How to Handle Existing Renters After Purchase

Question

My husband and I are on the middle of a purchase right now of a triplex with existing renters. The rents for this property are much lower than that of comparables and we would like to increase the rents to bring it back up to market value. the rents currently are $320 and $335 for one bedroom units and $500 for the two bedroom unit, all of which are in particularly good shape but only ~500 sq ft per. The issue is that we would like to raise the rents and we don't particularly care if the current renters stay (2 out of 3 have recent felony convictions and we typically don't rent to felons), however we don't want them to trash the place or anything. All three are on month to month and we would like to raise the rents to $500, $550, and $700 which matches that of comparable properties. What is the best way to go about this? Is it best to raise it all at once? Also, is it proper etiquette to go and meet the tenants in person or simply send a letter? Finally, do we need to make a new lease for it to be valid or will the previous owners lease hold up In the case that we need to evict someone? Thank you!

Tim Swierczek · Answer

@Monica Morff I agree with Kim that if the lease does not specifically state a longer notice period then only need to give a 30-day notice, however, it might be best in your case to give 60 days.

Here is why.  If you give 30 days then you only have 30 days to find new tenants and good responsible tenants usually look 6-8 weeks before they are leaving their current place.  The worst renters I have ever had all were acquired 4 weeks or less to the start of the lease.  This is the single biggest reason in my eye that you would give 60 days.

The second reason you would want to give 60 days is that you give them more notice and are less likely to anger them. You can then phrase it in the letter as such. I would recommend that you non-renew them with the reasoning that you want to do "refresh" the units and you need them vacant to do this. Then it will be non-personal. Your refresh could then just be a new paint job and any other minor fixture changes, new locks, whatever you deem will help you get better tenants. I would do this but market for new renters at the higher rate.
You can also execute this strategy one unit at a time, but give them notice now. Unit 1- 60 days, Unit 2- 90 days, Unit 3- 120 days.

I would probably do this by phone or in person and then follow up with a letter.  I would do this because leading with a letter is more likely to upset the tenant.  If you let them know first and then they get the letter to make it legal they will not get as bent out of shape.

Good Luck

G. Brian Davis · Answer

Hi @Don Spafford, congratulations on the first rental!

Lease agreements survive ownership transfers, so you can't raise the rents until each lease comes up for renewal.

Keep in mind there's a mandatory notice period that varies by state, for raising the rent or non-renewing a lease. You have to send written notice, but I also recommend calling the renters and discussing it with them.

One thing we recommend to our viewers and students is to raise the rent incrementally every year, to set expectations and prevent the rent from dipping too far below market levels. It also sets the stage for you to offer longer-term lease renewals, that lock in the current rent increase so they can avoid next year's rent hike.

Congrats again on the purchase!

Brian

Account Closed · Answer

In CA, if you raise the rents more than 10% you have to give them 60 days notice. So, see what the rules are.

I learned not to try and befriend tenants.  i'd just give them written notice that there is a new owner and where to send their rent payment to going forward.

You can't control whether or not tenants will trash a place.

That said, one option might be that you put into the rent increase notice that anyone who wants to move instead of paying the increased rent will be given their full deposits back on move-out day, if they leave the place clean and undamaged.  Something like that.

Andrew Tortora · Answer

@Monica Morff 1: tenants are protected in MN by current lease 2: Cash for keys, give them 1 month to be completely moved out and you will give them prorated or all their rent back.  Just did this in my triplex gave a gal 75% rent back to move. Hard to say no when someone gives you money+ security deposit back.

Fabio Salas · Answer

Great advice from everyone.  I learn so much from posts like these.

Don Spafford · Answer

Jumping into this forum, I have a similar question as @Monica Morff. I am in process of purchasing my first rental, a 4 plex in Idaho and the current tenants have leases (6 month terms) and I plan to raise the rents incrementally, to not scare them off. $25 now then $25 again 6 mo to 1 yr later. Is it proper to honor the current lease and then before it expires include the new increase with a renewal, or being the new owner, do make a new lease with the slight increase now with the term ending when the current leases end or something?

David S. · Answer

The law in MN is one rental period, plus a day. So on a month to month, if you want to raise their rents ASAP, you can give notice on April 30th, and that lets you raise them June 1st.

Gail K. · Answer

Tim has the right idea.  The reasoning to "refresh" the units is non-personal enough that it is less likely to cause anger (and thus increased risk of damages).  A 60 day notice should be enough time for these tenants to find other rental options.

You could, if you wish, include that if they wish to remain in the rental unit the rent will increase to what you have listed after that time period.   Your choice to follow this route may depend on how much you know about their income status; i.e., are these tenants able to meet these rent increases?  If not, then the goal should be to terminate their leases and start from scratch with new tenants.

Gail

Kim Meredith Hampton · Answer

@Monica Morff First and foremost, download a copy of the landlord tenant laws in Minnesota, this will help answer a lot of your questions about notices etc...

Normally, tenants on MTM only require a thirty days notice of non renewal or increase in rent. Certainly giving your contact information via email mail and in person is probably good to do in a transition such as yours. I would also ask for a tenant ledger for rental payments on each tenant, and make sure that you get security deposits included in your closing statement

How to Handle Existing Renters After Purchase

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