Acquired tenant, raising rent and trying to keep tenant..

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Acquired tenant, raising rent and trying to keep tenant..

Account Closed
Investor · Mt. Laurel, NJ · Member since 2016 · 35 posts · 7 votes

Hey BP,

I am closing on my first deal on Sept. 22nd (next week, woo!). With the deal (duplex), I am acquiring a tenant on the bottom floor. The tenant has been paying significantly lower rent for quite some time, approximately $200-300 below market price for a similar unit. I want to ideally keep the tenant and raise the rent to market. I was wondering if I could also do this with a single lease. Ideally, I would allow him to rent the first month at his current rate and then the following month I would increase him to market. This would give him 30+ days notice of the increase which I read was required in my state (New Jersey). I am also attaching a clause where if he provides 60 day notice, he can cancel his lease. He is currently on a month to month lease with the seller.

How would you fellow landlords solve this problem?

Thanks,

Dave

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    One month is a pretty fast turnabout on that much of an increase, unless we're talking $2k-$2300. If you will still be under market, I would space it out a little further if you want to keep the tenant. Because they are month to month, as soon as you tell them the rent is going up they are going to look for a new place. Whether or not they move will tell you how competitive your market is and whether or not that particular tenant could/would afford the higher rate. 

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  • Jason Hartley
    Vancouver, WA · Member since 2016 · 230 posts · 161 votes
    10y

    Many states have adopted a 60 day policy for rent increases now.  Not sure about NJ, but if they have lived there longer than a year you might want to check on that.

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  • Steven Velasquez
    Real Estate Agent · Jamesburg, NJ · Member since 2015 · 30 posts · 7 votes
    10y

    @Account Closed - However it shakes out, I'm just happy to hear that you're taking action and getting in. I'd be interested to hear the outcome. Best wishes.

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  • Account Closed
    OP
    Investor · Mt. Laurel, NJ · Member since 2016 · 35 posts · 7 votes
    10y

    @Jason Hartley, I read this: http://www.state.nj.us/dca/divisions/codes/publica...

    Which is where I got the 30 day idea. Maybe 60 days might not be a horrible idea either. It's more about ensuring a smooth transition to new management.

    And thank you @Steven Velasquez, these last few months have been quite interesting!

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  • Account Closed
    OP
    Investor · Mt. Laurel, NJ · Member since 2016 · 35 posts · 7 votes
    10y

    @JD Martin, would I be able to step the rent price up in a single lease? Like start at $1000, then in 3 months go to $1100, then in another 3 months end up at $1200?

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  • Stephen Chatto
    Rental Property Investor · Yardley, PA · Member since 2012 · 436 posts · 198 votes
    10y

    check the local municipality for rent controls

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    10y

    Given the time of year and your goal to keep the tenant I would phase the change keeping it slightly below market until after January.  The idea would be that if it is still below market they aren't going to find a comparable place they can afford. I would try to get to market rate after the holidays, a better time for you if they leave.  Lay out the increase over time to them. It is possible they can't afford the increase and need to move regardless. Hopefully you already know your are not under rent control.

    For the lease you could state that it is month to month and specify the rents in a clause listing the increases specifically by month. state rent as follows  $x in jan, $x in feb...and   $x dollars a month thereafter.   Cancelable after (insert date) with 60 days notice. That is kind of rough but you get the idea. Another option is stating you are increasing 50 dollars per month until reaching (insert final dollar amount). the actual numbers though are easier for most tenants and really clear.

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  • Jamie Friedl
    Real Estate Agent · Nashville, TN · Member since 2016 · 8 posts · 0 votes
    10y

    I'd be careful increasing the rent so quickly. Inherited tenants tend to not be thrilled with having a new landlord, and if your overall goal is to keep the tenant, I would give them at least a 60-day notice of the increase. However, I would expect them to begin looking elsewhere and I'd expect to have a little bit of vacancy. Congrats on your first deal and glad that you see this as a business rather than becoming idle with what you're inheriting. 

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  • Account Closed
    OP
    Investor · Mt. Laurel, NJ · Member since 2016 · 35 posts · 7 votes
    10y

    Thanks @Jamie Friedl and @Colleen F. I will definitely act on that suggestion. I didn't really consider the timing of the increase which is a pretty important factor!

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