New Property_Fully Rented_No Leases_Next Steps?

Question

Hello!We are looking at purchasing a rental, 6 unit, all fully rented. The problem is we have always bought vacant properties and picked our tenants; so this is a new process for us. Each unit is significantly under market value. We could go in and, with no justification, raise rent approximately $75 per unit. None of the tenants have leases. What should be our next steps? I was thinking of putting together our standard lease agreements and give them about two months to sign or vacate...? I obviously wouldn't increase rent to the fullest extent because that would be quite a shock, but I would gradually increase to get us to where we need to be.Does this sound reasonable? Giving the existing tenants two months to determine what they want to do? Is this even a good strategy?Thanks for any advice you can give me!Stephanie

John T. · Answer

@Stephanie Donahue Immediately give notice to Tenant by personal delivery stating that Landlord desires to enter into a written lease with Tenant on or before May 1, 2019. If Tenant fails or refuses to enter into a written lease on or before May 1, 2019, Tenant’s right to occupy the property shall terminate on or before June 30, 2019. Attach a full and complete Lease to the Notice.Landlord should sign and date the notice and keep a copy of the notice. If Tenant agrees, then Tenant can sign the new Lease on or before May 1, 2019. The following is a sample notice that should be personally delivered to Tenant on or before April 1, 2019:NOTICELandlord is the owner of the property located at _____ (the "Property").Tenant is presently occupies the Property without a written lease.Landlord has tendered a written lease, dated effective May 1, 2019, to Tenant covering the Property (the "Lease").If Tenant does not sign and return the Lease to Landlord on or before May 1, 2019, Landlord terminates Tenant's right to occupy the Property effective June 30, 2019 and Tenant must vacate the Property by June 30, 2019.DISCLAIMER: This post is for information purposes only. You should seek legal advice from an attorney licensed to practice law in the jurisdiction where your property is located.

Theresa Harris · Answer

In addition to what others mentioned, ask the tenants before you close what their rents are and the deposits. You need to get the deposit money back from the seller and this ensures that the info the seller is giving you is correct.Once the property is yours, let the tenants know that you will be coming by to inspect the properties, talk to them and ask if there are any repairs that might be needed (don't promise them, but ask) and sign a new lease. Use the list of repairs which will likely include some improvements to pick and chose what, if any improvements, you want to do and then when their lease is up for renewal AND those that will increase the value of the property to justify the increase in rent. Don't do any updates until they sign the renewal.

Sam Shueh · Answer

I will insist on the contract that the deposit goes to the buyers and you will accept the same terms but stating they need a month to month lease to vacate with a 60 days notice to you (if stayed=>1 year) and 30 days(<1 year).As for future terms you can hint that you like 1 year lease and will consider something reasonable. The days quotes are local so in your area/state it can be different. You do not want all tenants to vacate same time. I will also check if there are rent control in the area.

Anthony Wick · Answer

What are current rents? $75 increase not that big of a deal at $1,000 or higher rent. I am always an advocate of increasing to market rents as soon as possible. And obviously a written lease is a must.

Stephanie Donahue · Answer

Theresa Harris- thanks for the advice... and the great piece about not doing any updates until they sign the renewal!!

Stephanie Donahue · Answer

John T- thank you so much for the advice. That was all really helpful!

Thomas S. · Answer

First thing you do is get your esstopal letters signed. Your tenants are on verbal M2M leases and your state landlord tenant regulations determine your rights in non renewing, new leases, rent increases etc. You appear to be conflicted in how you wish to operate your business. Sounds like you do not have a strong business practice and are emotionally conflicted. Not very professional approach. Good luck operating a successful business that way. You state you normally purchase vacant and prefer to choose your own tenants then state you want to give them 2 months but do not want to raise rents to market due to the shock. You need to get your business operations straightened out. Is it your desire to allow your tenants to operate your business to please them or are you going to be in control. If tenants are below market raise it to full market, if you want to choose your own tenants give them all notice to non renew, if you want them to choose let them choose.A good strategy is to decide how you want to move forward with the operation of your business and do it. I would offer my lease (M2M) at full market rent based on your state guidelines and they decide if they sign or go. If you wish to be chartable donate money to your favorite charity from the profits of your business. Your tenants should not be your chosen charity.