this property barely breaks even.

But the current tenants are being charged rent at well below current market rates. I believe this is because the current owner is an elderly lady who lives several hundred miles away, and she is happy to keep the current tenants at below market rates. In other words, no hassle with finding new tenants.

If I re-run the numbers with market rate rents, the cash-on-cash return is about 11.8%. Does this sound reasonable?

My bigger question is this. If I buy the property and start raising the rents (even gradually), I will probably lose the current tenants. Would you buy the property under these circumstances?

The property is in a desirable neighborhood with a strong overall rental demand.

Thanks for your advice,

Ron