Rent Increase & Security Deposit on Inherited Tenants

[Kelli Gaul]

Hi all! I wanted to get some opinions on our situation to see what others would do.

We acquired a duplex in Queens, NYC in the beginning of April with inherited tenants in one unit. The other unit is vacant and we'll be renovating before getting in new tenants.

The current tenants are paying $1,200/month and market rents in the area are around $2,000/month. There's no security deposit. We are keeping the tenants in place, but will increase the rent over time to get closer to market rent. They're currently on a verbal month-to-month lease and we'll be getting them on a 1-year written lease.

My general question is, how would you go about increasing the rent? Specifically:

How much would you increase the rent initially & per year after that? 

How much notice would you give before the rent increase? (I did not see a legally required time frame for a new lease or rent increase for unregulated apartments, please correct me if I'm wrong.)

Would you require a security deposit with the new lease?

[Andrew B.]

I think the best way to handle the situation is to get a written, month to month lease signed , with rent increased to $1300. I would leave this there while you rehab the unit. Then, get a renter in there at market rent. As soon as you have someone at market in the other unit, raise the inherited tenants rent to $1900. If they stay, you get the bottom end of market with no rehab costs. If they go, you rehab and put someone in at market rent. Its a win-win for you.

The only reason I do not recommend going directly to market right away, is so you can have some money coming in while you rehab unit 2. If you have ample cash reserves to rehab both units at once, just go right to $1900.

I agree with @Nathan Gesner. You should not raise rent incrementally. All you are doing is subsidizing their rent and you're actually doing them a disservice by letting them think they can stay in a unit for less than the market rent.

Finally, DO NOT offer the inherited tenants a year lease, unless you put them through all the proper screening steps.

Since this is NYC, please make sure you do not have any rent control or similar regulations. As always, follow your local laws.