Raising rent on a newly acquired unit with current tenants

[Michael Karl]

My wife and I are getting ready to close on a 3 unit rental property in a suburb of Buffalo NY.  All three units are currently occupied, 2 of them are month to month and one is currently on a 1 year lease.  All three are currently being charged under market value for the rent.  I have a couple questions for the landlord community out here on BP.  When is the right time to raise the rent? How much is reasonable to raise it at one time? Should I attempt to get the month to month tenants to sign a 1 year lease? And is it acceptable to charge them more for rent if they want to stay month to month?

[Fred Grant]

With regards to raising rents, just remember to keep the money flowing. There is usually a reason the rents are below market. If it is deferred maintenance then watch the numbers very closely. 

Sometimes it is better to have a tenant at $700 per month for the next year rather than raise the rent to the market rate (Say $850) and have the unit empty for a month while you repaint and fix all the little things the tenant had learnt to live with. The numbers will vary, but if the renovation costs are $1000 and the lost rent (at the old rate) is $700, then it is going to take you $1700/ $150 months (approx 12 months) before you see the benefit of the new rent. If you did this with all 3 units at once, it would still take a year to be ahead of the curve but you would have that one month where you had no income to pay any of the bills and would have to find $3000 for the renovations. So you may decide to leave things as they are until you have put aside enough money to cover the renovations and vacancy and only tackle 1 at a time.

I am not saying you should keep on deferring the maintenance, just think about your overall cash flow when deciding when to act.