Acquiring tenants and them meeting "Your" qualifications

[Brett Hearn]

Hey everyone, I have a general question for you master landlords out there.  I am about to buy a triplex and the situation is as follows:

1st tenant month-to-month

2nd tenant 3 months left on lease

3rd tenant 6 months

The rent is grossly under market, so I planned to purchase the property and re-screen the first tenant who is month-to-month.  If they do not meet my standards I would ask her to leave as I will be raising the rent $150.  I do plan on doing some reno on the unit so there is some justification for raising the rent.  If they do meet the qualifications and they agree to $150 rent hike then they can stay, no problem.

I then plan to do the same thing to the 2nd tenant when their lease comes up, and the 3rd as well.  I am doing this in CA.  Am I able to use this strategy?  Or is there a better way to go about getting the raised rents and getting the tenants in the units that "I" have screened.  Again if they agree to the rent increase, and they qualify my screening process (Standard screening: 2 times the rent 650 credit score, deposit 1st months rent plus deposit etc.) they can stay, no problem.  Yet, I doubt they will want to pay so that is fine with me.  Anyway, any advice or different strategies are welcomed.  thanks

[Jenny Bayless]

@Brett Hearn 

Not knowing the specifics for CA state law, you should be able to do your proposed plan so long as you provide each tenant with proper notice of non-renewal if that is what you end up doing.  Then you would be essentially creating a brand new lease, with your terms (with whomever you choose).

Personally, I don't re-screen inherited tenants.  I figure that if I can review the current rent rolls and they are paying timely, then the credit score does not matter to me (even though it does matter to me upon selection of a brand new tenant).  By inheriting a tenant, you get a sneak peek as to how clean they are since you presumably did several walk throughs during the purchase period (being able to see pets, etc), and if they pay in full, on time (viewed during your due diligence period).

Similar to your situation, we have bought 3 SFHs with existing tenants, and within each of which, the rents were significantly under market value.  For the first one, the house was in great condition, but they were month to month.  We gave them notice to vacate in order to start the clock, but also told them if they signed a lease before the notice to vacate period was up, then the lease prevailed.  After shopping around, they decided that staying was the best option (we raised the rent $200/mo, and it is STILL under market value by at least $50-100!).  For the other two cases, the rents were both under market value and houses were in pretty bad shape.  For the latter two, we did raise the rent, but we also put several thousand dollars in rehab in each house and provided superior customer service.  Those tenants could instantly see the value created, and have not complained about the rent increase at all.

Note that in my market, I could get another tenant in any of my properties in a matter of 1-2 weeks, so if vacancy rates are high in your area, that should play into your calculations.