All Forum Posts by: Billy Cha

@Billy Cha I'm on my third rental and I will tell you that I was in a similar boat on my first one. The one I just bought in November also had a tenant in place. In both cases the rental increase to market value would have been so enormous that I was worried it would tick them off, causing them to "seek revenge" on my property. In both cases I didn't evict, just simply told them I would not be renewing their lease because the house was due for renovation. This was also true and despite being a little disgruntled, the properties were unharmed. Now that's a VERY small sample size, and maybe the other way works in some situations, but i've found this to be pretty effective and conflict-free. 

In this COVID era, you need to tread carefully... Especially in Oregon. You have very little recourse due to no evictions for non-payment are being honored. One would recommend being a bit flexible with tenants who have been there for years since they are good payment tenants.  How below market are the rents? What new rules do you want to implement? 

My Wife and I had the same situation on our 4plex we bought back in October. The rents had been at 750 a month (on month to month leases) since 2013 and two of the tenants have been there since 2013 and one tenant since 2014. I had a plan to leave the leases the same cause we didn't want to come in as the bad guys and raise rents. When talking with a seasoned investor he told me that its a lot easier to come in first thing and raise rents when the property is changing hands. Tenants expect it and should understand since they haven't had an increase in years. So I went with his advice and was pretty nervous going to the tenants. Average comps in the area are around 960 a month so I went to them with a year lease at 900 per month. Now that was a huge jump of $150 per month but I was kind of hoping at least one tenant moved out so I could renovate one more of the units. But that didn't happen. I went in and told them about the rent increase but at the same time told them about the improvements I was going to make to the property. I asked them what they liked/disliked about living there and what they would like to see improved. With me showing them I cared about there opinions and getting them excited about improvements it went super smoothly and everyone signed a year lease with me. Not to mention if they looked around they saw they were still getting a better deal on rent than they could find elsewhere. We have a great relationship with all them now and we will see here in October if they all re-sign. I hope this helps. I am still a new investor and learning everyday. 

To add on to what these guys said already, one thing to take into account is the amount you are increasing the rents. For example the current rent is at $650 and market rents are $850 - and the tenant is a good tenant with never getting a call from them - look for middle comprise that doesn't make you more work with a potential bad tenant or even just a "needy" tenant that is constantly calling you for small stuff. But same can go is it worth it if current rent is $1,800 and market is $1,950, bumping that up the $150 shouldn't be that large of an impact on but this is all market dependent.

I would always renew tenants under MY lease terms because its what I know and what I am comfortable with - but I do make a point to keep my leases simple.  I have seen 10 page, Legal size paper leases and that does seem to scare a lot of people off because when they are that long its a land slide in favor of the landlord. Just as an example, my lease is legal size paper, front and back with 12pt font and narrow margins.

No one is going to want to pay more, but costs go up and that's just a reality.  Check if there are limits on how much you can increase the rent by in your area.  Then simply explain that costs have gone up and the rent is below market value.  You can bring along a few print outs of comparable places and their rent to show them if you want (or have them if you need them).  More than likely they are aware of what rents are in the area.

It is also a good opportunity to inspect the property and see if anything needs to be fixed. Check smoke alarms, gutters and change furnace filters. If you and your wife are handy, you could also offer to paint a room or two if they could use some freshening up.

You already have a lot of responses about the rent, so I won't repeat anything.  The other issue--changing the lease and rules--  could be handled by just telling the tenants that you use a standard lease agreement with all of your properties so you will be switching them over to that lease with the renewal.

I probably answer this question 4-5 times a week.

If they are well below market, they may not be willing or able to handle an increase and anything you try to change may result in an angry tenant that causes problems down the line. My recommendation - unless they are very good renters in every sense of the word - is to terminate their lease and start fresh. New rates, new tenants that are screened/approved by you, new lease with your standards, etc.  

@Billy Cha Congrats on acquiring your first rental!  

There is nothing wrong with making warranted rent increases if they are under market value. The tenant may be expecting the increase since the rents have not increased for four years. 

I think it all comes down to having open, honest communication with the tenant, and treating them as people. There are unfortunate circumstances where the landlord-tenant relationship is looked at as more of a hierarchy than a person-to-person relationship.

As you treat your tenant as a human and explain the reason for the rent increase and the need for a new lease, then they may be more receptive of it. They still may not like the increase or the new policies, but they may be more understanding of its need. If they don't like it, then they can move out and you can put in a tenant who is willing to pay the rent you want and willing to follow your policies.

Good luck!