I know this topic has been thoroughly discussed on BP, but I wanted to clarify a few things with the more experienced.
Here are the facts:
We're getting ready to close on a 4-plex, currently all units are occupied.
The previous owner has only owned the property for 6 months, and has very little documentation on the tenants. Of that small amount of info, here's what I've determined:
Unit A was originally on a year term lease but has been month-to-month for about 5 months. His rent rate (and corresponding security deposit) are ~ $100 below market.
Unit B's lease will be up in December (was a year term). This unit is currently ~ $25 below market.
Unit C apparently doesn't have a written lease OR security deposit....
Unit D is ~ $50 below market, used to be on a year term lease but has been month-to-month for 20 months.
The current landlord claims all tenants pay on time. Unit B was pretty filthy when I toured it, the other units seemed in decent shape.
My real estate agent (also an investor) suggested that I go in after close and meet each tenant and give them the opportunity right then and there to sign a new lease to bring them all up to ~$625 (that's a $75 increase for A, zero increase for B, unknown for C (I'll have to clarify), and $25 for D). If they don't sign a new lease that day (they aren't obligated to), then rent will increase by a further $25 at the end of their month-to-month (or December, in the case of Unit B).
I don't think that's a bad idea, but here are my questions:
1. If I'm upping rent, do I also need to collect the difference of the security deposit? E.g., should unit A also pay a new $75 deposit to bring their total deposit up to the total amount of rent?
2. Given that there is no screening data, I'm thinking I'll use others advice and reword my tenant application as a "Resident Update" form and waive the application fee to get some details on my tenants. Good idea? Waste of money if they're already paying? If they sign a new lease before I get those details, it will be a waste anyway...
3. As far as the current state of the property, I doubt I'll get any info about the original move-in condition of the property. Does that mean the current state of the property when I take possession is the state against which I'll compare the move-out condition? Can I still expect them to do a full cleaning and make any repairs?
Thanks for the advice!!
You do need to up the security deposit to match the new rent as well as the last month rent deposit if you have one. Do so every time you increase rent. If they can not afford to pay immediately you do not want to keep them as tenants.
The rest looks fine but do not put them on a lease other than M2M. They need to prove themselves for a minimum of a year before they earn the privilege of a term lease. They should be agreeable since all but one are already [email protected]
Remember a term lease is to the advantage of the tenant and a disadvantage to the landlord when it comes time to get rid of a tenant.
Sounds like you have a good real estate agent. Honor any existing leases, bring all up to market with security to match per @Thomas S. and stay with M2M going forward. Good luck.