Buying a rental with month to month tenants

General Landlording & Rental Properties
1yFollow

Buying a rental with month to month tenants

Tom R.
Investor · Ridgecrest, CA · Member since 2017 · 247 posts · 120 votes

I just put an offer on a fully rented duplex. Both tenants are on month to month one unit is rented at about market rate and the other is a couple of hundred below market rates. My question is do I have the tenants sign a new lease and do I raise the rent now to be closer to market or do i wait. At current rates I estimate I will be getting a little less than 9% cash on cash at market rate I should be able to get close to 13%

0Reply
155 views

Most Popular Reply

Ryan Fox
Investor · NV and CA · Member since 2016 · 375 posts · 229 votes
1y

@Tom R. - In most markets, this time of year is not the best time of year to market a property for rent and you may not be able to attain the rent you hope for.  You'll want to draft a legal term lease that has all the terms and conditions you want.  Have them sign it after close.

1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Ryan Fox
    Investor · NV and CA · Member since 2016 · 375 posts · 229 votes
    1y

    @Tom R. - In most markets, this time of year is not the best time of year to market a property for rent and you may not be able to attain the rent you hope for.  You'll want to draft a legal term lease that has all the terms and conditions you want.  Have them sign it after close.

    1Reply
  • Scott Brockelbank Jr.Pro Member
    Investor · NH · Member since 2018 · 36 posts · 21 votes
    1y

    I agree with Ryan. Get them on a lease with terms that align with the protection you are looking for. I recommend trying the binder method to raise rents out the gate without the ultimatum feeling of pay this or get out. That way you get a bump without forcing a potential vacancy.

    0Reply
  • Matthew Thornton
    Member since 2025 · 104 posts · 37 votes
    1y

    Congrats on putting in an offer!

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    1y
    Quote from @Tom R.:

    I just put an offer on a fully rented duplex. Both tenants are on month to month one unit is rented at about market rate and the other is a couple of hundred below market rates. My question is do I have the tenants sign a new lease and do I raise the rent now to be closer to market or do i wait. At current rates I estimate I will be getting a little less than 9% cash on cash at market rate I should be able to get close to 13%

    Is this in ridgecrest, California?  Are you familiar with AB1482?   You may not be able to raise the rent to market rent.

    i am skeptical of your COC if you are at a high LTV.   At the average rent point of CA, the maintenance/cap ex is huge.  Average vacancy is above 10%.  PM is above 10%. 

    In addition, AB1482 prohibits any significant lease terms.   By law you cannot mandate a tenant that is on month to month to commit to a longer term.  You cannot add charges for things that are currently included in the rent.   You cannot remove something that is currently included in the rent.  Educate on AB1482 and the various other landlord laws.

     
    Good luck

    0Reply
  • Jennifer Thoennes
    Member since 2025 · 8 posts · 4 votes
    11mo
    0Reply
  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    11mo

    When ownership changes, from my experience, tenants that are M2M almost always leave and they leave very quickly. You may want to consider having them sign a lease before closing. If you raise rents as soon as you get in there then the probability of them leaving goes up. 

    [email protected]239-339-3969
    Bartomeo Property Management4.7143 Reviews
    WebsiteView Page
    0Reply
  • Keyona Taylor
    Real Estate Broker · Member since 2019 · 77 posts · 19 votes
    11mo

    I’d probably hold off on making big changes right away. Since the tenants are month to month, you’ve got flexibility. Raising rent now can backfire a bit. If they decide to move out, it’s tougher to fill a vacancy this time of year. You’ll have better timing and more renter activity after the holidays.

    0Reply
  • Scott Nachitilo
    Property Manager · OK · Member since 2024 · 98 posts · 74 votes
    11mo

    Congratulations on getting the duplex under contract! I’d recommend holding off on immediate rent hikes or lease demands. Since both tenants are month-to-month, you should use that freedom to your advantage. That $200-under-market unit? Push them too hard right after closing, and you might face a surprise vacancy during slower rental months, costing you more than the gradual rent increase would’ve gained.
    Instead:

    1. Meet the tenants, be fair, and build trust first.
    2. In three or four months (especially after all those winter holidays), approach them with a small increase-maybe $100-and ask them to commit to a new 6 or 12-month lease. Tell them they will lock up their home for the long haul.
    3. Once they sign a lease, you will feel stable again and can go another year before you start pushing rent toward the top of market rates.

    See? If you are careful, it will be a while before you get the rises from an annual 9% CoC you have today, but all along you are creating and potentially passively realizing the average yearly 13%. Remember, vacancies are your true profit-killer.

    0Reply
  • Parris Taylor
    Investor · New York, NY · Member since 2025 · 92 posts · 71 votes
    11mo

    Don’t raise rent yet. Spend some time earning trust and learning how each tenant operates. Ask about any handshake deals, see who pays on time, and watch how they care for the place.

    Once you have that data, offer a new lease with a small, fair step-up, maybe halfway to market. That keeps occupancy stable and avoids turnover costs. A single vacancy can wipe out a full year of extra rent, so protect the yield you will have.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free