Inherited Tenants > Raised rents! WHAT WILL THEY DO!?!

Inherited Tenants > Raised rents! WHAT WILL THEY DO!?!

Matt RomanoPro Member
Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes

I'm the proud owner of my first 2 family property that I recently closed on this month.  It's fully rented with tenants in both units on month-to-month leases. I sent a termination letter to the upstairs tenant as I will be occupying that unit.  And I have been overwhelmed about presenting to the downstairs tenants about a rent increase, and wanting them to sign a year lease. They pay $1150 currently WITH utilities included (short of electric).  And my research shows that market rent for this property is really upwards of $1300, maybe even $1350 considering utilities are my expense. It's a very spacious (over 1,400 sq/ft) 3 bed 1 bath in a great location. And there's only 2 people living in that unit, which is a plus to me. Anyway.... I met with them this afternoon, and explained how a rent increase is necessary, and how I'd also need them to sign a year lease instead of the flexible and risky MTM they're on now.  I explained that I'm a reasonable person, and how I thought the $1300 range would be a bit too aggressive of a jump (despite market value), so I told them $1275.  They were very understanding, and I told them to think about it.  They asked me if I wanted Augusts rent checks, which I was very impressed by this (early payment FTW).  We spoke a little afterwards, and they're hesitant about signing a year lease, and asked if they could do a 6 month.  I told them that signing to a year was really a must. I told them I'd rather have them sign a year @ $1250 than 6 months @ $1275.  We ended the conversation saying that we'd all sleep on it and touch base tomorrow.  Basically just really looking for everyones opinion.  They seem like great tenants, really.  I honestly don't want to deal with a vacancy at this point, I have too much else I'm doing with the property to add that into the mix. And I would really sacrifice the rent amount ($1250 instead of $1275), if it meant locking them in for a year.  Do I stay firm with the year lease required? Negotiate the term? or the price? All thoughts and comments much appreciated in advance!!! 

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Investor 路 United States 路 Member since 2015 路 415 posts 路 487 votes
9y

Good steady tenants are very valuable. If you have to discount a little to keep them, don't sweat it. $25 per month over a year is only $300, which is the same as one week's vacancy. 

My total returns are always higher when I keep the rent slightly below market value, get multiple applicants, and therefore can choose the best ones. Then, I have almost no vacancy because they never want to move when the rent is slightly under market. Every market is different, but that earns me more in the long run.

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  • Investor 路 Columbus, OH 路 Member since 2016 路 139 posts 路 136 votes
    9y
    If the history shows that they've always paid on time, and rarely gave the previous landlord any hassle, I wouldn't even press for the extra $25. It's going to cost you more than that to turn the place.
  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    @Account Closed thanks for your input!

  • Jeff CopelandBusiness Member
    Real Estate Broker 路 Tampa Bay/St Petersburg, FL 路 Member since 2015 路 1k+ posts 路 2k+ votes
    9y

    In my experience, people are hesitant to move when it really comes down to it. They like the lack of commitment of a month to month lease, but they stay month to month in the same place for years. 

    Since you are new to the property and don't really know if they'll be as great as you think*, why not give them 6 months at 1275? You make more money, and I don't see what the major risk is. At the end of their term, they can either renew for another six months (with a rent increase), or go M2M (with a larger rent increase). 

    The risk also goes in another direction...what if they are terrible tenants or you just don't get along with them for some reason? You "risk" being stuck with them for an extra 6 to 12 months!

    Copeland Morgan LLC4.770 Reviews
  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    very valid points @Jeff Copeland thank you for your insight!

  • Investor 路 Philadelphia, PA 路 Member since 2015 路 3k+ posts 路 3k+ votes
    9y
    Let them stay MTM on your lease so the terms are good for you. Full market rent.
  • Investor 路 United States 路 Member since 2015 路 415 posts 路 487 votes
    9y

    Good steady tenants are very valuable. If you have to discount a little to keep them, don't sweat it. $25 per month over a year is only $300, which is the same as one week's vacancy. 

