NJ: Inhereting Renters Paying Under Market Rent

3 Replies

Hello BP crew! I just got my first offer accepted on a nice little duplex that I'll be house hacking here in south Jersey. I will potentially be inheriting a renter, who signed a lease through Jan2021, who is currently paying $800. I believe this to already be below comps at about $900. Additionally, I would like to make some upgrades (Converting oil to gas heat & adding central air in the spring & switching to a more renter friendly experience via Cozy or some other portal are first primary upgrades) and believe that would also warrant a bump in rent. The current renter, a nurse, seems to be a very neat and organized renter, ideal! However, I need/want to make what the apartment deserves to bring in.

A couple thoughts I had, is raising rates right off the bat a bad idea for a newbie and is having a renter just more important to start? If raising rents is warranted, whats your thoughts on bumping to $850 initially for a 6 month lease, then raising to maybe $925 after A/C Cozy is implemented in the spring? Better to leave it $800 until after value is added? Would that larger eventual bump be more damaging? Last question is, will I be drawing up a new lease with the tenant either way or will I just inherit the lease they had setup?

Thank you all!

First of all, NJ is a very tenant friendly state. Take the time now to learn your local laws so that you do not wind up in trouble. Pay special attention to local NJ laws, as there are many things in NJ that are different than other states. For example, you do not have the right to give a tenant notice of non-renewal without cause. Also, many areas have rent control. Make sure you understand the location your property is in.

Being that this is an inherited lease, that does not end until Jan 2021, you cannot change any terms of the lease until that date, or by mutual agreement (surprise: you will not get mutual agreement to increase rent without spending some money on upgrades).

If the upgrades you want to do will benefit the tenant, you can negotiate an agreement to raise rent in exchange for these upgrades. Make the tenant sign something prior to beginning work. If tenant does not agree, do not begin work until she leaves. (Take care of anything related to health and safety, but do not give free upgrades.)

If you are in a rent control area, make sure you diligently increase rent every year, the maximum amount allowed by law. This is to avoid falling behind, as once you fall behind it is difficult to catch up.

Like @Andrew B. says you inherit the lease too, so you can't raise rent until January 2021.   It probably started in January so it may have been offered  a little lower mid-winter. You could delay the AC until the rent increase comes into play. The remaining upgrades may be welcome but not a big incentive to pay more. Are there two heating/AC  units? If there are you could get the work done but  not hook hers up for AC unless you have a rent increase agreement (assuming having the work done at the same time is more cost effective) .  If it is one HVAC unit you might want to wait to get it done.  I assume you are on the other side and you want AC. You should get an estoppel agreement on the lease terms (how much she has in deposit, end date etc).  As for the price increase I would wait and see what the market is when you renew, I also like spring renewals, more competition. 

@Brian Wolf - run the numbers to make sure the additions are worth it. If you are only ~100 under market the question is what are you spending in upgrades to get a projected increase? You may find the pay back period is longer than what remains on the lease (especially when factoring in a minimum of 1 month vacancy). 

Those above are correct - you cannot alter the lease given it expires in 2021. If you insist on getting that unit vacant you can approach the tenant to figure out what it would take to negate the lease.

Given this is your first duplex I would recommend that you to take the tenant, make the technical improvements you want (cozy, Buildium etc.) and adjust to being a landlord. You don't want to needlessly create a vacancy for yourself, especially if the real cost/benefit isn't in your favor. 

Disclosure: I am a Realtor in NJ, Investor/Lender throughout the US

Jeff