Rental Property Investor · Queens, NY · Member since 2018 · 54 posts · 10 votes
Hi Guy I have a question. I need your opinion. I just signed on legal 2 family house in New Jersey 2 bed 2 bath. Listing price was $380k but I signed on $315k. I need to keep the 2 tenants till closing date. That's a part of my deal. Rent for each unit is $825 but rent in the market is around $1,250-1,350. The rent much lower than the market. Owner didn't increase rent for years. Lease is "Month to Month" Can I increase the rent as much as market value? Or I should ask them move out ? and have a new tenant I asked my attorney and waiting. As the same time, What can I do?
Rental Property Investor · Louisville, KY · Member since 2015 · 221 posts · 106 votes
7y
If they are on Month to Month leases, i would say you shouldn't have a problem raising rent to market value....i would give them some notice at the beginning of one month the the rent will be going up the next month and ask if they want to renew their lease for 1 yr and if not to give you notice so you can start that process of looking for a new tenant
Rental Property Investor · Louisville, KY · Member since 2015 · 221 posts · 106 votes
7y
If they are on Month to Month leases, i would say you shouldn't have a problem raising rent to market value....i would give them some notice at the beginning of one month the the rent will be going up the next month and ask if they want to renew their lease for 1 yr and if not to give you notice so you can start that process of looking for a new tenant
Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
7y
@Sinil Kim consult your local RE attorney. If you raise the rent to market, for me, the question is can the current tenants handle the rent? If not they will move out. However be prepared for rehabbing the units. Have you or your contractor developed a repair estimate for the units? Does the property cash flow at the current rents? I would assume the cash flow is negative. If you increase the rents to market it still seems like the property wouldn't cash flow. So did you buy the deal as an equity play?
Rental Property Investor · Queens, NY · Member since 2018 · 54 posts · 10 votes
7y
@Shawn Ackerman if i receive current rent, obviously it's negative cash flow. When I get the rent as current market value, I would get around $200 cash flow.
I am thinking about renovating the house too. can I make that excuse to make them move out?
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
7y
You have to be careful at finding reasons to make people move out. Your local ordinances very likely call for a minimum number of days notice to terminate a month to month tenancy if they are current. Does your "cash flow" include CapEx, maintenance, management, vacancy, and all the other things that go with owning property? or are you just deducting your mortgage from your prospective rents?
BEFORE YOU CLOSE READ, RE-READ, SLEEP ON IT AND THEN RE-READ YOUR STATE/LOCAL LANDLORD STATUTES AND ORDINANCES!!!!!
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
7y
First, make sure your municipality does not have any rent control laws. Some areas of NJ have them. Other than that you "should" be ok to raise rent to market. Only reason I say should, is because NJ law states that Unconscionable rent increases can be challenged by the tenant. Make sure you can justify the market price with similar rentals in the area. As long as you are within market range, I can't see it realistically being an issue.
Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
7y
@Sinil Kim to answer your question, you don't need an "excuse" to evict a month to month or a lease ending tenant from YOUR property. Find out the time frame for ending a tenancy in NJ. In WI where I invest it is a 28 day notice to end tenancy. With that said, you will need to rehab the units most likely if you intend to get market rents. Please be sure to get a few repair estimates from reputable contractors before finalizing your decision. You may want to offer the two tenants to move in together, occupy one unit at the market rent price. Obviously this depends on the size of the families and space of the units. Just a thought.
Let's get to the numbers. Assuming you put down 20% for a conventional loan at $315K and you will cash flow, after taxes, insurance, capex, maintenance, vacancy, landscaping/snow removal, water utility expenses you will be looking at a 4% return on $60K. Not knocking the purchase at all but I just hope that there is an equity play in there for ya. So if the property is worth $380K and you picked it up for $315K you should be in good shape. But if you are going to put in $30, $40K or even $50K in repairs/rehab your getting closer and closer to market value assuming a valuation of $380K. As you know we as investors make our money on the purchase. Persist and you will WIN!!!!!
Real Estate Agent · Hoffman Estates, IL · Member since 2017 · 90 posts · 68 votes
7y
I usually make immediate improvements that are visible. Low hanging fruits, clean and safe common areas, brand new mulch, flower pots etc.
Then I research what similar units in the neighborhood are listed for on Zillow, Craigslist etc. If your rents are substancially lower than market, you should be able to increase them without any concerns.
Units that are safe, efficient, clean and are managed well demand higher quality tenants that are willing to pay above market rents.
The info that I'm going to give is specific to California. You'd need to look up similar information for New Jersey.
