Can (or should) I raise rents when inheriting tenants?

General Landlording & Rental Properties
7yFollow

Can (or should) I raise rents when inheriting tenants?

Johnny Nelson
Rental Property Investor 路 Minneapolis, MN 路 Member since 2018 路 18 posts 路 15 votes

About to close on a duplex, one side already rented. Can (or should) I raise the rent, practically speaking, and of course, legally? It鈥檚 several hundred below market value.

2Reply
65 views

Most Popular Reply

Bruce Runn
Investor 路 Minneapolis, MN 路 Member since 2014 路 743 posts 路 927 votes
7y

You have to honor the leases in place- they have a binding contract.  If you are going to raise several $100/month, I'd give them more notice than just 30 days just as you would like more than 30 days- it's the right thing to do.  I personally explain to people what the market rate it when I buy so they understand and can plan accordingly.  No down side to being a good human being.

7Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Luke CarlPro Member
    Rental Property Investor 路 Tennessee Florida 路 Member since 2016 路 4k+ posts 路 5k+ votes
    7y

    @Johnny Nelson I buy units suck as this. I would raise it. 

    Podcast Guest on Show From Surviving on $30/Day to 30+ Properties Thanks to Blue-Collar Skills
    1Reply
  • Bob Okenwa
    Real Estate Agent/Investor 路 Peoria, AZ 路 Member since 2016 路 2k+ posts 路 2k+ votes
    7y

    @Johnny Nelson

    Existing leases run with the property. If it is a month to month lease, you can inform the existing tenant that you plan to raise the rent within 30 or 60 days or whatever prior notice your state requires and from there they can sign a new lease or they can opt to move out.

    5Reply
  • JM Payne
    Rental Property Investor 路 Member since 2018 路 207 posts 路 225 votes
    7y

    If it's below market rent, then you can practically raise it. 

    Unfortunately, most places legally require that you honor the lease in place at the time of purchase.  Check with a local attorney or manager, but you may be locked in until the expiration of the lease term.  If so, then send a letter a few months before renewal with the updated terms and given them an intent to renew deadline.  I hope that helps, good luck!

    - JM

    4Reply
  • Barb Asay
    Rental Property Investor 路 Member since 2018 路 64 posts 路 40 votes
    7y

    I would definitely raise it.  But as others have mentioned, Be sure to check local laws.  There may be laws about honoring the existing lease, how to properly give notice, and sometimes there are limits on how much you can raise the rent at one time.  

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    7y

    If they are under a lease, you must honor that lease. When it expires, you can (and should) sign a new lease with your terms and your rent rate. I recommend you notify the tenant 30 days prior to the expiration and let them know what's coming. They can accept it or move out.

    If they are on a month-to-month lease (or verbal, which is usually the same thing), then you should give them 30 days notice in writing and list the expected changes.

    Check your state law because some require a longer notice.

    I always recommend 30 days notice (or whatever your state requires) and no more than 60 days. I also do not recommend incremental raises. If the market rate is $1,000 for your unit and the existing tenant can afford it, they'll accept your raise and adjust. If you try incremental increases over time, they may be able to survive but it will eventually drum them out, you'll have wasted your time, and you may increase the risk of loss.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    4Reply
  • Ola Dantis
    Multifamily Syndicator 路 Houston, TX 路 Member since 2016 路 1k+ posts 路 2k+ votes
    7y

    @Johnny Nelson Whatever you do, make sure to notify the tenants via writing at least 30 days before you raise rents. 

    On the other hand, if they are on a lease which has a substantial amount of time left then you should think about that twice and try to honour the lease in place. 

    All in all make sure you check your local laws in Minneapolis, as some inherited tenants are oddly possessive and can quickly frustrate your transition process. 

    Congrats on the new acquisition! 馃帀馃帀馃帀

    0Reply
  • Account Closed
    Rental Property Investor 路 Central, FL 路 Member since 2016 路 950 posts 路 821 votes
    7y

    Legally you for most states have to honor the current lease in place, whether it is a 1 year lease or month to month. Once you can legally raise the rent to the market rate do so.  Just like @Nathan Gesner said, either they can afford it and will stay or they can鈥檛 and they move.  Don鈥檛 delay the inevitable.  

         Also something i also do that I haven鈥檛 seen mentioned here is I also increase the security deposit to equal the new monthly rent or higher if allowed.  

