Pros/Cons of Lease Renewal in November

[Mark S.]

My first turnkey rental is coming up on one year in November. These tenants are a couple with two small children making a combined 5x the monthly rent. So far, they’ve paid on time each month without a peep and no issues with the property. I asked PM about rental rates and possibly increasing it. Their recommendation based on local market conditions is to leave the rent amount as-is, although the decision is ultimately mine. I am considering having them ask the residents to sign a 1.5 year lease, which puts the end month in May as opposed to November. My logic is that when they eventually move out, it will be easier to fill the vacancy in the warmer months than in November/December. While they‘re willing to ask the resident to sign a 1.5 year lease, they said that their leasing department generally stays steadily busy year-round, even in December (as far as move-ins go) but that they‘re generally able to turn units faster in these months than in the summer. They said that it generally takes longer in other months to get homes rent ready, so it will likely all average out. So, with all that said, I guess I have 2 questions: 1.) Should I renew the lease for the standard one year, ending in November, or should I try to renew for 1.5 years, ending in May? 2.) Should I try to raise the rent amount in either scenario? I’m almost thinking to maybe offer tenant two options: same rent if they’ll sign 1.5 year lease or slight rent increase (maybe $25) if sign a 1 year lease. What do you guys think?

[Marcus Auerbach]

@Mark S. Always hard to tell for a market I don't know, but here is what we do.

Winter is a bit thougher in Wisconsin, but I find that people move all the time and while a lot of people stay put in winter, there are also very few properties available - so it's a wash.

I usually try to avoid December and January for lease end dates mostly because of the holidays and we will go 14 months instead of 12. Sometimes tenants push back on the longer lease as a first response. I ask them if they would like to move on Dec 31st and they usually agree that this is a bad time.

We do not increase rents on an annual basis as I prefer stability over $25 or $50 extra income. I estimate that the cost of an average trun over is about $4,000. Even though I self manage, the time and effort to sign a new tenant is about one month rent. And then we seem to have an average of $2,000 in paint and stuff that is not charged against security deposit.

My wife and I also have a strong sense of social responsibility. We offer premium homes that rent for a fair amount, but we don't want to gauge and squeeze people every chance we get for a few extra dollars.

Making an extra $50 over $4000 is a long break even, typically tenants move before it makes economic sense to adjust rent. We will do it however selectivley after a few years to not totally get away from fair market rents.