Seeking Advise | Muti family purchase with existing tenants

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Seeking Advise | Muti family purchase with existing tenants

Michael Fradette
Rental Property Investor · Worcester, MA · Member since 2016 · 7 posts · 0 votes

Good morning all, 

My partner and I are in the process of acquiring our first 3 family. The first unit is vacant, making it easy to renovate and bring rents up to FMR. The asset has been owned outright by the seller for 30+ years. Floors 2 and 3 have been occupied by the same tenants for many years (12 and 15 years).

They are currently tenants at will, and pay 50% of what they should for each of their units. Our goal is stabilize the first floor, and provide a ramp period for the two occupied units to increase rents. My question is two fold and I'm also open to any pointers: 

1. Do we get them to sign a lease for a short period of time (4 months for example) and explain after that time rent is going up 50%? 

2. Do we keep tenant at will and simply explain that rent will go up in 4 months? 

Really appreciate the insight all. 

Mike

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Kurt Jones
Investor · Longwood, FL · Member since 2017 · 108 posts · 78 votes
7y

It’s your property not theirs. Plan your steps then execute on it. This is a business 

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  • Kurt Jones
    Investor · Longwood, FL · Member since 2017 · 108 posts · 78 votes
    7y

    It’s your property not theirs. Plan your steps then execute on it. This is a business 

    1Reply
  • Bryan Blankenship
    Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
    7y

    @Michael Fradette Leases. Now. No matter what you end up doing with the rent increases or renovations. It's not a good situation to find yourself in to have tenants without leases! You never know what will happen, and even if they've been stellar tenants for 10+ years, that can change at the drop of a hat (or a deed, in this case). 

    As @Kurt Jones said, this is a business you're running now. Approach it that way, and protect yourself and your interests. Then you can worry about everything and everyone else and do what you feel is right. :)

    1Reply
  • Greg Scully
    Rental Property Investor · Johnson City TN · Member since 2016 · 386 posts · 271 votes
    7y

    @Michael Fradette - The existing tenants are probably aware that they have been paying under market rent and may take an increase without much push back. I would get leases at a higher rent or offer them the renovated unit at FMR to open up the next one for renovation.

    1Reply
  • Michael Fradette
    OP
    Rental Property Investor · Worcester, MA · Member since 2016 · 7 posts · 0 votes
    7y

    Thanks for weighing in @Greg Scully, @Bryan Blankenship and @Kurt Jones. 

    @Kurt Jones blunt is good and agree it's not something to be over analyzed. We'll take what ever stance is necessary of course,  just want to be sure we are taking the right one and not overlooking. 

    @Bryan Blankenship and @Kurt Jones-  What we'll do is communicate rent is going up to $XX, and if there is agreement we just lock in the lease then and there correct? 

    We ideally would like them to exit so we can reno, but if we can elevate unit 1 and have stable rents above we would be happy for year 1. Regardless, the math works at the current, extremely low rents. 

    Thanks all. 

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  • Bryan Blankenship
    Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
    7y

    @Michael Fradette Yup! I generally go for the option of "keep existing tenant with a good record,spend no extra money right now, get higher rent" rather than "boot tenant out and spend money to get higher rent" whenever I can. You'll have to do a unit turn when they leave anyway, so if they're happy to stay and pay more, worry about the renovations later. Sign the agreement ASAP, but make sure you have all of your bases well-covered in that agreement. Take the time to make sure it's right, because you only get one shot at it until it expires! 

    1Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    7y

    @Michael Fradette This is a state-specific landlord-tenant question...won't do much good to listen to any responses here that are not local experts...I know everyone likes to help. You said you are in the process of acquiring this property...how do you know its not under rent control or the existing tenants don't have leasehold for life...more importantly, what if the law does not permit instant exponential rental increases....and how is the court system viewing evictions in your current RE climate. Do some more local homework with local folks...stay safe and informed. 

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  • Michael Fradette
    OP
    Rental Property Investor · Worcester, MA · Member since 2016 · 7 posts · 0 votes
    7y

    @Brandon Sturgill thank you Brandon. All valuable points, I appreciate you chiming in on this. 

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