Steps To Raise Rent On Newly Acquired Tenants
When you acquire a building with a sole purpose of letting it out on rent so you can earn a regular return, you tend to make certain adjustments. New owners prefer to keep the inherited tenants due to the following reasons:
- Inherited tenets already pay regularly and you don’t have to go through the hustle of going to collect every month.
- Turnovers have costs associated such as paint, plumbing, fixtures and then marketing.
- In order to get new tenants, you have to give a lot of time to all those interested to get the space and then decide the best option.
- New tenants have risk associated with them i.e. they might not pay on time while for existing tenants you would have the history of payment to compare with.
- There are a lot of legal requirement to be fulfilled with new tenancy.
There are some disadvantages of keeping the inherited tenants as well , these include:
- Some inherited tenets pay far below the market rental
- As you didn’t select the inherited tenants therefore you didn’t have the chance to screen them and they might not be people you want to keep in your building.
In case you want to keep the current tenants here are a few ways you can maximize your return of investment:
Conduct screening of tenants
Meet each tenant individually and analyse them as if they were new tenants and make your decision whether you want to continue with them or not. You can also get a review from the previous owner about the tenants. Don’t forget to as the following questions:
- Do they pay on time?
- Do they maintain cleanliness?
- Have any of the tenant’s violated lease agreement?
- Has the previous owner maintained any record of screening of the tenant’s?
- Has the previous owner maintained the copy of the original rent application?
Once you have got the answers to all these questions you can decide which tenant’s you would like to visit personally. You can give them notice of the visit to avoid any misunderstanding.
You must look in to the terms of lease and must make sure to do not continue any tenants who does not fall in the “good tenant category” after your detailed analysis.
Decide how much rent you can raise
You must consider the current market rate and the rent is not increased more than 5% at a time to avoid loss of good tenants. Even if the market rate is way higher then what you are getting make sure you increase the rent gradually over a period of years if you must, this will ensure that the tenants don’t just leave you right away.
Discussing the rental increase with the tenant’s face to face is a good idea, you should ensure that the raised rent is something they can afford on their current income if you want to keep them as tenants. You should share with them that what they are paying is way below the market rate and as you have just bought the space and have to pay the higher mortgage but as you value good, clean people and want to maintain a good long lasting lease agreement therefore you are going to increase the rent gradually on a set rate so that its not to much a drastic change for them to manage.
The key to success is to maintain a good relationship with all the tenants’. You should know about who they are and what they do and keep on meeting them on regular intervals and greet them in a nice way so that they also value you as the owner of the space they live in.
Serve written notice
Always ensure whatever changes you have made are shared in legal written form to avoid litigation
Update the lease agreement
Make sure you get new agreements signed from all residents in time to ensure there are no problems in the future.