Raising rent on tenants after acquisition

[Christopher T. Murray]

Hello Everyone,

I have found a 3unit property that I want to buy. 2 units are occupied by long term tenants who are paying far less than what they should be per month. The current owner has not raised their rent at all in 10+ years. For this property to cash flow I need to get about $100 more per unit per month, which would bring them current with the market standard of the area. Im not sure how to approach this, especially because I plan on occupying the vacant unit. I fear negative relations may ensue. Does anyone have experience with this?

[Kevin S.]

@Christopher T. Murray my first question would be, are they under month-to-month leases or annual leases? Because if they're under annual leases you must honor the lease until the end, i.e. you can't increase rent until they renew their lease. If they're month-to-month then you just need to give them 30 days (or whatever your state/local laws require) notice of the rent increase, however seeing as the current owner has not increased rent and you're the "new guy" coming in, don't be surprised if the increases are met with anger/hostility. If it were me I would send them a letter explaining that they are currently paying under-market value and maybe provide some examples of places going for the same/more. If increasing it $100/month truly is in line with the market then you have a fair chance of them staying, but nothing's certain. I'd make sure you have a cushion of cash in case one (or both) decide to leave and you have to spend a month or more finding new tenants. Good luck!