How to Handle Long-Term Tenants Paying Below-Market Rent

 

You just bought an apartment building. Six of the eight units are occupied. Most tenants have been there 10 years or more. Rents are 25% below anything else available in the area. The units have deferred maintenance, smoke damage, pet damage, and haven’t been updated in years.

 

Legally, you can give them 20 days notice and start fresh. But that’s not actually the question you’re asking. The question is: how do you handle this the right way?

 

I’ve been on this side of an acquisition more times than I can count across 6,000+ transactions. Here’s exactly how I think through it.

 

 

Before you assume your tenants are dramatically underpaying, do the comparison honestly.

 

Yes, rents at other properties in your area may be 25% higher. But are those properties comparable to yours in their current condition? If competing units have updated kitchens, newer appliances, fresh paint, and renovated bathrooms, and yours have old laminate, rusted appliances, and years of deferred maintenance, you’re not comparing the same product.

 

A tenant in a beat-up unit paying $1,000 a month and a tenant in a renovated unit paying $1,250 a month might actually be paying similar rates for what they’re getting.

This matters because it shapes how you approach the rent conversation. If your units are genuinely comparable and they’re still 25% below market, that’s one conversation. If your units need $15,000 in work each to get to that level, the math is different.

 

Do the honest comparison before you do anything else.

 

 

Long-term tenants in below-market units know they’re getting a deal. Most of them know it very well.

That’s actually useful information. When you have the conversation about rent, you can acknowledge it directly. You’re not coming in as an adversary. You’re coming in as a new owner who’s being straight with them about the situation.

 

Something like: “Look, I can see that rents in this area are running $1,250 and you’re at $1,000. I’m not going to hit you with a 25% jump all at once. But I do need to get to a number that works for the property. Here’s what I’m thinking.”

 

That framing keeps the conversation from being adversarial. You’re not punishing them for being good tenants. You’re asking them to come closer to a number that reflects reality.

 

 

Once you’ve done the honest rent comparison, you’re looking at one of two situations.

 

 

If your units genuinely need renovation to justify market rents, I wouldn’t try to push to full market rate immediately. Instead, I’d have this conversation with existing tenants:

 

“I’m willing to bring your unit up. New kitchen, bathroom refresh, fresh paint, new carpet. You’re going to live in a construction zone for a couple of weeks. In exchange, I need you to come up to $1,100 a month and sign an annual lease.”

 

You’re not asking them to pay for a renovation they haven’t seen. You’re offering them a better unit in exchange for a rent adjustment and a lease commitment. That’s a fair trade most long-term tenants will take.

In my experience, roughly 70% of tenants in this situation will sign. About 30% won’t. They’d rather stay in the existing condition and avoid any disruption or increase. You can’t force that. But you now know who’s going to work with you and who isn’t.

 

 

If your units are genuinely similar to what’s renting at $1,250 or $1,400 nearby and your tenants are at $1,000, the conversation is more direct.

 

Offer them two options.

Most tenants who have been there 10 years don’t want to move. That’s why they’ve been there 10 years. A moderate increase with lease security is usually something they’ll accept. The month-to-month option at a higher rate creates an incentive to commit, which also helps you as the owner by reducing turnover risk and giving you predictable cash flow.

 

 

If you have vacant units alongside occupied ones, here’s the sequence that works:

This approach isn’t always possible. Some units have health or safety conditions that require vacancy before work can start. Use judgment there. But for cosmetic renovations like paint, flooring, cabinet updates, and appliances, in-place work is usually manageable.

 

 

I think it’s worth saying plainly: these tenants didn’t do anything wrong. They rented a unit at the price that was offered to them. They’ve been there for 10 years. They’re not your adversaries.

 

Giving them a reasonable amount of notice is the right thing to do, regardless of what the law requires. If you’re asking someone to move who’s been there a decade, give them as much runway as you can afford to give. 60 to 90 days is more respectful than 20. If you can work with them on a transition, do it.

 

That reputation matters. Tenants talk. Neighbors talk. In a lot of markets, a landlord who treats long-term tenants decently during a transition gets better applicants, better referrals, and fewer problems going forward.

 

You don’t have to choose between being a good businessperson and being a decent person. In rental real estate, they tend to point in the same direction.

 

 

If you handle this conversation the right way, here’s roughly what you should expect:

Plan for some turnover. It’s going to happen. Budget for it, staff for it, and have a leasing plan ready so vacant units don’t sit.

 

The goal isn’t to keep every tenant at any cost. It’s to keep the good ones at a fair number and upgrade the ones who leave with tenants who start at market rate from day one.