Letting tenant move from one property to another. Both are mine.

[Matthew Gray]

Hello all, this is my first post on this forum. I'm new to rental properties. I acquired my first two in 2019 using the BRRRR method. the first property I purchased in Feb. 2019, completed rehab in June 2019 and rented right after. Cashed out 15K when I refi'd in Aug 2019. I just closed on another BRRRR in the same town. I'll start rehab very soon. This home will be very nice when it's completed. I'm putting a 30K rehab into it and will still cash out about 20K when I refi (super excited).

The town I invest in is very small and world travels. I told one person that I have another house that should be available to rent in April 2019. One day later, the tenant in property #1 tells me he wants to move into property #2 as soon as its completed. I can see why he does because Property #2 will be nicer, bigger, and more bedrooms that property #1.

Currently the lease on property #1 is from 6/1/2019-5/31/2020. I collected one month rent as deposit. He is a great tenant and taking very good care of the property. He has planted flowers in the flower beds, keeps the property mowed and in very clean condition.

My question is, should I let him switch properties? And if I do, should I let him before the lease is up?

Property #1 is less expensive in terms of monthly rent but it has an older HVAC system and little insulation, so the utility bills are high. The house is also old. I fixed it up really nice but it was built in 1890 so it has some quirks. It’s a 3/2 with a two-car garage, fenced backyard, and storage building. It rents for $950.00/month.

Property #2 is a 1950’s model so much newer. It will be renovated beautifully and be a 4/2 with a one-car garage once completed and has a much newer hvac system and utilities bills will be much less expensive. I plan on asking $1150.00/ month.

What should I do? Also this is a town of about 1100 people in central Texas so I try to be as reasonable as possible to avoid an upset customer hurting my business.

[Matt R.]

I haven't had this situation before, but I'd be inclined to say yes, as long as you do the following:

Make sure his income can cover the increased rent.  It's up to you whether to re-use the documentation he supplied when renting the first property, or have him provide updated documentation.  You should at least verify that he's still employed.

Ask for a higher security deposit on the second property.  It's up to you whether that means 1) you collect the full security deposit for #2 from him before he moves into #2, and then refund him back his deposit on #1 less repairs once he moves out of #1, or 2) you just charge him the difference in deposits before he moves into #2, and then charge him for any repairs once he moves out of #1.  The first way is more secure for you, but sometimes tenants have trouble with coming up with the deposit on the new place if they haven't got the deposit from the old place back yet.  The second way is more risky for you, but it may improve cash flow for the tenant.

Be up-front with him about the progress of the rehab on #2.  You don't have to tell him every week, but let him know if the April 2019 date is going to change substantially.