New landlord question about process for keeping existing tennants

[Eric Sebast]

Under contract on our first property a duplex (traditional financing, past attorney approval, just did inspections today). It has some small items that need repairing, but it is otherwise ready to go.

We decided to keep the existing tenants after meeting one of them when we walked through it before offering on it, and met the second tenant today doing the inspection. The rents are a little bellow market value, but not crazy, and it cashflows well at about $200 per unit (including an expected managment fee). One of the tenants is on a month to month (has been there 4 years), the second tenant is just about 2 years and is on a annual lease that is up in August.

We are going to managing the property ourselves for the next 6 months or so just so we get a feel for how that goes, before flipping it over to a management company (haven't started looking for one or vetting any yet). Planning on using RentRedi for all payments and interactions (not 100% yet, still looking at them all).

So my questions are:

When should we introduce ourselves to the tenants?

For the month to month tenant, can we just move her to our lease, either MTM or an annual, and how would we present wanting her to move to a annual lease instead of a MTM?

The MTM tenant is far below market value, she's at $700 per month, in what should be at least $800 or $850. Do we leave it because it already has good cashflow, or how do we approach changing the rent with her? Would you just keep it cause she's always paid on time, go up gradually, or jump it to market or?

[Kevin Sobilo]

@Eric Sebast, I would send an introductory letter along with a copy of their existing rental agreement signed over to you by the prior owner. I would do that as the official notice that you are now the landlord. I would include payment information for how they should make payments and how they should contact you for maintenance requests etc.

I would very shortly thereafter follow that up with a phone conversation and perhaps an in person meeting.

I always look to do 1 year leases. So, for the MTM tenant I would explain the benefits of a lease. How it locks them in so they can't be easily displaced or have their rent raised unexpectedly.

As for the rent bump. Even if a tenant can in theory handle market rate rent, their budget is based on the current rent. So, an unexpected large jump is difficult for most people to cope with. So, I would try to get them up to the rent you want over a few year period. I would also give a little longer notice for this first lease. So, for example if you wanted to raise the rent $50 or $75 which is a healthy increase at that price point, I would give them at least 60 days. I might have them sign the lease now, but have the lease start 60 days later to give them time to prepare.