Just closed on 7 Unit with Undermarket Rents... Advice For Reaching Tenants?

Question

Hi All,

Well, thanks to this blog, I decided it was time to dump the negative cash flow condo by the beach for a 7 unit multifamily that will cash flow about $100/ door with the under market current rents.  I just closed and now I'm trying to figure out how to handle the current tenants.

The place was run pretty casually by a doctor and his wife who were friends with the tenants. I want to write a letter of introduction to each of the units letting them know we run a tight, professional ship. I'd also like to have them all fill out new "Applications" (as I have no idea who has what background) and they are all on month to month leases.

Anyone have any good advice about how to introduce myself and some of the first steps to take now that I'm a multi-unit landlady? :)

Account Closed · Answer

Put yourself in their shoes.  You're a happy renter and love your landlord.  Then you find out he is selling the place.  You're afraid the new landlord will raise the rents or might be a jerk.  You start looking at the classifieds to see what you can get for the same rent you're paying, and gauging how high the rents might go, and can you afford to move, etc.

In other words, these guys are already spring-loaded to move, if necessary.

Now imagine you get a letter from the new owner saying you need to re-apply for the rental you've been living in problem-free for however long.  To re-apply to live where you are already living.

I don't know about you, but that would irritate the stuffing out of me, and I'd start planning to move just on principle.

Then, you read the letter that says the new landlord will be running a tight, professional ship.  And you wonder, what's up with this?  I've never created a problem.  Why would they think we'd create a problem?

Anyway, this is what I propose:  Send them a letter saying you are the new owner, that you hope the tenants will remain and be happy in the unit for a long time.  To please let you know of any problems right away, so that you can take care of them in a timely manner, and here is your contact info.

Then I suggest you then mention when/where they need to pay rent.  It won't look like you're laying down the law, even though that's what you're doing LOL.  Like: "Please make your rent payments payable to ___________________, and deliver them by the 3rd? of each month to ____________________________(address).

I look forward to meeting you soon.

Something like that.  That way, you've let them know when and where rent is expected, in a subtle way, and you didn't scare them with a bunch of rules or an application or a new contract.

One of the beautiful things about month-to-month agreements, is that you can change the terms with just a 30 day (or whatever is required where the property is) notice.  So, there's no need to hit them all at once with a bunch of changes.  Which also means, there is no need to hand them a new contract at this point either.  You already have a contract, and you can change the rules when/if necessary, with just a 30 day notice.  So, no need to freak them out just now.

Getting the rent on time is a priority.  So, start there.  And see how it goes.

At any rate, from experience, unless you want a house full of unhappy, uncooperative tenants, I'd start out nice.  With just the rent reminder for now.

And you can be nice and still say "no" when necessary.  You can be nice, and fair and firm.  Start with nice, is my advice.  A happy tenant will be more cooperative about things, like when you aren't sure when a repairman can get there, or he can get there but it's right now, and the law requires 24 hours notice.  An unhappy tenant will make everything difficult for you.

There's no need for an application either.   Those are for figuring out what kind of tenant someone would be.  If you already have tenants, you're past that.  Now, you either keep them or you kick them out.

And as far as the rents go, you'll keep good tenants if you keep their rents under market.  Depending on what your rents are, $100 under market might be good to just leave alone, when you consider the cost to turn over a unit.  Then, as units become vacant, raise those rents up to market.

William Hochstedler · Answer

Nine times out of ten, when we assumed management from an owner who was friendly with the tenants, the ship was not at all tight.

If you purchased the property with an entity, write the introductory letter on the company letterhead announcing that you have taken over management of the property.  They don't necessarily need to know you bought it.

The letter should contain a brief introduction with a "missiony" statement, where to pay rent, who to contact with an emergency and how to submit a maintenance request.

Then go door to door with the letter and introduce yourself.  Take a copy of the old applications to verify that the contact information is correct (and preferred method of contact), the occupants of each unit are current, and you have the right keys.  Also, ask if they have any outstanding maintenance issues or other concerns that they would like addressed and let them know how it will be dealt with.

We don't touch leases (unless there are outstanding issues like non payment or other violations) until we feel the management is under control.  There may be some units that will cost a lot of money to get market-ready and keeping a long-term below market tenant may be more cost effective for the time being.  You need a little time to make sure you are getting rid of your worst tenants first.

Congrats and good luck!

Curtis Bidwell · Answer

Congrats on your purchase!  When we have taken over a property we have given a letter to identify ourselves with full contact information for management purposes.  I generally go to the door with the letter in hand and introduce myself.  If you can have the previous owner include a transition letter that also helps.

I assume you have reviewed the current rental agreements.  If there are changes you want to make a simple 30 day notice should suffice. If you did not receive the original applications then you would certainly want that info in order to extend any current resident.  I wouldn't start by telling them you will be stricter.  I would just respond quickly and professionally to any contract violations. The message will become evident.

