Many duplex owners and buyers believe the only way to make their property worth more is by swinging a hammer and grabbing a paintbrush.
They spend hundreds, sometimes thousands of dollars installing new windows, granite countertops and central air conditioning, while overlooking the most obvious and inexpensive improvement of all: raising the rent.
Increasing rent to at or just below market value can add tens of thousands of dollars in equity to a duplex, triplex, fourplex or even large apartment building.
And yet, owners often refuse to do it.
Simple. They are afraid of losing tenants.
This is ironic, because most tenants are aware they are not paying market rent. They will not be surprised by a rent increase and in fact, won’t move if that increase is such that it still keeps their rent at bargain rates, but puts more money in the landlord’s pocket.
For example, let’s say a tenant is paying $800 for a two bedroom unit in a neighborhood that usually commands $1100 for comparable properties. (Of course, each must be in good condition.)
Raising the rent $150 a month will result in the tenant still “getting a good deal”, while the landlord increases her revenue stream by $1800 a year.
If each unit in a duplex is similarly under-rented, and the duplex owner gives both tenants rent increases, that would result in $3600 more a year in her pocket.
While market gross rent multipliers and cap rates are highly market and neighborhood specific, even if we use a conservative GRM of 6, means an increase in property value of $21,600.
The same calculations can be applied when buying a duplex as well. If rents are below market rate, a simple letter notifying tenants of an increase when their lease is up immediately adds value and increases cash flow.
All without a single trip to Home Depot!