Long Term leases & Discounting monthly rent for the tenant?

Question

I was wondering if you guys and gals could give me some guidance.

I have GREAT renters in a property that is cash flowing +$400.  I honestly couldn't have asked for better tenants.  Their rent is on time, and they were proactive in bringing to my attention issues with the dishwasher and the gutters.  They could've easily let my gutters continue to clog up, or my dishwasher to slowly leak.

Well they emailed me a couple months back, and gave me the impression they might be thinking about buying a place of their own.  They also said though that they LOVE the house, and hate the idea of moving.  I think they were actually looking for me to sell them the property honestly.  (that's not happening)

I have thought about dropping their rent $50 a month if they signed a 2 year lease.  From talking to them, that would keep them in the unit.  The problem with this (outside of the $600/year loss),is that they are in the military.  So they could be shipped out at anytime.  I have their financials, and if one of them gets deployed, the other could EASILY cover the rent.  The issue isn't so much deployment, it's relocation.  I would have no choice, but to let them break their lease.

I'm really not concerned with the $50/month, because I know what it takes to find good qualified tenants.

Would you guys offer them a rent break, for a longer lease?  Knowing that they're in the military and could break the lease if they're ordered for re-location.

Thomas S. · Answer

Your "good" tenants are manipulating you.

Avoid long term leases as a lease has no bearing on how long a tenant will stay. A lease simply takes control of the property away from the owner and assigns it to the tenant. With good tenants you should never need anything more than a M2M lease.

You should let these tenants go (asap) for all the reasons you have already noted and look for new "good" tenants. Keep these tenants on a M2M till they leave. Good tenants are in the vast majority in the rental world and should be easy to find. For better security you should try to find non military tenants in the future.

Sam LLoyd · Answer

Thomas S.  Very true on all points, with one thing to keep in mind.  People are less likely to be looking for a new house if they are in the middle of a lease.... yes, in my experience, they will move whenever they please regardless of the lease, but I've also seen that they are less likely to be shopping around if they have just signed a year lease.

Of course, if the tenants are willing to pay more in in order to secure control for a longer period of time, he could look into that.

Marci Stein · Answer

I would treat them like any other good tenants.

Don't offer them special treatment for paying rent on time.

there is never just 1 good tenant--

like you found them you will find another if they leave.

Joel C. · Answer

@Andrew P., I'd recommend keeping your rent number where it's at if you know that's a fair price for the house you have.  If anything, it seems like a time for rent numbers to be climbing up, not slipping down, and from what I've seen, you're not going to be hurting for renters in this area.  The 2 year lease at a reduced price makes sense to lock in certain renters, but you're right that it's mostly pointless with a military renter.  If they get orders in 6 months, you accepted lower rent for nothing and have to start over, and by law they won't be paying you anything extra for breaking that lease early.  Best of luck - let us know what you decide to do!

Jeff Rabinowitz · Answer

I have only signed 2 year leases a few times. The tenant wanted the longer leases for their security. I explained that it is typical for the rent to rise in the second year (~5%) and instead of having the lease step up in the second year both tenants agreed to split that increase and start the lease at the higher rate. Since my rent in the first year was higher than it would have been without the extended lease I was happy with this. I usually sign one year leases at inception and let them convert to month to month after the end of the first year. That allows me to raise rents when appropriate and quickly remove tenants that have become problematic. It also allows my tenants the freedom to move quickly if they become unhappy--unhappy tenants are too much work. My tenants rarely leave before 2 years and many have exceeded 7 year stays with this arrangement.

Colleen F. · Answer

If you are not a fan of  M2M make sure you  specify termination terms in the lease. Even if it is M2M there is usually a notice requirement. The tenants will still forget but it is there in writing. A two year lease will NOT keep them in the house and there are other good tenants out there.  Also good tenants can go bad.

Thomas S. · Answer

If a tenant is in the process of looking for a house to buy and their landlord pushes a lease in their face with a sign or move option they will sign regardless. All it means is that when they do buy a house 2-3 months down the road the landlord will get less notice.

M2M are by far the best lease options for landlords and for good tenants. They work best for both landlord and tenant. M2M in the case of bad tenants only favors the landlord.

Colleen F. · Answer

People will move when the want to move regardless of the lease. A lease may have some influence on some people. Mentally it sets them up for a particular term and locks in  their rental amount but if they find  a house they want to buy they won't even remember what they signed....I would not give a break on a longer term lease.  What they actually might have been feeling you out about aside from if you want to sell is if they could go month to month.  In our area  I don't like to do that because a large number of leases end in may so I get better tenants then. Regionally you may see something different.

Andrew P. · Answer

Thanks for your help

Andrew P. · Answer

Also, do any of you have a Long Term Lease on file?

Long Term leases & Discounting monthly rent for the tenant?

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