New rental property, existing tenant paying below market rent

[Ralph Roberts]

Hello I am in the process of closing on a property with an existing tenant.  The tenant has been there 3 yrs, month to month for the last year and is paying a bit below market.  The rent that is being paid is $1100 and market suggests $1600.  A long term tenant is great, but I would like to increase rents a little bit but would like some advice on how to proceed.

Thanks

[Abel Curiel]

Originally posted by @Ralph Roberts:

Hello I am in the process of closing on a property with an existing tenant.  The tenant has been there 3 yrs, month to month for the last year and is paying a bit below market.  The rent that is being paid is $1100 and market suggests $1600.  A long term tenant is great, but I would like to increase rents a little bit but would like some advice on how to proceed.

Thanks

If possible, have a conversation with them before closing to introduce yourself. Inform/remind them they are paying about 30% below market rent but you'd like them to stay.

Upon taking ownership, offer 2 leases. A year lease with significantly higher rents and a 2 year lease with slightly lower rent than the 1 year lease. I'd consult a local Realtor to determine what the best pricing strategy would be.

[Ralph Roberts]

Hello and thanks for the advice Abel.  I will definitely seek out a local realtor.

Ralph

[Avery Carl]

We deal with this a lot in our deals. I personally hate inherited tenants.They are almost always paying below market, and it always seems that the previous landlord allowed a lot of late payments and other bad behavior from the tenants. I recommend exactly what @Abel Curiel suggested. Have a conversation up front and let them know they are paying under market, and offer 2 options. You're lucky here in that it's a month to month and not an annual lease with 6 months left on it. You have a lot more flexibility. In the past we have offered cash or a discount on their last month's rent in order to get them out asap. That could be an option as well.