Raising Rent on Long-Term Inherited Tenant?

[Jesse Smith]

I am considering offering on a duplex on the same block as one I currently own. The two properties are nearly identical... 2/1 on one side and 1/1 on the other.

My units rent for $1,100 and $900, respectively.  The rents at the one I'm considering are currently $700 and $550, respectively.  The owners are long-time, absentee landlords, who inherited the property.

I learned this, because I met the tenants recently.  They stopped by while I was rehabbing my duplex last month.  Both are very sweet ladies who have lived there for 8+ years each.  They were shocked at the rent I planned to charge and volunteered what they paid.  They proudly stated that their rent had never been raised.  They even gave me the owner's cell phone number when I asked who they had used to install the siding.

So, now I am considering calling the owner to make an offer.  If I do, I know what market rent is, and I would want to get to that amount.  This would represent a substantial increase in rent for these ladies, and I feel a bit bad about it.  

What would you do in this scenario?  How would you approach raising the rent to market rates?

[James Wise]

Originally posted by @Jesse Smith:

I am considering offering on a duplex on the same block as one I currently own. The two properties are nearly identical... 2/1 on one side and 1/1 on the other.

My units rent for $1,100 and $900, respectively.  The rents at the one I'm considering are currently $700 and $550, respectively.  The owners are long-time, absentee landlords, who inherited the property.

I learned this, because I met the tenants recently.  They stopped by while I was rehabbing my duplex last month.  Both are very sweet ladies who have lived there for 8+ years each.  They were shocked at the rent I planned to charge and volunteered what they paid.  They proudly stated that their rent had never been raised.  They even gave me the owner's cell phone number when I asked who they had used to install the siding.

So, now I am considering calling the owner to make an offer.  If I do, I know what market rent is, and I would want to get to that amount.  This would represent a substantial increase in rent for these ladies, and I feel a bit bad about it.  

What would you do in this scenario?  How would you approach raising the rent to market rates?

 1st thing you need to do is remove emotion from the equation. The tenant's feelings are irrelevant to your bottom line. That said, you do need to be cautious on the way you raise the rent. Not because it's mean or makes you feel bad but because that will lead to artificial turnover. Worth thing new investors do is buy small rentals like this with a target market rent in mind that makes their spreadsheets look nice & jack all tenants up to that so they can hit their numbers. Never a good move. Biggest cost we have in this business is turnover. So I would not be in a hurry to create more turnover.

I advice folks to keep rent same on the 1st year. 1st year you're just getting acclimated to them & getting them on your leases etc. Then on the 2nd year I start to make increases. This way if they balk at them and become an issue evicting them will be simple as they are on your lease. You never wanna go into court trying to evict a tenant without a lease. Puts you at a major disadvantage in court. Plus with the 1 year of experience you know which tenant is good and which one may be a pain. The one that is a pain should get the bigger increase as it's not as big of a loss when they move out. Always nice to remove headaches.