Right now we’re going to talk about how to increase your income as an income property owner. Thanks for tuning in today to the Real Estate Today podcast.
I’m Bob Nelson, real estate investment broker with Pacwest Real Estate Investments. Joining me today is René Nelson, a very accomplished commercial broker and owner of Pacwest Commercial Real Estate in Eugene. René, thanks for joining me today.
René Nelson: Thanks, Bob. Okay, I’m going to give you a what if scenario.
Bob Nelson: Okay.
René Nelson: I own 18 units in Eugene. It’s professionally managed. My property manager-
Bob Nelson: Apartment units, right?
René Nelson: Apartment units.
Bob Nelson: Right, okay.
René Nelson: My property manager’s doing a great job, but I want to figure out how can I raise rents, because I’ve been dawdling along, but I haven’t kept current with … Over the last five years, I haven’t done big rent increases, so I’m thinking about doing value-add. At what point does it pay off to go in and almost regut the interior of the units and put money into it?
Bob Nelson: Well, it’s an interesting thing, because first of all, the property has value as it stands on the hoof. If you are under-rented, your tenants probably aren’t going to move at all. They’re going to love it, and they’ll stay there until they no longer can live in an apartment complex. But, what’s also happening, if other properties are increasing their rents and accomplishing those rent increases … Restated, the market is accepting a higher rent and you don’t, it’s a touchy situation. How far off of market rent per month do you think that you might be in your example?
René Nelson: My client that’s going through this right now, they’re about $175 to $200 off market rent.
Bob Nelson: Wow. And they’re what size units? One bedroom? Two bedroom?
René Nelson: One bedroom. Well, one thing that’s interesting is most of their clientele or their tenants have lived there for the last 10 years, so you can tell their rents are low because nobody’s moved.
Bob Nelson: Same carpet. Same countertop. Same bathrooms, et cetera. Okay, so, with that, it’s interesting. If you’re attempting to cover the spread of two hundred bucks, the tenants are not going to stand that. You give them a $200 rent increase, and they are going to move out. They’re going to boycott you because your rents are too high. They’ll discover that as they move to another one, they’re going to be paying those higher rents, if that’s what’s available, but it becomes interesting. So, you may try a rent increase that is substantial, but not necessarily the full two hundred bucks. When that causes some vacancy, now gives you the opportunity to go in and upgrade that unit.
Unfortunately, we’re out of time. as my producer looks at me. We’re going to have to cover this on the next show. I’m Bob Nelson, real estate investment broker with Pacwest Real Estate Investments.
Join Bob Nelson and Marcia Edwards Eugene, Oregon, real estate experts daily at 5:30 on KPNW for the “Real Estate Today ” radio show.