Raising the Rent on a new Property - Posted by Dave

Posted by Sailor on July 28, 2005 at 20:09:55:

The 1st thing to do now is to get copies of the rental agreements BEFORE closing escrow. There may be terms (like no rent increases for years) that affect not only your plans, but the value of the property. You are entitled to these.
I think a key point in any increases is to make them in increments that, though annoying, are not worth considering a move. I would do increases face-to-face, but add a spoonful of sugar to the deal–e.g., “I know a rent increase is not the best news, but I heard you were a good tenant for the previous owner, so I’ll delay half the increase for 6 months. In fact, if we can switch to electronic checks for the rent I’ll give you new carpet [or whatever] in January.”

Good luck!


Raising the Rent on a new Property - Posted by Dave

Posted by Dave on July 28, 2005 at 18:58:00:

Closing on a new property soon and was planning on raising the rent 60 days after the close of escrow. This is a nice property with ocean views on a nice street of SFHs. The current tenants have been there for a number of years and I would like to keep them as tenants. The current property owner has not raised the rent on the lower unit for 8 years and the top unit is 20% below market rental value in my area. It would be hard for either tenant to find something better for the price I intend to charge for rent. I have never rented before and I don’t know what the current rental agreement is between the current tenants and property owner. I didn’t want to disturb the tenants until the deal closes.

-1st unit (1bd 1br) which needs some cosmetic work pays $800 currently. Comparable rents in the city are 900-1000 without ocean views. Want to raise to $1000/25%.

-2nd unit (1bd 1br 2 car garage) pays $1250. Comparable rents are $1500-1600. This unit has great ocean views and is really really nice. Want to raise to at least $1500/20%.

What is the best way to go about raising the rent without loosing these good tenants?

Would a more gradual rent hike be more palatable especially with the cosmetic improvements? 10% now and another 10% in 6 months?

The 2nd unit has a business professional as a tenant and the rent is low. Is a $250/20% increase too much at once? It is still a great price at $1500 IMO.

I thought someone mentioned on here that getting a California Real Estate Assoc Rental Agreement from a realtor and adding changes to it as needed was a good idea? Will I be pretty well protected with this kind of agreement?

As always thanks for the comments and opinions


Re: Raising the Rent on a new Property - Posted by Dave

Posted by Dave on July 29, 2005 at 20:47:56:

Great info thanks to you all. To answer a few questions: the property is in Ventura County and there is no rent control. The top unit was going to be vacated by the close of escrow according to the contract. I believe the current tenant wants to stay but I need to double check. In the meantime I will get a copy of the current lease agreement which is a great call thanks. I believe the notice of rent increase is 60 days. I will have to double check that too.

I did check the current rents according to the newspaper ads/signs/etc and the rental market in the same neighborhood. I will read up on the tenant estoppel letter too. Good advice Randy (SD).

If I raise the level of rent to what I want it would be more like even flow.

Maybe I can find some California property management books this weeekend.
Thanks again

Re: Raising the Rent on a new Property - Posted by Dave T

Posted by Dave T on July 29, 2005 at 16:26:54:

I am somewhat surprised that noone told you that you have to honor the existing leases. Dealmaker alluded to it, but you can not raise rents until the current leases expire.

When the current leases are up got renewal, your local landlord tenant laws may dictate the timetable for notification of a rent increase and (if rent controls apply) the percentage amount of the increase.

You need to see the current leases and you need to get familiar with your rights and obligations under your local landlord tenant laws.

Re: Raising the Rent on a new Property - Posted by Killer Joe

Posted by Killer Joe on July 29, 2005 at 15:08:58:


If you are in LA CO you will need to see if you are in a rent control situation with these tenants. If you are, you can forget about that increase, ain’t gonna happen.


Re: Raising the Rent on a new Property - Posted by Darren

Posted by Darren on July 29, 2005 at 15:06:11:

Raise the rent and raise it now. They almost expect you to as the new owner.

Re: Raising the Rent on a new Property - Posted by Frank Chin

Posted by Frank Chin on July 29, 2005 at 12:37:00:


Here’s a thought.

If market rents are what they are, you can consider charging them a niminal amount less, but first tell them that as the new owner, your mortgage, taxes are much higher, and you’ll have to bring the rents closer to market to survive. Then, keep the rent the same for 60 days, and give them a chance to relocate.

I’ve done this, and if rents are kept a bit below market, as little as $25.00/month, the tenants would look elsewhere, and conclude that they’re still getting a good deal. The benefit for you is that you’ll won’t have vacancies, paint, re-carpet, and repair expenses.

It may help if you’re also doing something to spruce up the place, so they feel the extra rent is worth it.

Frank Chin

Kiss your tenants goodbye… - Posted by Randy (SD)

Posted by Randy (SD) on July 29, 2005 at 09:26:35:

So you’re the new owner and the first thing you’re going to do is Jack the rent 20%! IMHO BAD MOVE. Since you have not closed on this property yet and you posted you have not seen what the current rental agreement is, that must be your first step. Do not worry about disturbing the tenants this is part of you’re due diligence and a must! Also you need to have each tenant sign a “tenant estoppel letter” if you don’t know I’m talking about a tenant estoppel letter spells out a clear understanding between you and your new tenants regarding the terms of any existing leases, security deposits, appliances owned by the property owner, when the rent is due etc… It is also an opportunity for you to meet your tenants, find out what they like or don’t like if they intend to stay or not… maybe they have already told the current owner they’re all moving out the first of September and you just bought the biggest white elephant on the block!

Buying the property is only part of this business, now you have to be a property manager and learn to deal with tenants and leases etc. etc. you need to take this next six months as a honeymoon period (if you want to keep the existing tenants otherwise expect 100% vacancy, which may not be bad you start over with new tenants) do you know what the average vacancy rate is for the area (DOM)? The present owner may have been forced to keep the rents artificially low to keep the units occupied, in these days of cheap money having good tenants with good credit and those high rental rates any one of them could get a mortgage tomorrow… look before you leap.

Re: Raising the Rent on a new Property - Posted by dealmaker

Posted by dealmaker on July 29, 2005 at 24:51:49:

Well, I think you need to see the documents (should have been part of your original offer) to make sure you can raise the rents (leases run with the property, not with the owner) before coming to a final decision. But assuming you can I DON’T THINK GRADUALISM WORKS.

In a face to face meeting, SHOW THEM what market rents are, tell them that 60 days hence I’ve got to raise rents, then do it. Telling them, an extra $150/month now and another $150/month in six months just doesn’t work, they’ll try to beat you out of the current increase and then move in six months anyway.

Just Do It.


Re: Raising the Rent on a new Property - Posted by Will

Posted by Will on July 28, 2005 at 20:42:02:

Does the property cash flow as it is currently rented?

Have you seen the current lease/rental agreement?

Have you researched your local landlord/tenant laws?

It’s tough to answer your questions without being more familiar with the market, but those are some places I would start.