Security deposits for existing tenants

[Jendayi Brandon]

Greetings all,

I just closed on a triplex. My first multi-family unit.  The previous owner has never raised the rents once each of the tenants moved in. The rents are low right now but the landlord agreed to supplement them for 6 months. They are all long-term tenants (20 years, 9 years, and 2 years) and it appears they keep the units and the grounds very well. 

My first question is, can I ask for increased security deposits when if I renew the leases so that it is more in line with the new lease amount?

Second question: What is the best way to get these rents closer to the market rate? The tenants are currently 25% - 35% below market with the leases ending 2/2/2022.

I am empathetic but want to be able to cash flow as well. AS it stands I'm breaking even.

Thanks for your thoughts

-DI llc

[Joe Martella]

What do you mean by:  "The rents are low right now but the landlord agreed to supplement them for 6 months."  How is the landlord supplementing?

Here is what I did.  You are probably familiar with the statement  "You make money when you buy real estate."  That said, the valuation of the property should have been considered based on the current rental income.

I purchased a SFH, in July of this year, that was rented for $850 a month. The purchase price took the low rent into account. The market rent is $1,200. the tenant (single mom) was living there for 6 years and tenant had kept the property in great condition. I made sure to go to inspection prepared with prospective leases. I gave her a 3-month lease for her current rate of $850 that ended in September and then gave her a 12 month lease that started in October for $900 a month. I told her that she should expect a $25 to $50 a month increase per year until it gets her to market rent.

Considering that the unit was in good condition, I didn't consider increasing the security deposit.  I know that chances are that the single mom tenant most likely won't be able to afford a drastic increase in rent and security deposit.  

I imagine that the units are in decent enough of shape and they have a long history in being there.  If they have a long track record and the units are in good shape, is there a need to increase security deposits?  I think that will just upset the current tenants.  Reality is that a security deposit is really just a fraction of what damage can be done, and if someone lived there for 2 decades, there is a lot of wear and tear damage I am sure.