Raising Rent as New Owner with current lease month to month

20 Replies

Just curious:

If I buy a rental and close on it in the middle of March for example, and there are current tenants with a month to month lease from the previous owner, which are all paid up through March, can I as the new owner raise the rent starting in April with a new lease?  

I am honoring the March month to month lease, but in my opinion that lease dies with the transfer of ownership, so I need to create a new lease between myself and the tenants.  If it's march 15, and I meet with the tenants and say "hey your rent is going to go up 100 a month starting April because I am the new owner and you are just so far under market", can I do that without 30 days notice given that their current contract is month to month and I'm coming in mid month as the new owner?

By the way, they decided to move as they said they're on a budget and can't afford it.  I said they have lived there 3 years with no rent increase and are way below market.

I just want to be fair.  They said they will be leaving at the end of April.  I asked them to write me a formal letter stating they are vacating by April 30.

Thanks for the help.

It depends on your state laws. Here in California, we have to give 60 days notice to raise rent on someone that has been living there more than a year. It doesn't matter who owns it, or that it is a month to month lease.

You would need to look at your state's laws - I would be surprised if you didn't at least need to give them 30 days notice.

Leases don't die with the transfer - even if theirs was for 2 more years at half market you would need to honor that. Spend some time learning the law in your state prior to talking with the tenants again. If you goof up and the tenants know it you will be liable for damages that they will collect on. Become very familiar with your states laws on accounting for deposits - mess that up and you can be liable for 3x the deposit in some states. Become very familiar with fair housing laws, as modified by your state.

There is more to this than being at market. Long term under market with people who take care of your property and leave it cleaner then when they found it can be more profitable and less hassle than above market with higher turnover.

BTW - (Not intended to be condescending, just accentuating a very important point) - Your opinion doesn't matter, your local judge is all that matters!

yep if it was a year lease i know id have to honor.  This is month to month that they had. 

Honestly i don't think i can fairly raise the rent in them. It doesn't seem right for April.  Beyond that though, i could and would.  They plan to vacate april 30.

1k is bottom range of fair.  Not middle,  not high. Having his tenants fir less rent is good but leaving alot of money on the table sucks as well. 

I think these are good tenants.  Ill hate to see them go,  but its a business. 

Still stewing over hiring a pm. I kind of want to go through the process though

In Washington State we must give a 30 day notice to change the terms of the rental agreement, such as increasing rent. A month-month rental agreement renews automatically every month until one party or the other gives proper legal notice to terminate it. 

If you didn't give proper legal notice to change the agreement or terminate it, the tenant has the right to continue to rent the unit under the terms of the previous agreement. Seems your tenant will be able to rent until the end of April under the previous agreement. Asking them to give you written notice of their intent to vacate, as you did, was the right thing to do. To cover your interests, give them written legal notice of your intent as well, according to the landlord-tenant law for your jurisdiction.

Your opinion doesn't count as to how a lease ends. The law will prevail. So, before you decide to manage your own properties, better learn the landlord-tenant laws that apply to you and build a team of qualified people to assist you. 

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

i will also write a letter terminating their month to month then at end of April.  i guess no real need to sign Another  with me since theirs is good through April  and they expect to move out April 30.    ill get their notice in writing.  Ill word it that the month to month rent is going to x amount fir a month to month,  or y amount if they wish to sign a year lease but i need 30 days notice if they wish to stay on,  otherwise its assumed they must vacate april 30.

@David Roberts you seem anxious to kick tenants out.  Are they problem tenants?  Usually the payment term is the minimum amount of notice to change a month to month lease.  So 30 says notice before you change it.  When tenants leave is when costs begin.  I normally try to keep tenants if they were good, less headache and cost.

no,  trying not to leave alot of money on the table

David, if I was in your situation, and rent needed to raise $100 to get to market, I would raise it $50 instead, splitting the difference.  We once bought a property with inherited tenants and we ratcheted the rent up over 4 months to get it closer to market rent. They stayed as long as they could afford it then gave notice  We did not view them as fantastic tenants, would have worked with them even more if they were.  If you have someone who has lived there 3 years and views the unit as home, I'd give on the rent to keep them there.  You'll pay plenty more over the long haul in turnover costs.  

