Being A New Landlord with undermarket value Rent

15 Replies

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

@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.

@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 !

@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.

@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 ?

@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.

@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?

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.

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...

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.