    My total returns are always higher when I keep the rent slightly below market value, get multiple applicants, and therefore can choose the best ones. Then, I have almost no vacancy because they never want to move when the rent is slightly under market. Every market is different, but that earns me more in the long run.

  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    Thank you @Max T..  I see the whole full market rent thing.

    And @Jim D. thanks for the perspective provided.  I really think this is the route I'm leaning towards.  

  • Investor 路 Akron, OH 路 Member since 2016 路 2k+ posts 路 4k+ votes
    9y

    I like MTM best; if their financial situation deteriorates it will be easier to get them out and for a good location you won't be empty for long. A long term lease gives the tenant more protection than you.

  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    @Jill F. also some great things I need to keep in mind! Thank you for the reply 

  • Investor 路 New Bedford, MA 路 Member since 2016 路 43 posts 路 24 votes
    9y

    I will be going through the same situation soon. Interested to see how it worked out for you!  I'm also leaning towards slightly under market rents to keep the long term tenants. Hope it works out for you either way. 

  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    @Russell Lavoie I definitely feel as if that's going to be a safe route for me to take for now. I will post here what I end up doing! 馃憤馃徏

  • Investor 路 Batavia, IL 路 Member since 2014 路 50 posts 路 6 votes
    9y

    I agree with Jeff. People can present well when you first meet them and then become difficult to deal with. The beauty of the MTM for you is that you can give them a "trial run". Perhaps allow them the MTM for now and tell them you will seriously revisit the year-long lease in four months. By then you will have a little better picture of their character.

  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    @Mike Russo I think that's a great option. I guess my biggest concern would be dealing with a vacancy during the tougher winter months (if they were MTM) or even 6 months would bring them into February. I figured signing on a year in August would give me the benefit of largest pool (in terms of time of year) of renters in the event of a vacancy! Thoughts on this? 

  • Chesterfield, SC 路 Member since 2017 路 142 posts 路 73 votes
    9y

    If it were me and they were negotiating I would just bump the dollar amount up a bit for the 6 month lease and it's a win win. They walk away happy and you have 6 months rent. People don't like moving and you're going to pay way more than a extra 600 trying to move from one place to another. 

  • Wholetailer & Architect 路 San Francisco, CA 路 Member since 2015 路 544 posts 路 298 votes
    9y
    I think it depends on your market. In San Francisco a month to month lease only really benefits the tenant since the landlord can't end a rent controlled persons tenancy without a limited number of reasons. If you get harsh winters and it will. E hard to replace them you may want to get a 6 month lease starting in September If your area isn't super tenant friendly and there is a decent pool of tenants in the winter and you're not too worried about them getting a job in another state then stay month to month
  • Investor 路 Batavia, IL 路 Member since 2014 路 50 posts 路 6 votes
    9y

    Yes Matt. I thought about the timing and winter. That would be an issue for me because I rent to families in single family homes. Yours is an apartment (perhaps more single renters) so I thought harsher weather may not be an issue. Best of luck!

  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    I just got a text from them, and they said they could do the year at $1250.  I believe this is the best option for now, and I'd be more willing to visit a MTM option for them at the end of the year lease.  Thanks for all your help! 

  • Real Estate Agent 路 Westboro, MA 路 Member since 2016 路 1k+ posts 路 471 votes
    9y

    Nice! That's great you got a year at that price works out for you well. If you did the 6 months it would have caused a vacancy mid jua uary which is not ideal. 

    Sounds like you did q great job turning the building over 

  • Real Estate Agent 路 Westboro, MA 路 Member since 2016 路 1k+ posts 路 471 votes
    9y

    Nice! That's great you got a year at that price works out for you well. If you did the 6 months it would have caused a vacancy mid jua uary which is not ideal. 

    Sounds like you did q great job turning the building over 

  • Investor 路 Post Falls, ID 路 Member since 2016 路 606 posts 路 699 votes
    9y

    I always give a 60 day notice of rent increases, even though my state only requires a 15 day notice.  That gives tenants time to shop around and realize that they are still getting a good deal.  They have time to adjust to the idea, and they pay the increased rent without complaint.  I have lost tenants due to moving closer to work, and to new romances.  I have never lost a tenant to a rent raise.