Originally posted by @David Roberts :

i will also write a letter terminating their month to month then at end of April.  i guess no real need to sign Another  with me since theirs is good through April  and they expect to move out April 30.    ill get their notice in writing.  Ill word it that the month to month rent is going to x amount fir a month to month,  or y amount if they wish to sign a year lease but i need 30 days notice if they wish to stay on,  otherwise its assumed they must vacate april 30.

 It's my understanding that tenants need to give you 30 or 60 days notice to vacate, depending on state landlord/tenant laws, nothing usually requiring notice to stay on.   I believe that if they do not give you proper notice (usually in writing or whatever their current lease allows) to vacate after you've given proper legal notice of a rent increase, and they are still there, they owe you the new amount until the situation is resolved one way or the other.  If they pay the old amount, you'll need to know how your state handles partial payments of rent as in some states, if you accept it, it hinders any eviction process.  

Also, do you have the old lease?  You should have asked for any lease and all paperwork (application, etc., so you'll have their info if needed for eviction), as you will likely be responsible for returning their security deposit, if any, minus allowed expenses in a timely manner, whether the old owner transferred the funds to you or not.   I'd call the previous owner and ask him to forward it to you if you do not already have it.  The landlord tenant laws for each state are usually posted online and easy to find and well worth the time to read through them, especially as most states offer free legal advice or services to tenants needing financial assistance, so you should be as informed as possible.  

thanks for the info guys.

Yes i have their old lease and all their deposit money.  It was transferred over.  I think the tenants are used to no increases and are unaware of the current market and may change their tune when they start looking.  What i wanted to bring it to us low end of market.  Right now they are stealing it.  The human side of me understands it sucks to see a bill go up like that,  but I'm trying not to fall into that sob story trap and stick to my guns.

Originally posted by @David Roberts :

I think these are good tenants.  Ill hate to see them go,  but its a business. 

You will likely lose a lot more with the turnover and vacancy than you would gain with $100 month increase. Retaining good tenants can actually save you money in the long run and can be good for business. We've found it detrimental to increase rent immediately when we buy a property that is already occupied. Focus first on learning about your tenants, letting the tenants learn about your management style, improving the property and finding the sweet spot for rents for your market. After you have developed a favorable relationship with your tenants, slowly introduce rent adjustments. Do so along with something of benefit to them as well, such as an upgrade or addressing something the tenant wants to be done to the property. Make it a win-win.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

That was what it was offered to them at and they took it.  It is not their fault that the landlord did not raise the rent so they got it at a steal but they aren't stealing it from you.  You raised the rent they said no thanks.    The money will be on the table when you get a new tenant but its not there now.  Even if they could afford the rent and they are great tenants they may not stay depending on your interactions with them. To add to what people said about following Landlord tenant law also consider how you handle things.  It is not necessary that they like you but it will benefit you if they perceive you as fair and reasonable.  It's a small world.  

Originally posted by @Marcia Maynard :
Originally posted by @David Roberts:

I think these are good tenants.  Ill hate to see them go,  but its a business. 

You will likely lose a lot more with the turnover and vacancy than you would gain with $100 month increase. Retaining good tenants can actually save you money in the long run and can be good for business. We've found it detrimental to increase rent immediately when we buy a property that is already occupied. Focus first on learning about your tenants, letting the tenants learn about your management style, improving the property and finding the sweet spot for rents for your market. After you have developed a favorable relationship with your tenants, slowly introduce rent adjustments. Do so along with something of benefit to them as well, such as an upgrade or addressing something the tenant wants to be done to the property. Make it a win-win.

 Yep they didn't have a dishwasher and no central air.  Im giving both of those to them along with repairing all the little things.  I hear what you are saying but at the same time at some point something has to give.  They weren't interested in even a cost of living increase. 

and i agree,  trying to do things in a reasonable way.  In ordered them a dishwasher saturday night and already started calling contractors for quotes on ac.

i know my market and i don't think the house will take 30 days to rent at 1k Judging by comps.  i will be in this same boat even asking for small adjustments so from that point they are unreasonable.  I figured better to establish things at the start.

