After an ~8 month real estate drought, we finally found property #11.
It all started by getting an e-mail from the REO department at the bank. I sorted through it and saw 3 properties that met our criteria (first glance). A little digging and only 1 remained. When we inquired with the bank, we found out it was already rented out (same person that was renting it when they foreclosed on it a few years back). We've already got 3 REO's in the same manner that were already rented so this process is very comfortable for us. The interesting thing is that the current renter is paying about $250-$300 below market rent. The full disclosure here is that to get market rent we have to do a little work inside. However we can easily get $200/month more.
Upon closing, our plan is to raise the rent to an amount we can easily get if the renter decides to move out. We plan to have the PM raise the rent between $100-$150 next month and sign a new 1-year lease. If the renter moves out, that's fine, our PM is confident they can rent it out quickly for that amount. It's hard to say the plan beyond that as the property is pretty profitable at that level and if we raised it to true market rent, we're 99% sure they'd move out and the time vacant plus losing the first month's rent to the new would be a lot less than our current plan.
After the 1st year, we will most likely have a significant raise in rent to get it at or close to true market rent. If the renter moves out at that point, we're prepared for it and have already gotten all our money back plus some, so a little vacancy won't hurt us too much. The renter situation could prove to be an interesting story at some point and if it becomes interesting beyond what I've posted here, I'll be sure to write about it.
UPDATE (3/5/16):
Another uneventful situation. We asked the PM to raise the rent by $150/month. She gave more than 30 days notice to the tenant for a rent increase starting 3/1/16. The tenant excepted the rent increase and signed a new 1-year lease. A few weeks went by before the tenant let the PM know he accepted and signed the lease. My guess is the tenant looked for a similar property at the same rent he was paying and realized he couldn't even find a similar property at the level we were raising it to. He had been paying the same rent for almost 6 years with no increases and even back then he was getting a great deal. Once the year lease is up, we'll increase at least another $50, perhaps more depending on where the market is. If we put about $2,000 into it, we could get another ~$150/more than we're charging, but with a new tenant and the PM taking the first month's rent and potentially a month or two of vacancy, even if we got $150/more, with vacancy, PM fee, and $2k (maybe more) rehab costs, it would be years before we broke even based on what we're getting now. I just thought I'd laid that out there if people are thinking why I didn't just raise it all the way to market, let the tenant move out, do the rehab and get full market rent. Instead of a potential ~$4k-5k with all I mentioned, we're going to cash flow $2.5k this year on it. It's a no brainer :)
