Rent Increase: How do I do it?

Question

I inherited tenants from my first purchase and their leases will expire in a few months. I've sent them notices of rent increase for when their leases expire and requests to sign into new leases. I'm wondering, if they don't want to sign a new long term lease and want to go month to month, do I need to sign them into a new month to month lease that states the raised rent? How does that work?

Brandon Turner · Answer

Hey this might help! https://www.biggerpockets.com/renewsblog/2016/03/1...

Lynn McGeein · Answer

Your state's landlord tenant laws likely have notice requirements for month-to-month tenancy rent increases, like mandatory 30 days' notice or something similar.

If it were me, because I dislike month-to-month tenancy, I would send a follow up notice saying if they don't sign and return the new lease by x date, then they either need to send you proper notice that they will be leaving at lease end, or their new month-to-month rent will increase to x amount until a new one-year lease is signed, and the month-to-month option would be considerably higher than the year lease you just sent them.

Corby Goade · Answer

Most leases have a month to month clause with an increase for that privilidge. Ours have a $100 per month premium to go month to month. I assume your's don't? If not, and your new tenants don't want to sign a new lease, the good news is that you don't have to sign a short term lease with them, either. Once the lease expires, you don't HAVE to accept month to month terms. You can propose a new lease with new terms. If they don't want to accept those terms, they can move out and you can start a search for a new tenant. You aren't evicting them, the lease ended and you both decided to part ways.

If you want to agree to terms for a month to month agreement, you could just draft a basic addendum to your existing lease adding a month to month clause that you've both agreed to.

Douglass Benson · Answer

This is about lease management and rent increases but it is a little long so please read at your own discretion.

You cannot easily legally engage a tenant if they are not on a lease.  It is always best to have people sign a lease that describes the most recent terms of their tenancy.  I personally don't like month to month, so when we purchase a building we send a new lease and a termination of tenancy notice in the same package.  If they don't sign the new lease, we execute the termination.

That being said, the last building we purchased (17 unit) had no one with an identifiable lease in place.  We offered EVERYONE a month to month lease so we could figure the lay of the land. We gave each tenant the option to leave with no questions asked as well.  Either they sign on month to month with the same exact rents they were reported as paying on the day of sale or they leave.  We eventually lost four tenants as a result.  Three were on our target list to evict due to their behavior and one was paying no rent whatsoever (previous owner's daughter) so they were going to have to leave anyway.

Increasing rents is a non-emotional issue.  If someone is paying $230 a month less than market rates for a two bedroom 800 square foot apartment that includes heat,  water, sewer, trash in the rent - that situation needs to end and it is an easy conversation to end it.  I  cannot end it if a year lease is in place, but it will end if tenant is month to month.

Once the tenant base was established we then put in place a year long lease for them to agree to and we aggressively raised the rents.  We lost two tenants as a result, one was paying $130 a month under market for a two bedroom, the other was paying $150 a month under market.  We have back filled with new tenants paying at market.

The tenants that paid $230 under market for the last five years got to enjoy the greatest bargain of their life before I showed up.  Now , everyone who stayed is paying less than market rates but significantly more then before I owned the building.  When we purchased the building, there were 17 tenants and no tenant was paying MORE than $50 below market.  In six months since the purchase, there are five tenants paying $40 LESS than market and 13 paying market rents.

The reason we purchased the building to begin with is because it was struggling and poor lease management is always a symptom of that struggle.  It is to everyone's benefit to understand the terms of their stay.  If they choose not to remain in the building due to economic or management reasons, they are always free to go.

This is one of many ways that we tune the engine.

Corby Goade · Answer

From what you are describing, sounds like your lease allows for them to stay at the property month to month for the exact same terms. If I were in your shoes, I'd require that they sign a new lease with the terms that you prefer once their current lease expires. Once the lease is up, either party has the option to end it with 30 days notice- that is the normal time frame for notice, you might want to check your state's tenant laws and your lease to make sure.

Just tell them that now that you've honored their lease from their old landlord, but your business has it's own lease and terms that are required for every tenant.

Melody Dodderer · Answer

That was all very helpful, thank you!

One more question; The old lease I inherited does have a month to month addendum but doesn't mention any sort of price increase. So, even if they want to be month to month (not ideal but I'm ok with it), will they have to sign into a new lease that states the new rent and allows for month to month?

Lamar Thomas · Answer

Good question, this is something I definitely need clarification on.

Rent Increase: How do I do it?

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