Advice Needed for Property With Existing Tenants

[Ben Larson]

I am excited to have a duplex under contract that my family and I are going to owner/occupy as we get started with real estate investing. 

I am also nervous about a few issues I could use some guidance about:

We will have to significantly raise the rent for whoever is staying.  The current tenants are paying only $1440 per month in a market that is getting 1800-2100 monthly for comparable properties. The current tenants have been there for 6 & 8 years respectively.  If they are savvy to the situation they probably know an increase is coming, but I wouldn't bet that they have put the pieces together and they probably won't react very well to the news.  They signed a one year lease in 2011 that turned to a month-to-month after the year term with a 45 day notice by either side for vacating.  It has been that way since... we will take over the lease upon closing around June 15th so that puts us to August 1st before we can have one side sign a new lease with us if they choose to pay the higher rent and have the other side move out so we can move in.  

I am open to any and all suggestions & advice about how to handle this situation. 

    - What is the best way to inform the current tenants of the price increase?

   -  When is the best time to do so? Would you advise any "warning" or "heads-up" before the closing date?

  -   The tenants have paid their rent on time, so I am interested in keeping them if they agree to the price increase... what do you suggest if they both want to stay?  We have to kick one of them out..  (we have no preference about which unit we prefer.. they are identical)

-  We have not settled on the exact monthly rent we will charge yet.  The minimum will be $1800 per month because that is what the market bears.  Getting $2100 is obviously ideal and will create a very nice cash flow... With good tenants though, is it smart to consider offering something like $1700 for the first year and let them know we will increase every year until we get to market value?  My thinking here is that it will cost us less to keep good tenants in rather than turn over the unit. 

- I am worried about making whoever has to move out mad and that they will do damage on the way out... The seller is giving us the full security deposits so I can use those as incentive to be good, but is there any advice you would give with this?

- If you have been through a similar situation either as someone who needs to owner/occupy or someone who had to raise rents significantly upon purchase, please let me know if I am missing anything or if there are questions you can answer that I haven't even thought of.

I look forward to getting some help - Thanks!

Ben