Real Estate Agent · Hamilton, OH · Member since 2020 · 19 posts · 7 votes
I just purchase a mixed-use building that has 3 retail spaces and 5 residential units in it. They are all occupied and the lady that owned it did not have any leases with any of the tenants. As of right now, the rents are severely under market rate. My question is how should I handle the existing tenants? Do I do background checks? Collect security deposits (she only had one security deposit and I now have it.) I am planning on adjusting the rents up over the next 18 months to 2 years because the tenants have all been in a long time and they pay on time. I am planning on having them all sign a new lease. Any additional suggestions??
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
You need to align your course of action with the business plan for that property. If your goal was to massively upgrade every unit, you may be better of non-renewing all residents once your contractors are ready to hit the ground running. If your goal was simply to operate the property you might take a slower approach.
I'd certainly want to get all the residents backgrounds checked and ensure they can afford to live there. Often residents on month-to-month don't want to sign a new lease and will drag their feet. Best solution in that case is to inform them the month-to-month lease rate will jump $X, but if they sign a new lease and fill out the background paperwork, the rent is something less than that.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
5y
Jeff, please do not take offense to this but seems like this would have been a great question prior to your purchase. Really jumped into the deep end!
Sometimes rents are below market value because the units are in such poor condition. Do you have the funds to bring the units up to market standards in order to collect market rent? Do you have crews to do that? Do you have funds for holding costs? If not, you may want to proceed with caution.
If you want to keep them and there are no leases then yes, you can have them fill out applications, collect deposits etc....time to get the paperwork in order at the very least.
If you are doing this over 18 months to 2 years get a solid plan in place. You getting 1 empty and then doing it start to finsih and re rent? Or doing improvements with tenants in them? I would get your ideal down then chat with the tenants one by one and your game plan should become obvious.
Rental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
5y
Agree you need to determine whether the units can command market rent as is. Chances are no. If you have not seen inside all the units, give 48 hour notice for a maintenance inspection and start the conversations with them. We often go in and make upgrades to get it to our standards and raise rent partway to market. If you wait to do an increase it will be more difficult. Whether it is a lease or M2M rental agreement, you need to get paperwork in place.
I don't have them do the full application. Since they are already in place, what I really want is emergency contact info in case they disappear (abandonment), SSN to be able to turn them into collections if needed, employer and job title to have an idea where the money comes from, and anything to verify they are not out of compliance with your criminal standards. Make a one page document for them to fill out, keep it simple.
We like to raise rent annually to the halfway point between current rent and market rent. It makes progress but still rewards long term tenants. Keeping a tenant, even below market, is cheaper than a turnover unless they are a big pain.