Today I close on my first property. Yay! A two family here in Massachusetts. Tenants are paying way below market rent. How do I go about increasing rent if is already the end of the month? They don’t have a lease in place and have not been paid last month or deposit.
I hope someone can give me some advice.
You should have got their deposit when you bought the property. The previous landlord needed to transfer it to you as it is the tenant's money.
The next question is how much below market value are they and is it worth a vacancy? As there is no lease, check your local laws and see how much notice you need to give. Make sure you do it in writing.
Congratulations on closing! That's very exciting. Were the tenants previously on leases that went month to month or is it all a verbal arrangement? If it was a written lease, there should be required notice periods written in. If it is verbal, you will want to get a lease written in order to make sure your arrangement is documented. Any security deposits and the last month's rent that the tenants paid to the previous landlord should have transferred to you at closing.
From a tenant happiness perspective, it is worthwhile using the approach of showing them the rental comps and then asking what they think is fair for an increase if they are considerably below market.
@Mason Hickman Thank You! Everything was verbally. It was a family of their previous owners so they didn’t ask for last month or security deposit. I did my research and a three bedroom in this area is not lower than 1,300 they pay 700.
Read your closing statements and make sure the pro rated rent for Oct and the deposits are listed as a credit to you. that said w/o a lease in place not sure how you are going to know if a deposit was paid to begin with. Did you have the parties sign an estoppel agreement?
Wait, in your 2nd post you said they didn't collect a deposit? So what deposit are you referring to in the original post?
@Yashira Quinones I would follow the process outlined in your state laws for giving them notice to get them out. If your numbers are accurate, you are far below market and if they are related to the previous owner, it's doubtful they can afford market rent, though you could have a conversation and ask them as a courtesy. If they can't afford it, I would give them as much notice as you can so they have time to find something else but you should not have to carry them just because the previous owner was giving them a break. Good luck.
@Yashira Quinones first of all be aware that you need to give notice of rent increase. It varies by location, but 30 days is the minimum requirement. That means best case, you can increase it effective December 1. You also want to make sure that your area doesn't have rules around rent control or maximum rent increase. Increasing from $700 to $1300 is almost double, so be careful pushing that type of increase. It may be easier to just find new tenants, by giving them notice of non-renewal and explaining that you plan to rehab the property. The "rehab" can be as simple as paint or flooring, then rerent it at $1300 or higher.
I also share @Scott M. concern about the lack of deposit. It is possible there is a deposit, but it was not disclosed by the seller. It is not uncommon for tenants to come back later and claim there was a lease or deposit.
If you are keeping the tenants, you will want them to sign a month to month lease, just to get lease terms agreed to. I would not have them sign a term lease (like a one year lease) until you know the tenants better.
Hi Yashira and congrats on your first property! I remember mine very well as I was really excited and scared at the same time. Whenever I have a situation like this, I always try to focus on some positives first. The positive thing here is that there isn't a poorly written lease that you have to adhere to for months down the road. I would first draft up a very professional letter introducing yourself and instructing the tenants of a 30 day notice that a lease would need to be signed or they would have to vacate. I would also state what the new rent rate would be and what the security deposit amount that would need to be paid would be. Also include when this will need collected and how you will be collecting. The more info the better. I'm not up to date with any Massachusetts laws, but I would also vet the tenant in the next day or so and see if they are even an individual I would want to keep at the property. A few months of vacancy is way better than a really bad tenant. Also another word of advice. Your tenants don't need to know that this is your first property and that you are new to the game. For all they know, you have an empire you are running and this is just another task of your many for the day. This will help you look and feel professional which always helps with situations like this.
You can serve them a rental increase letter that would take into effect the 1st of the month so you would be able to serve them today and it would be effective starting Dec 1, 2021.
Lien Vuong is correct. If they are month to month then you simply send them a notice that you are terminating their current tenancy and offering a new one the new rent. Although not required, I would use a constable or sheriff to serve the notice.
Also, if you offer them a new tenancy at a new rate, you can also require new terms, like no pets, no smoking etc. You can also require them to fill out an application and see if the qualify for the apartment, just like you would do if you had a vacancy anyway. It can still be month to month, but now it will be written out, you will know exactly who is there, where they work etc etc.
Nearly doubling their rent to market is a bit much but if you went to say $1000 now it would be difficult to go to market in 3 or 6 months.
What shape are the apartments in? Did you plan on renovating? You might want to terminate the tenancy completely. In that case, although not required, I would give them more then the 30 days notice, say the end of January. Hopefully that gives them time to seek another apartment and save up the money to move. If you served them today to be out the end of November and then they didn't move and you are in court in December, they will ask for more time anyway (which the court would be inclined to give them some) and it will be January of February anyway. Also I would probably only do one apartment at a time but raise the rent some what on the other.
You have to decide how you want to proceed. What was your plan for these tenants when you bought the building to begin with?