    1Reply
  • David BarnettPro Member
    Rental Property Investor 路 Cambridge, MA 路 Member since 2016 路 634 posts 路 415 votes
    7y

    As others have mentioned, I would confirm the leases and plan accordingly based on the leases.  In this property in Minneapolis proper or outside of the city?  If it's in Minneapolis, what part of Minneapolis is the property in?  I take a slightly different approach than perhaps most on the site.  If they are good tenants, I would pop the rent a little bit and not enough to force a turnover.  I don't like to create artificial turnover, especially if the property is cash flowing without the rent increases.  Good tenants are gold, and I've found at the properties that I try to charge absolute top dollar, they are more "needy."  Even though I work with a property management company, I like lower maintenance tenants that are high quality and calibre.  

    Congrats on the acquisition.

    0Reply
  • Bruce Runn
    Investor 路 Minneapolis, MN 路 Member since 2014 路 743 posts 路 927 votes
    7y

    You have to honor the leases in place- they have a binding contract.  If you are going to raise several $100/month, I'd give them more notice than just 30 days just as you would like more than 30 days- it's the right thing to do.  I personally explain to people what the market rate it when I buy so they understand and can plan accordingly.  No down side to being a good human being.

    7Reply
  • Michael Noto
    Real Estate Agent 路 Southington, CT 路 Member since 2008 路 5k+ posts 路 3k+ votes
    7y

    @Johnny Nelson Once the lease situation allows, raise the rent. If they are tenants you want to try and keep raise it incrementally because a "several hundred dollar" increase it rent may cause them to leave and then you are out a good tenant. If you do not think they are a fit, just notify them of the full raise as soon as you can and let it play out from there.

    0Reply
  • Sam Leon
    Investor 路 Fort Lauderdale, FL 路 Member since 2012 路 1k+ posts 路 465 votes
    7y

    Here is what I did with rental properties with below market rent.

    If the property is below market because of an issue with the seller, such as the tenant is a "friend" who is getting cheap rent, or the tenant is someone the seller relies on for on site maintenance in exchange for a lower rent, or if the tenant has been a long time tenant with a multi year lease with the rent pinned down etc...then I would have negotiated with the seller to get a credit towards the purchase price that makes up the difference between the rent and market rent for the balance of the lease.

    Once I take possession, I will need to honor the lease until it runs out.

    Sometimes, I would ask them to sign a new lease to replace the one they have, meaning both you and the tenant would void the existing lease and sign a new one.  Usually you would have to get something out of it to agree to do so, because at that time they are skeptical of you as the new owner, not knowing you they would be concerned about some terms and rules that are more restrictive then the previous one.  You could wait a month or two, to allow time to build some rapport with the tenants, then approach them with a proposal.  It's a good idea to sit down with them to hear what they like and not like anyways as soon as you completed your purchase to get an idea the latent issues and possible improvements that could bring more rent.  Perhaps a tenant with 4 months left on a lease would be interested in a new 12 month lease with a higher rent, if you replace the refrigerator?  Try to convert the ones you wish to keep sooner and the ones you don't want to keep you leave them alone LOL.

    1Reply
  • Amanda Kessler
    Member since 2019 路 111 posts 路 36 votes
    7y
    I'm sure that there are laws that prevent you from doing this, however even if there aren't it's not morally right to do so. You buying the property did nothing for that tenant. Didn't make their quality of life any different, so you raising the rent would be a slap in the face
    0Reply
  • Alexander Lang
    Rental Property Investor 路 Savage, MN 路 Member since 2016 路 202 posts 路 61 votes
    7y

    Hey @Johnny Nelson, I would check to see how long is left on the lease and likely give them a 60 day notice of when their lease will be up, just to give them enough time. I would definitely check with Minneapolis landlord laws as well. I do believe there is a minimum of late fee's we can charge in MN (8% I believe?), but I am not aware of any on rental increases if any.

    I'd agree with @Bruce Runn, we are human and in a people business, and this will likely greatly affect their lives. 

    1Reply
  • Victor G.
    Contractor 路 San Diego, CA 路 Member since 2018 路 55 posts 路 17 votes
    7y

    I would check the current lease agreement contract, if one is in place. If there is one, you'll need to ride it out until it ends unfortunately. Once it expires, you can draft up a new lease agreement and reset the rental price to whatever you want. Check your state laws on how much notice you'll need to inform a tenant before you raise the rent. 

    If it is a month to month, then you can raise the rent per your state's requirements (given them ample notice). 

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent 路 Austin, TX 路 Member since 2015 路 5k+ posts 路 3k+ votes
    7y

    @Johnny Nelson at the end of their lease you absolutely can and should!

