Topic: Implementing RUBS & Increasing Rents

Hi all

Doing some numbers on a deal and I have a few questions. The property I am looking at is 100% occupied, Class C 1970's construction. There is no RUBS in place, and rents are below market about $100-150. After renovation, rents can be increased an additional ~$100-150. This is in the Sacramento, CA market.

The plan is to renovate units & achieve the post rehab rents & have the property completely stabilized and performing at its peak within 3-5 years.

I'd like to ask the best way to implement RUBS and rent increases for a 5 year hold.

1. Should you do both at the same time? This way vacancies may increase and you can aggressively remodel and turn units, or should one be done after the other.

2. To implement RUBS - should you go straight for 75% to the tenants or increase quarter by qaurter, or year by year?

3. What is a "safe" number of units to renovate per year, is it a third, a quarter, or just go in as aggressive as possible to get the majority of them done in the first year? What is the best and most efficient way to balance?

Any guidance would be highly appreciated

RUBS as in Ratio Utility Billing System? You have 100% occupancy in a Class C (Hell Hole) property where maintenance has been ignored for how long? Have you stopped to consider that this MAY BE peak performance for this property? If you raise the rents $100-$150 + RUBS and put a lot of money into renovation do you have any guarantee that there will be richer tenants to replace the ones that you already have? The 1970's saw a lot of changes in building construction. Check for CI DWV pipe, that was the cross over period to ABS. Check for aluminum electrical wire, the 70s were a little late for that but it doesn't hurt to check. Just a thought....

I don't have any feedback as we haven't started pushing RUBS yet. We are in the Fresno Area, and have a property built in the early 90's. We've had much talk about RUBS, but the discussions scare the heck out of me. We do really well with leasing and maintaining about a 98% occupancy at all times.

Have you figured out what your plan is? Renovate first and then require RUBS?

What company are you planning on using?

Great question!
If your market is really strong and you can afford turnover, you could do both at the same time. If you need the income stream of current residents, you may want to implement one or the other (rent bump or charge utilities) at a time for current residents, but you could still implement both the higher rate and start charging for utilities on new move-ins.
Communicate openly with your current residents - if you plan to do one of these at a time, you may want to give them realistic expectations that the following lease they'll have the other, so they can plan their finances accordingly or give you plenty of notice so you can plan.
As for staging the renos, I know a lot of companies go in and do all at once, but I've also seen lots of chaos doing it that way. When given a choice, I like to handle renos at "naturally occurring" turns, which means in most of my markets, roughly 40-50% are completed in year 1, another 25-35% in year 2, and the balance in year 3. Typically that means staff isn't overwhelmed, it's easier to plan and implement, and most vendors now will "box up" your standard reno items and deliver as you need them.