First-time landlord in Buffalo, NY multifamily unit

[Meghan Sullivan]

Hello everyone!  I am new to this community and have read many of the forums as well as taken part in one of the podcasts.  I guess I'll get right to it... 

I am purchasing my first multifamily property in the Buffalo, NY area that I am going to be renting out.  It is only two units (upper & lower) but that is plenty for me while I'm just starting out.  I close on it in about a month (about a week before Christmas) and I figured now is the time to start asking questions. 

First off, there are tenants that come with the property, but they are on a month-to-month verbal agreement.  Meaning they have no signed rental agreement (which I plan to change once I close on the property).  They also occupy the apartments without a security deposit.  Is this common? It seems to me that this would be a great mistake.  

Anyway, I plan to put in place a signed rental agreement, keeping with the month-to-month, and inform them that I plan to collect a security deposit.  Now I know everything has be given a month in advance, so I'll basically be living on their current verbal agreement for a month (fingers crossed it doesn't have any crazy stipulations).  I don't want to charge them all of the security deposit up front because I don't want to give them a terrible hardship, especially around the holiday season, and since they already occupy the space I think it would be risky for me to ask for a large sum and not expect them to wreck the place and move out.  I'll probably just add small installments into the first three or four months.  Does anyone see a problem with this? 

So now I'm having trouble figuring out what to charge for a security deposit.  I've done some research and see that NY state does not have strict guidelines for this, but that it's typically one month's rent.  With that being said, I'm kind of in a pickle about the rent.  Currently both units seem to rent for $100 lower than other similar units in the area.  Now, raising the rent $100 seems like it would be a big leap, on top of the security deposit, but my dad had, what I would consider, a great idea.  He thinks I should do the monthly installments for the security deposit (after the holidays of course) for the first several months, and inform the tenants that when those installments are through (whatever they're going to be?) that the rent will then increase $100 in each unit.  I understand that this would involve some risk in the form of the tenants possibly moving out, which is why I might wait until I receive some of the security deposit and then tell them 30 days before rent increase.  In this instance I would have some of the security deposit in case they got mad and decided to leave after damaging the property.  Is this too sneaky?  I don't want a bad relationship with my tenants, but they're also not people that I did my own background on so I'm not sure what they're like and I'd like to protect my investment.  Do you think raising the rent by $100 is too much of a burden on the tenants? Again, I have no idea what their situations are.

That brings me to another possibility... getting new tenants.  It is probably not the best time to look for new tenants, but as long as one unit stayed I could work it out, because I'd update the vacant unit for a month or two and then hopefully get it rented out in the beginning of spring.  I would actually almost prefer this for one of the units because I can see the potential it has and I am itching to get my hands dirty for it.  I wouldn't put too much money into it, probably paint the kitchen cabinets and move some other things around in the kitchen, update the bathroom (possibly a gut-job), update the fireplace and flooring throughout, and paint the other rooms. I'm thinking around $5000 or so.  Enough to get a good tenant in that will want to stay, but not too much loss in case that tenant isn't as good as I think from the start. 

Lastly, how do you go about setting up a meeting with your new tenants when you're typically the new person in the relationship but you're also in charge of the terms? Should I send a letter in the mail, drop a note off with some holiday cookies after closing with my google phone number, etc....? And do you meet with both units at once or separately?  I'm thinking separately so that I remain in control of the meeting.  Any other suggestions? 

Thanks for your time in reading this and I appreciate any responses it may generate.  It turned out a bit more lengthy than I had planned. I hope everyone enjoys their holidays! :) 

Meghan

[Thomas S.]

IF it were me I would set up a meet with each after taking ownership. I would not bother with the security deposit nor would I be concerned about upset tenants doing damage. Tenants damaging properties out of revenge is not typical behaviour for the vast majority of people in the world.

I would give notice that they will be required to sign a M2M and it will include a $100/month rent increase. They will not be in a rush to leave and if they shop around will likely decide to stay if they like it where they are. Tenants always expect a rent increase with new landlords. Use the added $100/month to build up a reserve fund to cover damages. Just consider it a non refundable security deposit for your existing tenants.

As for renovating, if one leaves or when the time comes to Reno you should never require more than a month vacancy to do the work. If you can not complete it yourself in that time hire contractors. Time is money, never waste time creating a unnecessary vacancy. The rental income lost to a extended vacancy rather than hiring contractors is a unnecessary waste.  Once you get your head around the fact that you are operating a business and realise every decision is based only on money you will be financially farther ahead.

In the mean time you need to study, learn, memorise the landlord tenant regulations. Until you know the rules you are not operating a business you are simply waiting for a disaster. Always keep a copy with you and you will always have the answer to any question.