Lease renew and increase of rent

[Sarah Byun]

We just purchased our first multi-family property and couple of the tenants have been there for more than 10 years without a rent increase.  The rents near the area are about $75 to $125 more than what the tenants are paying (They've been paying the same since they moved in).  Top of that, the previous owner covered all the oil heating and the water bill expenses. There's just no way to cover all the expenses (especially with oil price during the winter).  We need to raise the rent. how much is a good amount?  The renters are in month to month.  What will be the best way  Send a letter for lease renew or vacate along with new lease agreement with increase of rent letter?  Where can we find the already made form for this situation?

It is June now, so if we send a agreement letter this week, when should we ask the form to be sent back by and if the tenant renews (starting August rent increase) and if the tenant vacate (by Sept. 1st) will be good?

[Marcia Maynard]

Congratulations on your purchase! Welcome to landlording! 

If the tenants seem to be good tenants and you want to encourage them to stay, I would approach this in steps, so as to not overwhelm them and to make the transition smooth for all parties.

1. Introduce yourself and your management style to the tenants. Focus on establishing a good rapport. Address any deferred maintenance needs, safety items first. Ask the tenants if there is anything you can do for them and listen. Address legitimate concerns quickly and effectively.

2. Get the tenants onto to your rental agreement as soon as possible. Keep it month-to-month as it will allow you more flexibility.  Changes to the rental agreement must be done in compliance with the landlord-tenant law for your jurisdiction. This involves giving the tenant proper legal notice. We accompany this with a friendly letter of explanation.

Let the tenants know you do not intend to raise base rent at this time. This will put them at ease. But let them know they will need to pay for utilities. If the utilities are separately metered, have the tenants put the utilities in their own name. They will feel the monetary impact first when paying for water; they will feel the monetary impact second when paying for oil heat as winter sets in.  If the utilities are not separately metered, then add a utility charge. This allows you to raise the utility charge independently of the rent, as the need arises.

3. If other comparable units in your market do not include utilities and they rent for significantly more than your units, then consider doing a base rent increase. How much depends on what is affordable for your market. Avoid rent raises of more than 10%. Rent increases of $30 ($1 per day) or $50 (good even number) work well for us, as it is usually not so much that the tenant will feel compelled to move. We try not to raise rents every year. When we do raise rents, we aim for January (the start of our fiscal year) or May (springtime) or August (summertime). If you intend to continue to include utilities in your rent, then raise your rent effective August 1st. Let your tenants know the change in rent is necessary due to an increase in the cost of utilities, maintenance, repairs and taxes. Dissuade tenants from thinking their rent is going up in order for you to have more profit.

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With multi-family, you don't want the community to go into a tailspin and leave you with multiple vacancies all at once. You will do well if the community thinks well of you from the get go, as they will be more cooperative. You have a chance to make a positive difference in the lives of your tenants. You have a chance to establish a good reputation; that will lead to attracting good long-term tenants. Think about the long game, not the short game. Keep in mind it is like a chess game; as you move, there will be counter-moves. Anticipate tenant reaction and be prepared. Keep positive. Be patient. Everything's negotiable. Make it a win-win for all parties.