Inheriting a lease on rental property

[Shawn Bhatti]

Hello fellow BP members,

I am closing on a 3/2 SFR in Tampa, Florida a few weeks from now. The property is good condition and really does not need any work as is. My offer was accepted over 7 other offers (some of which were cash offers) because I was willing to waive contingencies and give asking price. Got the appraisal back yesterday and it appraised at 162k (3k above 159k offer). Additionally, I was able to get seller to contribute 3% towards the closing costs (about $4800).

There are tenants in place on a month-to-month lease. According to the seller and listing agent, they take very good care of the place, which does appear evident based on the pictures of the listing. However they are paying far under fair market rent for this area. A 3/2 SFR in good condition in the 33605 area rents for $1305 on average, yet they are paying $1100 for a month-to-month lease, which has been valid as of May 2019. My plan is to increase the rent enough to match close to the median for this market, but not to the point where they would move on from this place (a $200 increase is large for most families in this price range). While I have heard retaining tenants is generally bad, this is a family who has been in place for a while and has a child, so I want to give them the benefit of the doubt. Furthermore, since I live about 3.5 hours driving distance from this area, it would save me the hassle of having to find new tenants and get the place rent-ready again.

So now I am leaning towards inheriting the month-to-month lease with the current rent of $1100 until the end of the year (Dec 31 2020). I am thinking the best way to maximize rent returns and retain them is as such:

Offer a lease until 31 July 2021 for $1275/month

Incentivize a longer stay by offering $1250/month until 31 July 2022.

Any suggestions from others who have been in a similar situation? Rent at $1100 just isn't good from cash-flow perspective, but neither is having to vacant for about a month and clean up, find new tenants etc. Thanks in advance.