Raising Rents as New Owner

[Christopher Drane]

Hi All! I just purchased a 4-plex. 3 of the units are leased month to month and have long term tenants (13 years, 4 years, and just over 2 years) The 4th is going to be owner-occupied. The rents are currently well below market average by 25-30%. I’m looking for recommendations on raising rents as the new owner. I’ve thought of just ripping the band-aid off so to speak, or giving them an option of a 12-month lease at one rate, or another (higher) rate staying month to month.

Also the previous owner did not collect security deposits on the 2 oldest leases. What are your thoughts on adding security deposits to either lease now considering that the tenants have been there for quite some time? I'm assuming since the "original" lease expires every month that any new lease can comes with its own terms; correct?

[Nathan Gesner]

In my opinion, ripping the bandaid off is the best option. Incremental increases over time are more difficult to manage and more likely to have problems. The tenant will resent you. And you'll eventually get to the point they can't afford it and it will cause problems.

I prefer to give 60 days notice and make them leave. Spruce the place up and put in tenants that can afford market rate. If your current tenants want to stay and claim they can afford the new rate, run a screening to verify before accepting them!