Raising Rent Issue

[Cory St. Esprit]

I just closed on my first small apartment building (4 units). We have some commercial and international real estate we rent out, so now new to the rental industry - just apartments. Seller had the apartments significantly below market value (tenant paying $500 on an apartment that comped at $750, another paying $625 on an apartment that comped at $850). Leases were month by month, so I had my attorney draft a new lease that increased rent by $25/month over the next ~12 months to get apartments up to market rate - and the one long term tenant (12 years) decided to leave in 30 days. 

Honestly, this tenant has a cat that isn't approved, is doing drugs in the house (I've seen it with my own eyes), and keeping the place dirty...do I call it a blessing because they're leaving and I can fix up the place to rent closer to market...or did I do something wrong?

[JD Martin]

I think what he is saying is that rent would go up $25 each month over the next 12 months to get them up about $300 - i.e. this month rent would be $525, next month $550, and so on over 12 months. 

With that strategy I am not surprised you lost/lose one or more tenants. On the plus side, you get to test your theory that the apartment(s) are well under market rates. If you are right, then you're in luck as it's almost always better to start with your own people than inherited tenants. If you're wrong, well you are about to have a lot of turnover. 

I don't think I would have done it that way; most tenants see a $25 increase every month as exorbitant, with no guarantee you're going to lock them in at a fair rate if they're on M2M.