If your lease is month-to-month, then you have options. In California, the current law requires landlords to give at least 30 days notice if the rent will go up less than 10%. If the landlord will raise the rent more than 10% they're required to give at least 60 days notice. The notice must be delivered to the tenant in-person or through the mail. if you choose the mail option, I suggest you use certified mail.
Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes
7y
In NJ you cannot refuse to renew a lease without good cause. You could if you're going to occupy one of the units. You also might not be a able to automatically evict a tenant because they refuse to pay an increased rent. Also the different municipalities have different laws covering rent control, which is some cases is very very strict. I'd start by finding out if this property falls under rent control. Hopefully when you say "signed" it wasn't the contract. Yes, you need to hear from your attorney.
Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
7y
@Sinil Kim You should be able to start raising it, give them notice. You'll probably have to do it slowly to keep them around, not jump $400 in one month.
Hi Guy I have a question. I need your opinion. I just signed on legal 2 family house in New Jersey 2 bed 2 bath.
Listing price was $380k but I signed on $315k.
I need to keep the 2 tenants till closing date. That's a part of my deal.
Rent for each unit is $825 but rent in the market is around $1,250-1,350.
The rent much lower than the market. Owner didn't increase rent for years.
Lease is "Month to Month" Can I increase the rent as much as market value? Or I should ask them move out ? and have a new tenant I asked my attorney and waiting. As the same time, What can I do?
Hi Sinil,
Yes you can get the tenant out since they are on a month-to-month lease. However, you need to give them a 30-day notice to move out. Now, double check with your real estate attorney just to be sure doing that complies with your local rental/landlording laws.
Why is the rent so low?
Have you owned the property for a while and not increased the rent in the past 5 years or so?
Rent control is usually mandated or required in certain areas or with certain property types. Again, check with your local real estate attorney.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
7y
Listen closely to NJ owners and look at local and state law regarding increases. Laws are likely easily accessible online. Most places minimum notice would be 30 days. If they are elderly or disabled you may be required to give more notice. Your best bet is really look at the market for SIMILIAR CONDITION units. This is critical, just because the median rent in your area is something it does not mean your unit in the current condition can command that price so before you raise it make sure you get the price right. No sense in increasing to $1400 and find out that units that are in the condition yours is in go for $1200. You lose a tenant, you have to upgrade now and you won't make back the upgrade cost for a year or two. Now they may leave anyway no matter what you raise rent to but no reason to force it unless they are bad tenants to begin with.
If your tenants can not afford the full market rent it is best to inform them it will be going to full market immediately and let them leave. If you move the rent up in steps at some point they will stop paying, better to get rid of them now if they can not afford market rent.
It would be extremely beneficial to you to keep them and any future tenants on M2M. Only tenants benefit from a term lease.
With rent at $1350 per unit and the property value at $315K you will never have positive cash flow long term. Don't hold this property too long.
Rental Property Investor · Queens, NY · Member since 2018 · 54 posts · 10 votes
7y
@Thomas S. it’s almost impossible to make a positive cash flow in NYC area. So I found the property in NJ Relatively it is cheap but still not easy and I want a property that I can manage. So I bought the property. It’s relatively good deal but as u said, I will think about not holding long term. To make positive cash flow,I need to invest in different location. Maybe there is better strategy but I don’t know yet. I got to learn.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@Sinil Kim
Unless this property will be worth big dollars in a few years, it’s not a good investment in my opinion. $315k is a huge investment to flow $200. You can find deals (not without competition of course) closer to Pa, but still only 1.5 hours from Queens that will cost you way less and cash flow way more. I closed on one a week ago, $40k, will need $15-20k rehab, it will rent for $1,100, and be worth $95k when I’m done. Pass on this one if you can and keep looking sir.
Rental Property Investor · Queens, NY · Member since 2018 · 54 posts · 10 votes
7y
@Matt Michaelson
I was looking for a property near by Lehigh valley. I been there few time and don’t know the area well. I researched the market for several months. Still I am not confident yet. So I decided to invest my first property in the area that I know well.
But next target area is where I can drive within 2hours
I want to learn from a local people and listen to people they already invested into that area
Rental Property Investor · Queens, NY · Member since 2018 · 54 posts · 10 votes
7y
@Matt M. I know you live in Easton. I want to have coffee or lunch when I visit there if possible. I wanna learn from your. Btw The property is In North Bergen county.
Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
7y
@Sinil Kim if there is strong demand in the area your renting I’d say give them some warning along with some comps that show why, and then raise it. Start advertising them as soon as possible,
If rental demand is less strong I’d increase the rents incrementally as a long term vacancy could result, which is the nightmare scenario.