    Next time, do not put your tenants on the spot, or leave yourself open to negotiation.  Decide on what your rents should be,  give the notice of raise with sufficient time for your tenants to shop around.   If you are slightly below market for your good tenants, they are highly unlikely to move.   

    Even if you don't want a vacancy (who does?), don't let the tenants know that.   Your position should always be "there is always some turnover when a building changes hands, .... ho hum..... part of the business.... no big deal."    If  they do move, you clean up the apartment, raise to market and rake in the dough!

  • San Jose, CA 路 Member since 2015 路 4k+ posts 路 3k+ votes
    9y

    M2M keeps all control on your end, so I disagree with the above poster, unless that's a situation specific to rent control in SF.

    With M2M, you can increase the rent with just 30 days (or whatever the law says - sometimes 60 days) notice. You can also change any rules you want with just 30 days notice.  Don't like them parking on the lawn, etc.,? Give them a 30 day notice of new rule about not parking on the lawn, etc.

    I learned the beauty of M2M rental agreements from the owner I worked for.  I tried to talk him into year leases and he explained why he didn't like them - and convinced me that he was right.  With M2M, you keep control.  You can kick them out easier, you can change the rules easier.

    And if a tenant wants out of a lease, they'll get out.  And what can often happen is they will start complaining about confusing things in order to get out of the lease - like all of a sudden they supposedly have bed bugs or roaches or mold or whatever, when all they really want is out of the lease.

    You're just way better off to just let tenants out of a lease if they want out.  Because they'll just make your life miserable trying to convince you there is some habitability issue that's forcing them out, etc, instead of just asking to be let out of the lease.  If they'd just had the option to give you 30 days notice, they would have spared you the drama.

    And in the meantime, you let them pay less in rent for some supposed guarantee they wouldn't move for a year.  

    Just do M2M rental agreements at market rent, is my advice.  At best, give them a deal that's around $100 under market rent to keep good tenants, if they're worth it to you - and if $100 is a reasonable percentage where your property is.  That's what we offered in Silicon Valley (CA).

  • Investor 路 Oxford, MI 路 Member since 2016 路 110 posts 路 41 votes
    9y
    A more northern guy so not sure what its like elsewhere but 6 months puts you in Jan and that is not a good time to fill a vacancy here in dead of winter. Not sure if relevant to your location. I am with others though - why push to commit when you have not lived with these tenants yet as you will be it sounds like. Your dealing with tenants but also your neighbors.
  • Greensboro, NC 路 Member since 2015 路 129 posts 路 30 votes
    9y

    @Matt Romano congrats on getting you desired outcome. Hopefully, they will remain easy to deal with.

  • Matt RomanoPro Member
    OP
    Realtor 路 Warren, RI 路 Member since 2017 路 96 posts 路 52 votes
    9y

    Thanks to everyone whom responded.  You've all provided some extremely valuable insight on the situation.  I had them sign the lease yesterday for a year at my desired $1250.  I did the move in checklist, and I'm looking forward to learning more and more as this business progresses for me! 

  • Investor 路 Chicago, IL 路 Member since 2016 路 1k+ posts 路 930 votes
    9y

    I'd definitely go with a MTM at $1,275. A year lease doesn't really protect you at all, because if they want to leave in the middle of the lease, they will just leave, and other than taking them to court you have no real recourse. Keep them happy on a MTM and when they are ready to go, let them go. If it's such a great place as you say, you will have no trouble listing and renting it within 30 days.

    Even if you have a security deposit, tenants will typically just not pay the last months rent, use the security for the rent (in spite of what the lease says), and you would have to take them to court to recover if there are damages. The cost of court is usually more than the security deposit.

    Tell them MTM and $1,275. And NEVER say something is a bit much for the market. Don't talk yourself out of money. Never offer apologies for high rents. And I know from experience as a rents, the hassle of moving from a place where one is established is easily worth $100 a month (inconvenience, apartment hunting, moving fees, time, etc).

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