Buying a multi family - should I raise current rents?? (Denver: hardwood floors, apartment)

[summergrl227]

Hello!

I'm in the process of purchasing a 3-unit multi family building in west denver. The specific location is right off Irving and Fedral (for those who don't know - not the most desirable area of denver). All units are occupied on month to month leases. The units are 2 2-bedroom 1 bathroom units on the upper level, and a 3-bedroom 2 bathroom on the lower level. The current rents are 750$ and 850$ for the upper 2 bedroom units, and 950$ for the lower 3 bedroom unit. The lower unit has been recently renovated with a new kitchen and hardwood floors. My broker thinks I should immediately raise the raise the rents because she believes they are very under market rent. The previous owner owned the building for 17 years and the tenants have been there for decades. I'm not so sure because I don't know if this area if Denver will gentrify any time soon. I have been trying to find info on comparable rents in the area but craigslist is all over the place and it is difficult to navigate.

I was wondering if anyone has any knowledge of market value rents for this area and weather or not the current rents are fair? I'm hesitant to raise the rents because the current tenants reportedly pay the rent on time every month, and at this point in my life I don't so much have the to extra time to look for new tenants unless absolutely necessary, though I'm financing with an FHA (with lots of fees) and any additional rent I can get would also be very helpful. Anyone with experience in raising rents and what the outcome was?

Any info or advice would be greatly appreciated!!

[ClarityUnity]

My 2 cents -- I wouldn't raise their rents.

Tenants that have been their for "decades" as you say are hard to come by. Lots of crappy tenants out there.

The new tenants may look good on paper but once they move in, can be all kinds of issues.


I'm sure there will be plenty of posts below mine that will tell you to raise that rent way higher. With the updates on the kitchen and hardwood, I'm sure a raise would be justifiable.

Based on what I know about market value in Denver, those prices are definitely under market value.

[davebarnes]

Maybe. Revisit the question 6 months from now.
See CU's post above.

[SkyDog77]

Originally Posted by summergrl227

at this point in my life I don't so much have the to extra time to look for new tenants unless absolutely necessary

At minimum if you lose a tenant you are probably looking a vacant month while you find a new tenant.

Are you managing the place yourself? Have you talked to the tenants? Maybe a $100 bump doesn't cause them to go, but gets you extra income. It's worth a conversation at the very least.

I've always kept my rents slightly below market. I would rather have a reliable tenant than be chasing top dollar.

[summergrl227]

Thanks for the response. I'm very fortunate in that the previous owner is going to continue to help me manage the property as a handyman and help respond to the tenants concerns when needed. He is going to keep all of his tools and mien tierce equipment in the garage. I will be paying him a low hourly fee. I have met the tenants very briefly but the owner was waiting until after the holidays to tell them that the house us being sold, I will be introducing myself next week. I'm leaning towards not raising the rents for all the reasons stated, but I feel like if I'm going to do it I should do it relatively early on...

Another question I have is would it be appropriate to ask one of the tenants to pay their rent to me in cash? I will be making a small profit after the morgage is paid, and not that I'm trying to get over on the government (I'm already in the highest income bracket) I'd like to avoid paying extra tax by putting it in the bank. How would I ask a tenant to do this, and is this even appropriate?

[ClarityUnity]

I've only known one person who has ever paid their rent in cash.

When you speak with them and introduce yourself, you can casually bring up all payment options for rent that you prefer and accept (emphasizing you wouldn't mind payment in cash).

Other than that, really can't push someone to pay in cash if they don't want to.

[SkyDog77]

Originally Posted by summergrl227

Thanks for the response. I'm very fortunate in that the previous owner is going to continue to help me manage the property as a handyman and help respond to the tenants concerns when needed. He is going to keep all of his tools and mien tierce equipment in the garage. I will be paying him a low hourly fee. I have met the tenants very briefly but the owner was waiting until after the holidays to tell them that the house us being sold, I will be introducing myself next week. I'm leaning towards not raising the rents for all the reasons stated, but I feel like if I'm going to do it I should do it relatively early on...

Another question I have is would it be appropriate to ask one of the tenants to pay their rent to me in cash? I will be making a small profit after the morgage is paid, and not that I'm trying to get over on the government (I'm already in the highest income bracket) I'd like to avoid paying extra tax by putting it in the bank. How would I ask a tenant to do this, and is this even appropriate?

Why on earth would putting it in the bank cost more in taxes unless you are planning to not claim the income at all?

In short, not at all appropriate. If you want them to pay cash, offer a cash discount, but you cannot make it mandatory.

Why do you think you should raise rents early on? As db said above, wait 6 months.

[sunsprit]

Originally Posted by summergrl227

Another question I have is would it be appropriate to ask one of the tenants to pay their rent to me in cash? I will be making a small profit after the morgage is paid, and not that I'm trying to get over on the government (I'm already in the highest income bracket) I'd like to avoid paying extra tax by putting it in the bank. How would I ask a tenant to do this, and is this even appropriate?

The long and short of this is:

1) it is not appropriate "to ask the tenants to pay their rent to me in cash".

If you're really "already in the highest income bracket", then your accountant can tell you why all transactions should go through your bank account.

[summergrl227]

Originally Posted by SkyDog77

Why on earth would putting it in the bank cost more in taxes unless you are planning to not claim the income at all?

In short, not at all appropriate. If you want them to pay cash, offer a cash discount, but you cannot make it mandatory.

Why do you think you should raise rents early on? As db said above, wait 6 months.

I never said anything about making paying cash as mandatory, but was simply seeking advice on weather or not it would be wise to do so or not. Not sure why such a thing was assumed....

[Pesare]

Originally Posted by summergrl227

Thanks for the response. I'm very fortunate in that the previous owner is going to continue to help me manage the property as a handyman and help respond to the tenants concerns when needed. He is going to keep all of his tools and mien tierce equipment in the garage. I will be paying him a low hourly fee. I have met the tenants very briefly but the owner was waiting until after the holidays to tell them that the house us being sold, I will be introducing myself next week. I'm leaning towards not raising the rents for all the reasons stated, but I feel like if I'm going to do it I should do it relatively early on...

Another question I have is would it be appropriate to ask one of the tenants to pay their rent to me in cash? I will be making a small profit after the morgage is paid, and not that I'm trying to get over on the government (I'm already in the highest income bracket) I'd like to avoid paying extra tax by putting it in the bank. How would I ask a tenant to do this, and is this even appropriate?

If you want to have your tenant pay in cash I would offer them a cash discount of maybe 50 dollars. I am assuming you don't want to claim the income. I think that would be fair, but I wouldn't for them to pay in cash.

Also, in terms of raising rents I would only raise it in small increments or risk the tenant leaving. I own a 1 bdr apartment as a rental and every year I raise it by 50 bucks on my current tenant. The rent on that 1 bdr is undermarket still though and if the tenant leaves I can get at least 200 bucks more. I have a friend that manages a 2 bdr apartment and he has gotten away with raising the rent by 150 dollars without any problems although their tenant wasn't happy, but since there is low rental inventory now you may be able to get away with it.