New Purchase with a Tenant
I'll be closing on my first duplex in about a month and will be inheriting a tenant on the second floor in which I will be occupying the first floor. Currently the tenant is on a month to month lease and getting a break on the rent as his buddy owns the house and he does the yard work which I will be taking over. Based on what I have seen for the market rents we are about $100-$150(max) under priced. I would like if possible to keep the tenant as he has a steady job and has done a good job keeping his unit and the house well maintained. What is the typical procedure for raising rent, are you able to do it right away or I believe per what i've read you need to give notice. To also throw a wrench in things I will be leaving for vacation a month after I close for 10 day's so dealing with a move out/finding a new tenant would be very difficult. I greatly appreciate any knowledge and thoughts you might have!
Thank You,
Kevin
First, read your state's landlord tenant laws. It is very important information. Since this person is month to month, you can probably raise their rent with just a month's notice. But since you will be going out of town, you should probably wait until after you get back to do it in case they decide to move out. I would just tell this guy that you're taking over the yard work and maintenance, and so his rent will be going up. You don't have to tell him anything else. But that said, since you will be his neighbor, you want to be on good terms with him and treat him respectfully.
Hi Chris,
Thanks for the response. I'll read through the law and make notes. I was beginning to lean towards the same idea regarding raising the rent and wait until I return from my trip. Kind of bad timing but wanted to make a move before the market heated up even more than it already is.
Kevin, as you may already know.... Wisconsin is a VERY tenant friendly state. Even if your inherited tenant is month to month you want to be sure that you understand what the tenant's expectations are and what "verbal" or written agreements were/are in place when you close on the purchase.
Hopefully, the current owner can help ease the transition and, if it were me, I would want to start out on the right foot with a written lease for say three months under the "current" terms if there is not a formal lease in place. You can evaluate the tenant ... they can get to know you and then you could raise the rent bit by bit over the course of several "re-lease" terms. A good tenant paying a bit below market rent can be a good thing! This is not legal advice.... just a bit of experience talking.... Good Luck and Congrats!
Others have kind of hinted at it but one of the things I hear from other investors a lot (podcasts or in my own network) is inherited tenants are usually the ones you end up having all the trouble with. It is a matter of expectations from previous to new landlord.
Whatever you do, set the expectations with them up front. This is How, Why, and When it will happen. Period. Have the systems in place and stick to the system. That will hopefully clear everything up and if nothing else clear the spot for someone you can vet from the start and set those expectations with up front.
Congratz on the property and good luck with everything.
I was in the same position a year ago. But I wasn't moving in. I inherited the upper, lower was vacant and I remodeled it to max the rents out. He was 150 below market but super clean and kind. His unit needs work though to re rent if he were to leave. So I kept his rent the same for 2 months until I finished remodeling and finding a tenant for the lower. I signed him to my own lease after 2 months with a 100 dollar rent raise, he knew I ran this as a business. His past landlord was retired, tired, and passive. So it took an hour to thoroughly explain my processes and it's paid off since. He's never late nor complains and keeps his unit clean and respectable. He's still a bit below market rent but it's worth his long tenancy. Been there since 09
Cody B
I have inherited new tenants in one of my properties in Wisconsin. She was routinely late with the rent from the old owner. I was very clear about the expectations of paying rent on time. She has been paying on time for 12 months straight. I think if you explain the market price and set your expectations in a firm but friendly way, the tenant should be receptive to your needs. Seems to be that tenants are as good as the expectations you set for them. Good luck.
I would be careful with keeping the tenant as your systems will undoubtedly be different, hopefully for the better! It is hard to teach an old dog new tricks especially one that has been used to his friend being his landlord. I would just send them a notice saying you plan to increase rent starting a month or 2 down the road and give them the option to resign or move on. Best of luck with the investment and getting everything straightened out before vacation!!
Thanks for the response everyone! I think with the right systems the tenant will be fine, he has been living there for just over a year. I think once I am back from vacation I will raise the rent to be closer to market value which will give me 2 months to figure out if he will be a good fit or not.
When inheriting a tenant do you have a questionnaire that you have them fill out to make sure that the procedures the seller gave you match up? I remember reading in one of the Bigger Pockets books something about that but wasn't sure if it was done.
I always get an estoppel agreement during the buying process so that I have the consensus of both seller and tenant as to whether there is a written lease, what the rent amount is, whether there is a security deposit and whether the landlord or the tenant owns the appliances.
When I've inherited tenants, immediately upon closing I provide them with a letter that gives them all my contact information. It also alerts them as to whether I'm terminating their tenancy, keeping them and whether or not their rent increases and when. By Wisconsin Law we have to give a certain amount of notice prior to increasing rents on a month to month tenant. I've always given them double the time frame just so that they have some time to decide if they want to stay or go and can go prior to the rent increase. This has worked out well for me so far. I've given them all new lease contracts but have made them written month to month leases.
Thanks Jennifer sorry for the delay in my response. All the appliances are mine except for the tenants washer/dryer in the basement. Per the selling agreement there is a security deposit that the seller will bring upon closing of the sale. I've decided to increase the rent however plan to wait until July 1st as I will be out of the country shortly after purchasing and do not want to deal with a moving tenant while I am gone. I was reading the Wisconsin land lord tenant laws but did not see anything regarding notice for increasing rent do you know where to find this or what the time length is for giving notice? I plan on doing the same thing with a lease as well.