Inherited tenants with under market rents. Prop manager questions

12 Replies

I purchased a duplex in Ohio, and inherited the tenants.  One tenant is an 11 year tenant, and the other is a 5 year tenant.  Current rents are set at $600 and $625.  Market rent is about $700.  I have a property management company set up, and the tenants have been paying the new management company, but have not signed a new lease.  They are still under the original owners lease, which has long converted into month-month.

I explained to the property management company that I wanted to proceed with a rental increase to get closer to market rent ($25), and was told that they can not do anything without the tenants signing a new lease.  I know the tenants have been in contact personally with the management company, as one of them reported a leaking faucet.

Thoughts from experienced investors?  I don't want to make a big deal about $600/year, but feel like the property management company can be doing more.  If the tenants don't want to sign a new lease, and remain month to month, I don't see why the property management company cannot provide them with a notice of rental increase.  Depending on how long the current tenants stay, I am missing out on potentially $2400/year.

Hey @Rajheim Hunt That sounds strange to me, have you used this company before? In Massachusetts, you're allowed to send a rental increase notice (do it certified mail to prove they received the notice) for month-to-month leases with minimum 1-month notice and a day. So if you want to increase their rent for December 1st, 2018 you would need to notify them no later than October 31st, 2018. Technically, and someone correct me if I'm wrong, they ARE on a lease. It's just month-to-month. 

I believe your property manager is either lazy or wrong. Maybe they are afraid of turnover and having to do more work.

@Christian Nachtrieb this is the first time I have used this company.  And yes, the current tenants are currently under the month to month lease.  I know that personally, in California, I have gotten rental increases on a month to month lease, and everything I've researched says that Ohio can do the same.

I think I'll push the property manager more.  I doubt the tenants will leave, because even with the $25 increase, they still won't be able to find anything cheaper or even matching.

Start looking for a new property manager that understands the law AND understands how to protect their owner.

You can start by going to www.narpm.org and search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!

4. Review their lease agreement and addendums. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance or problem tenants. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

I hope this basic guide helps. If you have specific questions about property management, I'll be happy to help!

In most states/municipalities, you just need to give 30 days notice for an increase if tenants are month to month. Did you vet your property manager well? As a PM myself, month to month leases are a pain for me- tenants can also give me 30 days notice to leave, which can be difficult to manage. 

If you want rent increases, get them. If your PM isn't willing to help, then they aren't working for you. This is a simple, day to day ask for most PMs. Renew the lease with a reasonable increase or ask the tenants to vacate with legal notice. 

If your PM does not understand how to handle this situation, you need a new PM company. End of story.

Unfortunately you are the primary problem at this point in time by not knowing how to manage your business. Easy to blame your PM but the reality is that you don't know the regulations governing your business and for that reason can not manage your PM.

You need to learn the state regulations and then if necessary find a new PM. He is not doing his job and either does not know his job or is lying to you. Either way you do not want them as your PM but until you learn the regulations there is little you can do..

It is now time for you to take on your responsibilities as a owner. To be a successful investor/owner you must learn the business inside and out. You should know all your state landlord tenant regulations by heart and not be questioning what can or can not be done. To not do so is you not being a responsible owner. If you do not know the rules you can not you expect to know if a PM is doing their job.

Also if you intend to operate a business rather than a charity and market rent is $700 raise the rents to $700. Your tenants have had a free ride for far too long and they know it. What is the point of a measly $25 rent increase, are you afraid to manage a business.

Sorry for being harsh but I have zero patience for lack of competence, yours or your PM.. Learn our business, manage your business, manage your PM.

How long have you owned the property? What has your interaction with the tenants been so far? When did you start working with the management company?

Our rental agreements are Month-to-Month and we prefer such.  In most jurisdictions a Long-Term Lease will convert to Month-to-Month if it's not renewed and this can work to your advantage. With a Month-to-Month rental agreement you can raise the rent at anytime with proper notice. Proper notice is typically 30 days.

