New Landlord wanting to change lease agreement for inherited tenants

[Candice Hill-Crouch]

I am in the process of purchasing a property with inherited tenants that are being rented for far below market value. IE units are being rented for $475-$500 and market value sits at $800-1125. 3 of the leases are in place till next July. The units are all need of extensive repairs to get maximum values and I would like to update one unit at a time but do not want to wait 10 months before I am able to get in an update the units. I was wondering if any one had recommendations of successfully changing tenants to month to month and or a cash for keys situation when rents are so far below market value. I do understand that all parties need to agree to the terms for it to be valid. I just don't think they will be interested in terminating there leases since it is so low and they all know they will never find a renal this low anywhere else it town. One of my though processes was to send them an agreement for month to month with a letter notifying them that we will be starting an extensive remodel to the exterior of the property as well as the available unit which will result in extensive construction noise etc. and there for they can change to month to month and leave with a one months notice if they find this construction to be a nuisance. I would like to get others thought and recommendations. Thanks so much!

[Alecia Loveless]

@Candice Hill-Crouch I just bought an 8 unit building mid April in the exact same situation except 1/2 were already MTM and 1/2 were on existing leases. We went in and started doing some renovations and shortly had two vacant units that got full renovations and new tenants at $900/month. At the first of June I sent out certified letters to the MTM tenants notifying them their rent would go up to $800/month the 1st of August. Another tenant moved out and we renovated that unit and I’m in the process of renting it now to someone who has lived for 22 years in their current apartment but it’s being sold for $900/month.

My next step which starts tomorrow is converting the building to propane heat that the tenants will pay for. That’s the other reason I kept rents a little lower than market, they’re going to pay for their heat. When I looked at the building in February and it was -15 outside 5 units had the heat set at 78 degrees and the windows open.

If I were you I would send notices about the exterior renovations and give a start date saying the work will be completed between 8am-5pm Monday through Friday or whatever days your team will work.

I think it will create a very bad reputation for you as a landlord in you community if you switch everyone to MTM leases and then two months down the road jack their rents up by $2-400. Honestly I’d probably just suck it up and try to get to know them if you will be self managing and try to work with that when the time comes to renew leases. If you’re going to raise them all at once potentially by $5-600 you may find yourself with an empty building placing all new tenants. If you can float it that way that’s fine but maybe you want to renew half and then half to try to still have some income coming in during the interior renovations.

We generally only do interior renovations when a unit is vacant but we’re making arrangements to do one while the tenant is there early November and she is renting a storage Pod for all her belongings except a large wardrobe. I wouldn’t recommend trying to do interior renovations until units are vacant.