Negotiating with tenants who want 6 month renewal only

Investor · Los Angeles, CA · Member since 2019 · 132 posts · 91 votes

Got a tenant with a lease ending in March 2024. They are great tenants. We plan on moving into the property as a primary in early 2025, so it would be perfect if they renew for another 12 months. However, they stated they are considering other options and asked for a 6-month extension. The last thing I want is a turnover, and it will put our move-in plans in a tricky spot. I am considering trying to persuade them to 12-months with same rental rate vs a 6-months with higher rate. Or just do a hard stance on 12-months or have them move out?

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Ned J.Pro Member

Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes

Just go the MTM route. If people want/need to leave, they will.... and the lease may state they will owe you the $$ for the remaining lease, but unless you got a big deposit that will cover that PLUS and damage/clean up etc, you wont see a dime of the owed $$

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2y
@Jimmy Chao usually our leases have a clause in them that someone can go "month-to-month" at a higher rate. Meaning, they have already signed that version of the lease. Now, once the lease is officially ended it does give us the right to terminate as well...but in each of these cases either party has to give 60 days notice (also explained in the lease). Now, if the lease ends now, during the holidays, that's a pretty terrible time to market a property. It would be much better marketed in most areas after March. So, if you have a hard stance on the 12 month thing...and then you have to wait 2 months for someone to move in...well, that will interfere with your plans anyway! I would try to find a way to make the current tenant work (Bird in hand type of thing).
Hope all of that makes sense.
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Jimmy Chao
OP
Investor · Los Angeles, CA · Member since 2019 · 132 posts · 91 votes
2y
Thanks @Andrew Postell. Lease actually ends in March 2024, which is start of busy season. But 6-month extension would take us into Fall, which isn't too bad, but definitely slower here.
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Wyatt WolffPro Member
Lender · Charlotte, NC · Member since 2019 · 467 posts · 279 votes
2y
@Lorien Wolff
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Lorien Wolff
Property Manager · Charlotte, NC · Member since 2022 · 138 posts · 87 votes
2y
Hi Jimmy,
I have offered hundreds of MTM and 3 to 18 month renewals and 9/10 tenants renew for the longer term, even if they say they want a shorter term. I see this three ways;
1) If they truly only want a 6 month term, ending their lease in Sept 2024, I would increase the 6 month offer to ensure that the turnover / potential vacancy loss is accounted for.
2) You could offer the 12 month renewal (at the same rate or with a small increase) and lower the lease break clause.
3) You allow them to break lease and move out now (or soon) you could then market this with a 15-month lease term only, if you're not wanting to move into the home until Q1 2025.
Feel free to connect & good luck!
Artfully,
Lorien
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Henry T.
Member since 2022 · 1k+ posts · 1k+ votes
2y
If they're great tenants and you like them, then ask them what it would take to get them to stay for 12 instead of 6. Give them a free month, whatever.
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Jimmy Chao
OP
Investor · Los Angeles, CA · Member since 2019 · 132 posts · 91 votes
2y
@Lorien Wolff Love your advice, much appreciated!
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2y
12 month lease is market rate (probably 5-10% more than last year if you were charging market last year.) everything else is MTM at market plus $200 or 20% whichever is less. Your local laws will dictate how much notice must be given to change rent and to cancel MTM agreement.
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Mohammed Rahman
Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
2y
Hey @Jimmy Chao - if they're great tenants, I'm sure having a conversation with them to understand what their plans are is warranted. It could be that they're in the process of buying a home, or perhaps moving to another area for a job or etc.
In this scenario though, you could take a hard stance and say all leases are annual or month-to-month, but the monthly lease will come with a premium.
Alternatively, since they've been good tenants, you could just accommodate a 6 month lease with an option to renew however the 6-month lease term will be higher than 12-month payment, but lower than month-to-month lease amount.
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Rosalind Pistilli
Investor · CO · Member since 2023 · 7 posts · 14 votes
2y
It sounds like you would end up in a situation where they would be trying to break the lease in 6 months. I would just do the 6 month renewal to keep them in there since you plan to move in at the end anyway...you'll likely want some time to refresh/rehab before you move back in anyway. I would rather keep a great tenant for 6 mos and either do a short term rental afterward than put someone in for a year that trashes the place and puts you in a bind.
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Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
2y
Just go the MTM route. If people want/need to leave, they will.... and the lease may state they will owe you the $$ for the remaining lease, but unless you got a big deposit that will cover that PLUS and damage/clean up etc, you wont see a dime of the owed $$
4 Reply
Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
2y
@Jimmy Chao 6 month at a higher rate. Do a nice term rental for the rest if you can.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Jimmy Chao:

I give tenants three options: move out, renew for 12 months at $XXXX, or renew on a month-to-month basis at $XXXX + 25% increase.
Do what works for your situation, not the tenant. You don't want a turnover? If the tenant leaves after six months, you'll have a turnover. In fact, you may have a long vacancy because it can be hard to find a tenant that wants to rent for only six months.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
2y
If they only want to stay for 6 months, then let them, but charge a slightly higher rate. there is nothing stopping them from signing a 1 year lease and moving after 6 months, so at least they are being honest with you.
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Samuel CoronadoPro Member
Investor · Huntsville, AL · Member since 2016 · 348 posts · 182 votes
2y
I prefer month to month. Way easier to evict. lol
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Daniel Miller
Rental Property Investor · Akron, OH · Member since 2023 · 15 posts · 6 votes
2y
Have you thought about letting them do 6 month lease (with a small increase), with MTM option (with another small increase), but start advertising the property now as available at the end of their 6 months? From there, offer the property at market rate +%, with a discount on rent if the new tenant agrees to a long-term lease of 18+ months.
I'm of the thought that vacancy trumps bad tenants, so if you have good tenants, keep them as long as you can, even if it means they're a bit below market rents. The only thing better than good tenants, is good long-term tenants. I'll take stability over turnover.
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