How To Communicate With Tenants You Are About To Inherit.

Question

Hello,

I am currently under contract on two duplexes (4 units) and am set to close next week. However, this will be the first property I have bought in which I will inherit the current tenants. I plan to be raising the rents on them because they are currently paying about 40% under fair market rent. The area I live in has no restrictions on how much you can raise the rent, but I will not be raising them all the way to what each unit should be renting for because they are great tenants. I was able to walk through each unit last week and was blown away with how nice each tenants keeps their home. So, I want to keep them in place.

With that being said, I am curious to know what the next steps are for you all in a similar situation? For example, I am wanting to send them a welcome letter introducing myself and letting them know some of the changes that will be happening in the coming months. Do any of you have a template you could share with me for this? Or is there anything else you would send them (besides getting a new lease signed obviously)?

Thanks for any and all feedback.

- Cole

Melanie P. · Answer

We operate our units under an obscenely landlord friendly lease agreement that runs 20 pages and it's good for operations to have every tenant under the same lease terms. The tenant is under no obligation to enter into a new lease with you. However, by emphasizing their security deposit and concerns about repairs every tenant we've approached using this system has signed our lease.

Someone from maintenance stops by to introduce themselves, give a business card and ask if there are any repairs that need to be addressed in their unit. They deliver an envelope that has a notice we own the property, instructions on how to pay rent, how to request repairs and two lease offers. He explains there are a couple of leases to choose from in the envelope and it's good to get a lease that shows the current owner is responsible for their security deposit.

In the letter we thank them for their tenancy, advise that we are the owners and all inquiries concerning their tenancy should be addressed to us. "Please be advised that FORMER OWNER has no further responsibility for this property including your security deposit." While we know this will not be welcome news, we want to advise you immediately that market rent for your unit is $2000. Your current rent of $1,000 will increase at the expiration of your lease term to $1,500. If you sign a new lease with a one-year extension by (TEN DAYS) this amount will be discounted to $1,400. You can plug in your own numbers, the example just shows percentages. Our policy is raise halfway to market following purchase. Of course tenants don't like this but they're expecting to either be kicked out or a big rent increase following the sale. Being upfront about it gives them time to decide. Most stay, they're still below market rents.

Our maintenance management system has a ticket that either gets satisfied or generates follow up visits to inquire about the lease anytime they're at the property on other business. When they accept one of the new lease forms we schedule a signing either at our office or at the unit. At the signing we take them through the lease page-by-page as with any new tenant, take pictures of ID and also ask them to fill out our rental application so we have not only updated but what we consider complete information about them on file.

Theresa Harris · Answer

If you are taking possession next week, who are they paying June's rent to?  The previous owner who will then transfer the prorated rent to you?  Also make sure you get the deposit.

Contact all of them and let them know who you are, when you take over, how to contact you and how to pay the rent.  Raising the rent 30% is going to result in some vacancies.  Talk to them and give them a list of available properties that are comparable to show them what the market is currently like.  Have their places been updated?  Do you plan on doing any updates?  Doing renos with a tenant in place is not a good idea.

Tell them how much you are going to raise the rent and when (how much notice do you need to give for your area and how much do you want to give-ie if 30 days' notice is required did you want to give them 60 days?).

Nathan Gesner · Answer

My introduction letter is very short. I tell them who I am, how and where they can pay rent, how they can communicate with me (ordinary vs. emergency), and that I need to perform an initial inspection of the property within one week. I try to hand deliver this letter and use that opportunity to schedule my inspection. The inspection is an opportunity to (a) document the condition of the rental so I can track tenant damages from that day forward, (b) look into any maintenance issues the tenants may be concerned with, and (c) notify them that a new lease is coming and what that entails.

As for rent increases, I don't ever recommend keeping tenants more than 10% below market. I try to encourage the very best tenants to stay by keeping rent low, but only if they are perfect in every way: timely payments, no lease violations, maintain homes, communicate well, etc.

When tenants are so far behind, there's a good chance they can't afford market rates. You can choose to terminate their leases and start fresh, or verify their ability to pay the new rate. If a tenant is more than 20% below market, I prefer to end their lease and start fresh. Hitting them with a major increase as a new landlord may result in animosity from the tenants or introduce new problems.

How To Communicate With Tenants You Are About To Inherit.

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