Hi all, I am looking at purchasing a specific duplex right next to my work that will (1) subsidize my cost of living and (2) eventually become an income-producing property. First time property buyer but I did go through the process with an ex-SO and realize how much work maintaining and (minor) updates entail.
At this time, the numbers are as follows:
Purchase List Price: $239K
Comps: $225-250K
Planned offer: $220-225K
Rent for each 2/1: $725.00/mo
Market rent for area: $1,250.00/mo
Rent adjusted for property condition: $1,095-1,150.00
Property has long-term (5-year), quality tenants. One unit has a mother, large dog, and 2 children in school. One has a single guy who is very clean (unit is immaculate) and well educated but who gets out of school in 20 months so may leave at that time. One of them will have to move if I purchase the property as I am getting an owner-occupied mortgage. Mortgage/PMI/taxes will run about $1,650.00 with 3.5% down FHA.
The issue is that the rent is absurdly low for the square footage, location, and property itself. It's been semi-updated and is in standard rental condition, all tile, etc. I plan to make improvements to my side over the course of a year or so, and then when there is a vacancy on the other side I will move to the other side and do the same.
My question is: How do you tackle the issue of raising rent significantly to good, long-term tenants who have paid way under market? How do you decide which one to remove? Both are month-to-month and I have about 2 months to move in in order to comply with FHA after closing (if I close).
I want to be tactful and nice, but I can't change the math. This is going to be a second business for me, essentially.
The current owner owns free and clear but is in his 70s and wants out of the landlording game. So for him, he's making profit even on the $725.00/mo whereas I wouldn't even be able to make mortgage payments at that rate.
I'd like to rent out one side for at least $1,095.00 and live in the other in order to cut the costs. Eventually once my side is rehabbed, I can rent closer to market rate ($1,300 or so based on 2/1 with covered parking & separate driveway).