Being A New Landlord with undermarket value Rent

Member since 2017 · 21 posts · 2 votes

Good afternoon everyone!

I just closed on a three family in East Orange NJ and acquired the house with tenants already on the premise . I used the VA Loan, so I occupy one of the units while my tenants occupy the other two.

The previous seller had the rents way under market value . Two 3 Bedroom apartments for 1,000 per month and a 1 bedroom for 750 per month. Each tenant is on a month to month lease . I researched the rules for East Orange and I can only increase it by 7 percent . Should I terminate the least in 30 days or could I give them the option to pay 1400 for the three bedrooms?

Not sure about the best way to you about this decision !

Thank you for the help in advance ,

Chris

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Ray Reed

Investor · Linden, NJ · Member since 2016 · 190 posts · 116 votes

@Mark F. This is a 3 family house where the owner lives in one of the units, so he can terminate the lease at the end of the term. Not saying he should do that but he can.

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Bob Okenwa
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
6y
@Christopher Wall
You can give them the required notice and inform them they can either sign a new lease with the new terms or you'll be placing the property for rent at the new rate and ending their lease at the allowable time, which is apparently 30 days notice in your area.
1400 per month is an increase that is greater than 7%. Double check your laws to ensure you are not in violation of any landlord/tenant laws before acting.
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Mark F.
Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
6y
You cant terminate leases in NJ without cause, and increasing rent isnt one of them. Start reading this
https://www.google.com/url?sa=...
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Christopher Wall
OP
Member since 2017 · 21 posts · 2 votes
6y
@Bob Okenwa thank you! I called the rent control unit in East Orange and there’s no rent control for properties that are 3 units and under . Thank you for swift response .
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Christopher Wall
OP
Member since 2017 · 21 posts · 2 votes
6y
@Mark F. Thanks Mark, it does say that a month to month lease can be terminated if given a 30 day notice. But I also called the rent control unit in East Orange to ask about the rules and regulations but it only applies to four units and more. I’m still going to read what you sent me completely because it can help me in the future. Thank you !
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Kenny Dahill
Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
6y
@Christopher Wall, if they're good tenants then I always suggest trying to keep them in place. It never hurts to ask them to accept the new lease.
To sweeten the deal, you could offer some type of improvement. This creates a value in exchange for higher rent. Chances are you already need to do improvements somewhere before the next tenants. Might as well attempt to minimize your vacancy.
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Christopher Wall
OP
Member since 2017 · 21 posts · 2 votes
6y
@Kenny Dahill you’re absolutely right, they seem like good tenants from what the previous owner stated. And I do have to do renovations . The market price for a 3 bedroom is 1800 so I thought I’d raise it to 1400 and keep it there for a year or so while making renovations .
Also, my first floor tenant has all of her stuff in the basement , would you let your tenant keep their stuff there in a multi -dwelling , charge them for storage or remove the items since it could be a liability ?
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Kenny Dahill
Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
6y
@Christopher Wall, bare minimum is informing them you are not responsible for their items in the basement. Just in case it floods or gets broken into. Put it in writing.
I'm not opposed to letting them keep it in the basement. You could allocate space for every unit to use the basement as storage. Another selling point to compete or justify higher rents.
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David Thomas
Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
6y
@Christopher Wall separate from rent control laws there is common law in NJ that prevents “unconscionable increase” in rents. I remember pressing this issue to our instructor when getting my RE license, and asking how this could apply to a newly renovated unit with no tenants. He insisted it does. Basically, if the average person would see this is unreasonable then it applies and appears to be your case.
Attached is an overview on this law from the state of NJ which spells it out. I would consult an attorney for guidance to be safe.
https://www.state.nj.us/dca/divisions/codes/publications/pdf_lti/rnt_incrse_bultin.pdf
The question is more about enforcement and would someone take you to court over it or just move out?
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Mark F.
Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
6y
Originally posted by @Christopher Wall:
@Mark F. Thanks Mark, it does say that a month to month lease can be terminated if given a 30 day notice. But I also called the rent control unit in East Orange to ask about the rules and regulations but it only applies to four units and more. I’m still going to read what you sent me completely because it can help me in the future. Thank you !

I assume you read page 34. Start on page 65. You can't terminate a lease without cause. Read the paragraph I've attached and circled.
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Ray Reed
Investor · Linden, NJ · Member since 2016 · 190 posts · 116 votes
6y
@Mark F. This is a 3 family house where the owner lives in one of the units, so he can terminate the lease at the end of the term. Not saying he should do that but he can.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
Originally posted by @Mark F.:
Originally posted by @Christopher Wall:
@Mark F. Thanks Mark, it does say that a month to month lease can be terminated if given a 30 day notice. But I also called the rent control unit in East Orange to ask about the rules and regulations but it only applies to four units and more. I’m still going to read what you sent me completely because it can help me in the future. Thank you !

I assume you read page 34. Start on page 65. You can't terminate a lease without cause. Read the paragraph I've attached and circled.

Did you read what you posted? The last line of the paragraph you circled says this doesn't apply if it is a 2 or 3 unit and you are living in one of the units. It is a three unit an he is living in one of the units...
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Mark F.
Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
6y
Originally posted by @Ray Reed:
@Mark F. This is a 3 family house where the owner lives in one of the units, so he can terminate the lease at the end of the term. Not saying he should do that but he can.

You're right, thanks for that. I even reread through it and found another page where it went into detail on it. Page 68 to be exact. Thanks for pointing it out. Most people who come on here wanting to end leases early and increase rent arent owner occupying (in NJ that is) so I'm usually on autopilot posting the landlord-tenant pdf.

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Christopher Wall
OP
Member since 2017 · 21 posts · 2 votes
6y
@David Thomas thank you!
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Christopher Wall
OP
Member since 2017 · 21 posts · 2 votes
6y
@Joe Splitrock thank you guys ! This has be really made informative !
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Christopher Wall
OP
Member since 2017 · 21 posts · 2 votes
6y
@Mark F. Hey man , we all go into auto pilot sometimes. The key is , you were ready and willing to help me out , so thanks again.
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