Rents can “Easily be Raised”?

Almost every seller out there says that he’s renting his property below market and “rents can easily be raised”. Sometimes this is true, but often additional costs are required to get the property up to potential. In 95% of the cases, in order to substantiate a rent increase the owner will have to (1) get rid of existing tenants, (2) invest in property rehab and repair (3) have higher maintenance costs to maintain the higher rent rates and (4) attract a financially better tenant. These cost money in both direct costs and lost income. Further, it is by no means a certainty that rents CAN be raised, let alone easily. Even if other competing housing is rented for higher rates, the subject property may have some inherent deficiency that the market discounts. For example it may be on the wrong side of the Freeway for access to major employment or shopping areas. A discount of as much as 20% might be required to attract tenants if a similar property is available on the “right” side of the freeway. Buy for what the income can be, but only pay for what the income is.

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