Notify the tenants that the previous lease has expired and that you are not renewing the lease, but will continue to rent to them on a Month-to-Month basis. Check to see if the lease they signed with the previous owner converts to monthly if not renewed for a longer term. If not, then the property management company may be right about needing another lease signed before rent can be raised.

Send them a rent raise notice as soon as you legally can. If both units are the same square footage and about the same in other ways, I'd raise the rent to $650 on each unit. By not chasing top of market rent, you will be more likely to retain your current tenants and not face a move-out. Turnovers can be very costly.

Find a management company you can trust and get your tenants on a new rental agreement that meets your needs. As others have said, learn the landlord-tenant laws for the jurisdictions where you have rental properties. Successful landlords and management companies know the law better than the tenants do.

Equally important is the quality of your rental agreement and how well you monitor and enforce the terms. Don't agree to accept a rental agreement designed by someone else without reviewing it and understanding the ramifications for you. Negotiate for what you need and want.

*****

Here is what I found online about Ohio law:

NOTICE REQUIRED TO END A TENANCY OR RAISE THE RENT

If the tenant rents month-to-month, either the tenant or landlord can end the tenancy

by giving notice 30 days before the rent is due. If the tenant rents week-to-week,

either the tenant or landlord can end the tenancy by giving a seven day notice

before the rent is due. The landlord can increase the rent by following the same

notice procedures.

If the tenant is under a written lease for a term greater than one month, the lease ends

at the end date of the lease, unless the lease states the lease will continue. Rent cannot

be raised during the term of the lease.

@Rajheim Hunt What part of Ohio? I'd need to know more details on this before offering an informed response...there may be a lot more to your situation than meets the eye. Ohio is typically a landlord friendly state, but it really depends on the lease terms. Let me know if you want to chat more. Thanks 

While I agree that as the landlord you should have a basic understanding of the laws in your state, the fact of the matter is that not knowing everything is EXACTLY why you are paying a PM. You are paying them because they are supposed to be the experts on handling these exact issues. As a landlord you need to know the right questions to ask and have a basic understanding of the answers and where to look up the info if something doesn't seem right.

I cant be completely oblivious to everything, but I'm paying a PM to handle things I don't know how to do or can't do. Otherwise what's the point of having a PM?

As a landlord I need to know a little about a lot of stuff....but my PM should know all the details I don't....that's why I pay them

As the landlord, you should be able to tell the PM " I want to raise the rent by $X each month, please notify the tenant when/how this is going to happen"

@Rajheim Hunt - Your or your property management company must create a new contract and insist the tenants sign. Naturally, the new lease will have the new rental amount. If the tenants don't sign, evict. No, you don't want to miss out on your income opportunity because I can promise you that this property will have plenty of maintenance expense - they all do.

Of course, you don't have to evict if you choose not to, but why would you keep under paying tenants? That's just not good business practice.

Remember, the property management company works for you. They cannot do anything illegal, naturally, but if they raise rents only with a new lease (which is true), tell them to send the new leases immediately to reflect the new rental amounts along with any other changes you plan to make in regards to management.

This is all normal procedure.

The laws about a rental increase depend on where the properties are located. Some don't require a new lease, some just require notice, some might require the new lease, etc.

Personally, if they are good tenants, I wouldn't push for it. At least not right away. Change of ownership can already trigger tenants leaving (i.e. vacancy for you) and if you're only talking about $25/month each, that's very minimal. I'd give it at least a year and make sure the tenants are still happy and content and then revisit the rental increase. But when you do, make sure you really are required to have them sign a new lease. 

If a tenant has to sign a new lease, i.e. commit to staying there when they aren't currently committed, in order for them to have to pay more per month.... why in the world would they do that?

@Rajheim Hunt It is your property so the property manager has to do what you tell them to do as long as it is legal. I would tell them they need to inform the tenant of the rent increase this week and that if they refuse to do this that you will be finding a new PM. You seem to be too tentative with your PM if you are allowing them to not do what you have asked them to do. In the unlikely event that a tenant does not agree to a rent increase, I would wait until March to notify them that their lease will not be renewed so that you can have them out by early spring. This would allow you to avoid a winter vacancy.