Raising rent on existing tenants when buying a new property

[Niko Crowley]

Happy NY!

I recently purchased my second two-family investment property.  The top unit is being rented to long time tenants (TAW) for $1250 which is well below market value for the area.  I had a conversation with the tenants and they said they would not be able to swing a $200 rental increase and would have to look elsewhere.  I agreed to increase their rent in increments of $50/month over 4 months to help them, but they still said they would not be able to stay there paying $1450/month.  The previous owner said they are very good tenants.  My question is am I getting too greedy or am I making the right decision to maximize my cash flow? Option A would be to find some common ground say $1350/month and lock them into a 1 year lease.  Option B I would have to make some repairs to the unit once they moved out i,e rugs, paint, miscellaneous repairs but I am confident I can get $1450-1500 for rent.  What would you advise? 

Thanks,

Niko

[Jason D.]

Look at it this way....You are risking a good tenant for possibly $100 per month. If they leave you are looking at 1 month vacancy minimum, plus renovation costs. It will take you possibly 2 years or more to break even from that decision, so you have to ask yourself, is it worth the cost? Personally, I would raise the rent $50 per year, with the hopes that they continue to stay long term and their income allows them to afford smaller yearly increases.