I'm expecting to close on my first home in about a week. I'm buying a side-by-side duplex. I'll be living in one side while a tenant who already occupies the other side will be staying. Tenant has been paying $650/mo, which I will be raising to $700/mo, which is at the low end of comparable area rents ($750/mo if tenant wants to use garage, which is having a new door and opener installed, and use electricity from garage to charge his hybrid car). I'll be giving at least 30 days notice for the rent increase. The tenant also only has a $250 security deposit. I want to raise this to the equivalent of one month's rent. How should I go about doing both of these things without making the tenant upset enough to leave? From what I have seen and know about the tenant, I would like to keep him, at least for the time being. Any advice or suggestions would be appreciated.
I had a similar situation when I was renting and a new owner purchased the home I occupied. There were no changes in the lease as long as it was still valid. I was given notice that the rent was going to increase once my lease expired. I am not sure how the laws are in your state but in NC they looked at the current lease and make a decision based on the laws in NC.
You say nothing about whether the tenant is on a month-to-month agreement or on an annual lease that does not expire until whenever over 30 days from your intended notice.
I don’t know how to go about it without upsetting the tenant - other than to not think of him as your friend to begin with. But the first thing you need to do before even giving him a 30-day notice of the increase in rent (even by $1) or a larger security deposit, is make sure that there is no long-term lease that would still be in force at the time the increase - or any other term(s) you intend to implement - takes effect.
If you know that you will still be under comps, let the tenant figure out if he wants to get upset enough to leave. I once inherited a tenant who was described as “exemplary.” I had to start an eviction a few months after the purchase. You are a week from closing. You don’t know this guy. Try to remember that this is a business.
(I’ve never been to Buffalo during winter, and am impressed that people there have plug-in hybrids. Maybe he is a nice guy.)
The tenant is on a month-to-month agreement. I guess I'm unsure of how to ask for the additional deposit money. Should I ask for it in one lump sum or allow him to make extra monthly payments until the deposit equals one month's rent?
Hey Gary, I know It's a little awkward because you're coming in and tightening things up from the prior lax owner, and wanting to run it like a business but just explain that to him, that you need to protect your interests. I would get a lease together and you can decide if you want to keep him month-to-month or have a set time period, but either way he will have to agree to the terms in the lease. You want to go through everything now and cover all your expectations and set the tone right off the bat (especially late fees and when rent is due, and the amount of notice he needs to give if he is leaving). He may not be able to come up with the rest of the deposit at the moment but should be able to in a month or two, see where he is at and then set a payment plan up; if it takes longer than a couple months then I would charge a fee. Tenants get mad and threaten to move when I raise the rent but you have to stick to your guns, if you're still under market value then you're not being unfair. If he doesn't like it, reason will soon find him...have fun finding a better deal and moving out in the middle of winter.
I would check on the tenant/landlord laws in your area. I know in a lot of states if a lease is already set up you must follow the terms of that lease.
Learn your state regulations. You then follow those regulations.
As the landlord you are not asking a tenant anything you are telling them what you want. If you do not want to lose, or risk losing a tenant, you do nothing. Let them stay and continue to supplement their rent. If you want to operate a business you decide what YOU want and tell the tenant.
I like to start by clearing the slate on day one. Tenants expect new landlords to make changes and immediately is the best time to do it. I would be giving him notice that his rent will be increased to market, $750, and his deposit will need to be topped up accordingly. The deposit can be paid over a few months. Keep him on M2M permanently if he stays. If he decides to leave you have a opportunity to start fresh with a new tenant that can actually afford and wants to pay market rent.
As the new landlord you win either way.
The fact that the tenant is on a month to month lease is perfect. Now you just need to speak with him and tell him you're going to require him to sign YOUR lease. If you want to lock him in on a 1 year lease or just another month to month lease, it doesn't matter. The issue is you want him to sign YOUR lease.
Just explain that your attorney created your lease because it covers everything you want to cover and if he doesn't want to sign a lease with you, you'll understand but that you will then have to give him 30 day notice to vacate.
If he does agree to sign the lease, then put in the lease that the security deposit is going to be 700 dollars. Let him know that his previous deposit amount will be credited towards the 700 but that he will have to come up with the difference.
If he says anything about it, just tell him , that your business requires your tenants to sign your lease and all your leases require security deposit of one months' rent. And, again, if he doesn't want to do that, you'll understand but that you'll need to give him a 30 day notice to vacate because thats the only way you operate your rentals.
Ultimately, he's going to likely have to pay 750/mo for rent based on your estimated comps and he's more than likely going to have to put down 750 for the security deposit since most landlords require sec deposit equal to one month's rent.
He'd be better off staying with you and coming up with the difference then he would starting over with a new place and having to deal with moving all his stuff to boot.
People don't want to move - not unless they're going to save themselves money or not unless the place they're at has issues (i.e. landlord not repairing stuff, etc).
But thats how I would approach the bump. Speak to him first and tell him you are going to require him to sign your lease and that the rent and the sec deposit are being increased. And if he chooses not to agree to it, then let him know you'll have to give him a 30 day notice to vacate since you can't continue to rent to him under the old lease/system.