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
    WebsiteView Page
    2Reply
  • Tammy Ziegler
    Rental Property Investor 路 Minneapolis 路 Member since 2019 路 5 posts 路 12 votes
    7y

    I bought a triplex in Mpls earlier this year that was fully rented, all 10-20%, below market. 2 on month-to-month and one had just signed a new 12 month lease. As @Bruce Runn said, treat people how you'd like to be treated. I talked to the 2 month-to-month folks right away and made sure we had common understanding of the existing lease and asked any problems they had with their units. Shortly after I was ready to start planning rent increases and first just asked what their plans were since they had been month-to-month quite a while. It is a very high demand area and felt confident I could rent both easily if needed. Both volunteered they were considering moving for various reasons so that made it easier to then explain rent would be going to FMR. I showed them rent-o-meter rates for the area and HUD FMR for the ZIP and neither were surprised at all but I do think it was useful to lay out evidence. I treated them respectfully and mostly got the same in return. One stayed and one moved. We remodeled the vacant unit a fair bit and 3 different parties asked about renting it during that process, unsolicited. I rented it for 5 weeks at higher FMR with improvements and am now getting ready to AirBNB it.

    3Reply
  • Bruce Runn
    Investor 路 Minneapolis, MN 路 Member since 2014 路 743 posts 路 927 votes
    7y

    @Tammy Ziegler

    That鈥檚 how I did it as well- I bought a place that was very underpriced and seller had 2- 25 plus year tenants and 2 open units- 2 occupied units were $400/ unit  under market value.  She was losing money every month.  She just didn鈥檛 want to be the person that caused them to have to leave so I bought it with the added stipulation they could have up to 6 months to find another place at the current rent- that sealed the deal/sale so you can use this to your advantage as well and  in my case, I explained everything as you did.

    1Reply
  • Tenzin Tomcho
    Member since 2019 路 11 posts 路 7 votes
    7y

    Better do it fast, kicking someone out during winter is tuff

    0Reply
  • Matt Carey
    Investor 路 Brandon, FL 路 Member since 2017 路 178 posts 路 67 votes
    7y

    @Johnny Nelson

    You can make the rent whatever you want when they are able to sign the new lease.

    0Reply
  • Jill F.
    Investor 路 Akron, OH 路 Member since 2016 路 2k+ posts 路 4k+ votes
    7y
    You must honor their lease. But even for month-to-month tenants, I don't generally raise the rent (unless they won't sign my new lease). The average tenancy is 1 year. I don't buy units that won't cash flow for me at the current rent and since we are still ramping up our business, we always have so many renovations in progress I'd rather just allow normal attrition to do the job. I hope this is not always the case ;).
    1Reply
  • John Woodrich
    Flipper/Rehabber 路 Minneapolis, MN 路 Member since 2016 路 1k+ posts 路 1k+ votes
    7y

    @Johnny Nelson good advice above.  You are required to honor the lease you acquire.  Look to the lease agreement to figure out what notice you are required to give, if you are M2M it is one rental period notice.  Like Bruce I give them more time as I feel a moral obligation to do so, I don't want to put anyone on the street.  In deciding what you want to do I would consider the costs of turning over the unit and getting market prices because vacancy is a real cost.  I have talked to many poeple who were dead set on raising rents and then we run the numbers and they realize it will take them 2-3 years to payoff the vacancy and turnover costs.  Sometimes it makes sense to bump them up to a number short of market to avoid any vacancy cost and save the hassle....  Then when the leave you can update and get market rates.  Just make sure to consider all options.  

    2Reply
  • Johnny Nelson
    OP
    Rental Property Investor 路 Minneapolis, MN 路 Member since 2018 路 18 posts 路 15 votes
    7y

    Many great ideas, guidelines, and comments from everyone! Thanks much for the great feedback.

    0Reply
  • Amber Gonion
    Real Estate Broker 路 Hugo, MN 路 Member since 2016 路 688 posts 路 596 votes
    7y

    @Johnny Nelson we sit in closings almost every day across from sellers that have owned properties for ten years and never increased rents. They often buy properties set rents, fill them and are happy with the returns. They don鈥檛 want rock the boat and find new renters or do turns so they leave the rent in place. Often they don鈥檛 even make up new leases just let the first lease go to month to month.

    Check when the lease is up, notice period and increase. Be sure give notice before the 1st of the month waiting until the 1st will put you into the next cycle and additional days.

    I don鈥檛 feel bad at all raising rents for these renters they have been paying less than market rent for years, what鈥檚 so bad about paying the going rate?

    1Reply
  • Connor Watt
    Member since 2020 路 9 posts 路 1 vote
    5y

    @Amanda Kessler no he should raise rents. The tenants already got a discount. He would get screwed if he didn鈥檛 raise rents. Ur advice is horrible.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free