Being proactive, gracious and professional should keep early turnover to a minimum.

Good luck!

Al Williamson · Answer

@Drey Stockert I'm happy for you! Awesome opportunity.

Yes, as @Curtis Bidwell said face to face introductions are a must. The current tenants will naturally want to know about rent increases. Have that speech ready to go.

They will also be scared. So empathy with them - the sale was beyond their control.

It's possible to be a relentless asset manager and a human being at the same time.

Best to you!

Account Closed · Answer

Excellent question.  We kept current tenants' rents below market, but not stagnant.  Usually a small increase every summer.  Small enough, so when they hit Craigslist in a huff, they will learn they are better off staying right where they are.

When I took over the 26 unit building I managed in Santa Clara, the previous manager never raised rents on tenants as long as they lived there.  He was one of the owners and sold out his half to his brother who was the other owner.  Obviously these guys weren't hurting for money.  There were tenants there who hadn't had their rents raised for 10 years.  As in, some were paying around $300/month for apartments that were getting $700/month at the time.

What we did with them, was raised those by $100/month, with raises every year, until they were only around $100/month under market.  Some moved.  To say the least, I wasn't living in a very happy house LOL (I was the resident manager).  But, I'd tell them they knew they'd had a very good, very long ride, and if they look on Craigslist they will learn that they can't find a better deal.  But, if/when they decide they want to move, I'll work with them and won't hold them to an exact 30 days notice.  I said this very nicely.  But, they got the message.  I could listen sympathetically, and be very nice about it, but then explain that the new owner gave me the job of increasing his profit, and that means raising rents, but if you look at how expensive rents are right now, you're still getting a heck of a deal.

We had about 7 vacant apartments when I took over (I know, the place was a mess), so those went for full market price.  And any vacant apartments after that were rented at full market price.  Tenants who stayed, generally got rents about $100 under market.  Their monthly increases were usually under $50.

The reason I mentioned not raising the rents for this OP, was because she said the rents were $100 under market.  I don't know how much her rents are, but that may be an acceptable amount.  If it's not, I think I'd still wait at least a few months, preferably around 6 months before I made a rent increase.  The reason being that you want them to be comfortable before you hit them with big changes - to let their fright die down.  Frightened tenants are difficult tenants.

For what it's worth :-)

Drey S. · Answer

Wow! Thanks for all of the great input. With the single family units I've managed, I've always done the initial screening and so knew my tenants and their histories. I have leases for this property, but none of the original applications and this is a C area in the high desert of California. When doing the original walk-through, there were some things I'll need to handle (great dane puppy in 900 sf - not on lease, pit bull in different unit, not on lease) - but nothing I'm too worried about.

I think if you were to ask my current sfr tenants, they would say I'm professional and generally kind. I stick to the letter of the law here in California and try to be fair and honest. I'm not trying to jack up the rents immediately - as I'm cash flowing. I just want to know I'm starting things out professionally.

@Curtis Bidwell - Thanks for the door to door idea - I will definitely do this and since the owner is carrying back a note, I'm certain they will write a "transition" letter for the tenants. Great idea.

@Al Williamson - Is there a good speech you've used in the past when knocking?

Sue K. - Yes! Thank you! I am actually forming an LLC today that will be handling the property management for all of my in-state units. I will have the landlords write a transition letter to hold tenants over - then I will send out on my letterhead once I'm finalized.

Thank you all for your VALUABLE time and ideas. You're the best.

Stephanie Minor · Answer

On a related note, what do you do if you buy, the rents are under market, and the tenants may be month-to-month, but they never move out? At some point, do you kick them out so you can update the unit and charge more rent? ....that would be tough for me. I'm going to be buying where there are a lot of families renting. They're not college kids living there for just a semester or year.

You want to keep good tenants, and if they're already there, then great! But then what? Wait a bit to raise rent (without cleaning up the place/updating) so you don't scare them off - but then have it take much, much longer than anticipated to get the rents you want for the right cash flow?

James DeRoest · Answer

Crap, find myself agreeing with Sue again ;)

Don't know why, but whenever I hear of a new landlord and the first thing they want to do is increase the rent, a cold shiver goes down my back.

If you want to introduce yourself do what we do, take one evening to go knock on each door and say hello, rather than a horrible impersonal letter.

We make it a priority as well - we close on a unit or units, and we introduce ourselves that day, or maybe just before closing with the outgoing landlord.

Sending a letter is just.....distant.

Stephanie Minor · Answer

Thank you @Sue Kelly! A well-written anecdote! If the rent works (maybe below market, but still cash flowing), and the tenants are good, I guess I'll just have to be patient. :P

Drey S. · Answer

HA!

Just closed on 7 Unit with Undermarket Rents... Advice For Reaching Tenants?

Most Popular Reply