New Landlord - How to Handle Rent Increases

[Sam Levine]

I am about to close on my first fourplex this Friday through an owner-occupied FHA loan. The property fits my investment requirements at market rental rates. Unfortunately, the previous owner has kept the rents for these units at $525 each when the market clearly allows for $700. All the leases expire in the Spring of 2018. At that time, I am planning on having them reapply for leases with the increased rent. From what I can tell on LinkedIn, all 3 tenants are white collared professionals, and during our limited interaction, have been fairly communicative. My question is two-fold:

1. While living there, what would you recommend saying if they ask about rent increases upon the lease renewal?

2. How should I approach the situation when telling them about the increased rent?

Any first hand experience is much appreciated.

[Ronda R.]

Are you planning to write an introductory letter to let them know the ownership has transferred? Maybe you could ease them into it by giving them a heads up in that letter. Introduce yourself as the new owner, say you want to assure them that you are going to honor their leases at the current rate but that the cost of financing and maintaining the building dictates rents be raised to market rates at the end of their leases. You hope they decide to stay on but if not you want to give them plenty of time to make other arrangements to make it as easy as possible on them (long lead time). Maybe even suggest that if anyone needs out of their lease sooner it may be a possibility and to discuss it with you. If anyone does approach you to get out of their lease because they need to jump on another place you could start getting market rate before next spring and your departures would be more staggered.

Just a thought.

Oh and CONGRATULATIONS!!!