General Landlording & Rental Properties

User Stats

16
Posts
6
Votes
Eric Sebast
6
Votes |
16
Posts

New landlord question about process for keeping existing tennants

Eric Sebast
Posted Jun 8 2022, 13:14

Under contract on our first property a duplex (traditional financing, past attorney approval, just did inspections today). It has some small items that need repairing, but it is otherwise ready to go.

We decided to keep the existing tenants after meeting one of them when we walked through it before offering on it, and met the second tenant today doing the inspection. The rents are a little bellow market value, but not crazy, and it cashflows well at about $200 per unit (including an expected managment fee). One of the tenants is on a month to month (has been there 4 years), the second tenant is just about 2 years and is on a annual lease that is up in August.

We are going to managing the property ourselves for the next 6 months or so just so we get a feel for how that goes, before flipping it over to a management company (haven't started looking for one or vetting any yet). Planning on using RentRedi for all payments and interactions (not 100% yet, still looking at them all).

So my questions are:

When should we introduce ourselves to the tenants?

For the month to month tenant, can we just move her to our lease, either MTM or an annual, and how would we present wanting her to move to a annual lease instead of a MTM?

The MTM tenant is far below market value, she's at $700 per month, in what should be at least $800 or $850. Do we leave it because it already has good cashflow, or how do we approach changing the rent with her? Would you just keep it cause she's always paid on time, go up gradually, or jump it to market or?

Upstate New York, New York

User Stats

1,216
Posts
1,259
Votes
Kevin Sobilo
  • Rental Property Investor
  • Hanover Twp, PA
1,259
Votes |
1,216
Posts
Kevin Sobilo
  • Rental Property Investor
  • Hanover Twp, PA
Replied Jun 8 2022, 16:13

@Eric Sebast, I would send an introductory letter along with a copy of their existing rental agreement signed over to you by the prior owner. I would do that as the official notice that you are now the landlord. I would include payment information for how they should make payments and how they should contact you for maintenance requests etc.

I would very shortly thereafter follow that up with a phone conversation and perhaps an in person meeting.

I always look to do 1 year leases. So, for the MTM tenant I would explain the benefits of a lease. How it locks them in so they can't be easily displaced or have their rent raised unexpectedly.

As for the rent bump. Even if a tenant can in theory handle market rate rent, their budget is based on the current rent. So, an unexpected large jump is difficult for most people to cope with. So, I would try to get them up to the rent you want over a few year period. I would also give a little longer notice for this first lease. So, for example if you wanted to raise the rent $50 or $75 which is a healthy increase at that price point, I would give them at least 60 days. I might have them sign the lease now, but have the lease start 60 days later to give them time to prepare. 

User Stats

18,100
Posts
28,336
Votes
Nathan G.
  • Real Estate Broker
  • Cody, WY
28,336
Votes |
18,100
Posts
Nathan G.
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Jun 9 2022, 05:05
Quote from @Eric Sebast:

Under contract on our first property a duplex (traditional financing, past attorney approval, just did inspections today). It has some small items that need repairing, but it is otherwise ready to go.

We decided to keep the existing tenants after meeting one of them when we walked through it before offering on it, and met the second tenant today doing the inspection. The rents are a little bellow market value, but not crazy, and it cashflows well at about $200 per unit (including an expected managment fee). One of the tenants is on a month to month (has been there 4 years), the second tenant is just about 2 years and is on a annual lease that is up in August.

We are going to managing the property ourselves for the next 6 months or so just so we get a feel for how that goes, before flipping it over to a management company (haven't started looking for one or vetting any yet). Planning on using RentRedi for all payments and interactions (not 100% yet, still looking at them all).

So my questions are:

When should we introduce ourselves to the tenants?

For the month to month tenant, can we just move her to our lease, either MTM or an annual, and how would we present wanting her to move to a annual lease instead of a MTM?

The MTM tenant is far below market value, she's at $700 per month, in what should be at least $800 or $850. Do we leave it because it already has good cashflow, or how do we approach changing the rent with her? Would you just keep it cause she's always paid on time, go up gradually, or jump it to market or?


My process is to introduce myself on the day of closing. I hand them a letter with instructions for paying rent, contacting me, etc. It's very short and simple. I also schedule an inspection within the first week of ownership, even if I've inspected the property during the purchase phase. This is an opportunity to really see how the tenant is maintaining, document with pictures, talk to them about any unreported maintenance, and discuss plans for the future. The inspection is non-negotiable and any pushback from the renter is a red flag that you don't want to keep them.

As for being below rent, $150 is small enough that they may be able to afford the increase. I would notify them immediately and give them the option of terminating and moving out between now and lease termination with no penalty as long as they provide at least two weeks notice. If they insist on staying, I would screen them to ensure they can afford it.

I don't recommend incremental increases. Rip the bandaid. Either they can afford it or they can't.

User Stats

16
Posts
6
Votes
Eric Sebast
6
Votes |
16
Posts
Eric Sebast
Replied Jun 9 2022, 11:44

Thank you both.

Are there sample copies of letters that are available that you would recommend?

User Stats

150
Posts
131
Votes
Mackenzie Grate
  • Real Estate Agent
  • Ulster County, NY
131
Votes |
150
Posts
Mackenzie Grate
  • Real Estate Agent
  • Ulster County, NY
Replied Jun 10 2022, 07:23

I agree. Send them an introductory letter immediately that outlines who you are and how to reach you. I would also introduce myself to them in person with a thoughtful little gift. It doesn't have to be significant. Just something small to start to build the rapport.

In terms of raising the rents, I would notify them as soon as possible. Just make sure you follow the rules for the state. If a tenant has lived somewhere over 3 years, you must give them 90 days notice. If it's 1-2 years, 60 days. Less than a year 30 days notice. That goes for all aspects: raising the rent, renewing the lease, etc. Additionally each town has enacted slightly different laws. Depending upon where your rental is located, there may be a rent increase cap. So make sure you are very clear on what the laws are before you take any steps. This is crucial because if you do raise the rent, but didn't follow local regulations, your tenants can challenge it in court. NYS courts tend to err on the side of tenants so make sure you are following the law explicitly and stay on top of the new regulations because they are continuously changing.

Good luck! You got this!