Thanks for the advice

@David Roberts

Since investing I have inherited several tenants not paying market rent.  Increasing the rent has been a different experience with each tenant.  The only advice I have is to step back and think through how much your increasing, how you are presenting it to the tenant and how you respond when they respond.   Managing property can be a emotional roller coaster, cool heads prevail.


Frank

[email protected] | CA Agent # 01957844

@David Roberts just something to consider. New dishwasher and AC probably costs about $4K, Your turnover probably costs $2K ( a month of lost rent and the cost of finding a new tenant) that you need to spend to get that extra $100 per month for rent. That also doesn't consider anything for you time spent in doing all the work. The current tenants lived there for 3 years with no AC and no dishwasher. Seems to me that it would take you about 5 years just to recover your initial capital expenditure with no time value of money nor consideration for lost opportunity for that money. For me I would keep the current tenants. Perhaps increase rent $25. Personally, I don't consider 10% to be extremely below market. Houses are enough different that two that look the same on paper can easily rent for greater than 10% difference in rent.

Anyway let us know how things work out for you with this.

Medium rre 1to1 small sizeBill S., Reliant Real Estate, Inc. | 720 207‑8190

Thanks Bill. The improvement costs I factored in prior to the deal. This was one of those ARV x 0.75 - improvements = max offer deals that worked out for me. So, the improvements were factored in and I'll recover them when I refinance. They may continue to rent at 900 with no improvements but they also want no commitment .

Update:  My partner went to the tenants to talk to them again today and she got them to sign on for the 1,000/month.   So, YAY!  Now everything calms down.  I'm very happy.  I'm still giving them the upgrades, just because it's what I wanted to do that for them anyway, and it should add value to the house.  And I can just tell that they will be very appreciative of having Central Air.  They called me and thanked me for working with them  as well and allowing them to stay on Month to Month instead of sign on yearly, and said that they would continue to take really good care of the house and such.  

I really didn't want to lose the tenants.  So it's a win-win and looks like it's going to work out.  We get what we needed for rent, and they are going to get upgrades and good landlords.  I try to be very attentive and 'johnny on the spot' for my tenants.  They call, I'm there that day or the next. 

Very relieved.  Very happy. 

I don't know the circumstances but when they said they were on a budget / can't afford it - etc. I would have asked what they Could afford.  I would say;  I know what you mean - I'm on a budget here myself:  mortgage to pay, taxes just went up, things are tough all over - I sure do know what you mean.  But I'd like to be fair too - what could you afford?

Of course if your intention is to incentivize them to move - that's a different thing.  But if they are reasonable tenants and would stay for a $50. increase - I would do it.

stephen
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 Originally posted by @David Roberts :

Just curious:

If I buy a rental and close on it in the middle of March for example, and there are current tenants with a month to month lease from the previous owner, which are all paid up through March, can I as the new owner raise the rent starting in April with a new lease?  

I am honoring the March month to month lease, but in my opinion that lease dies with the transfer of ownership, so I need to create a new lease between myself and the tenants.  If it's march 15, and I meet with the tenants and say "hey your rent is going to go up 100 a month starting April because I am the new owner and you are just so far under market", can I do that without 30 days notice given that their current contract is month to month and I'm coming in mid month as the new owner?

By the way, they decided to move as they said they're on a budget and can't afford it.  I said they have lived there 3 years with no rent increase and are way below market.

I just want to be fair.  They said they will be leaving at the end of April.  I asked them to write me a formal letter stating they are vacating by April 30.

Thanks for the help.

If market rent was $1k and there was a holdover tenant that's been there for 3 years strong, I wouldn't have been so hard with them. The reasons @Bill S. mentioned are very real and I think you lucked out by the tenant agreeing to $1k. Hopefully they can actually afford the extra $100/month and it doesn't hurt them financially in the long run (which hurts you).

Even if you budgeted for the improvements you planned on making, that's real cash you could have kept in your pocket for a long time.