Rental Agreement Investing - Securing Long Term Tenants
There are few things as devastating to a landlord's return on investment than
vacant rental properties; just look at the costs that come directly out of the landlord's pocket. Between paying the mortgage, real estate taxes, hazard insurance, repairs and cleanup between tenants, advertising costs to find a new tenant, property management or realtor fees if they find the tenant for you... in short, one of the secrets to rental agreement investing is to maintain the absolute lowest rental vacancy rate possible.
Most landlords know that long term tenants are the most reliable, as they have proven that they can and will pay their rent, and they take better care of the property because they're more vested in it. But short of buying a rental property with a long term rental agreement and tenant already in place, how do you find and keep long term tenants?
First, consider that certain demographics are more likely to settle in somewhere for the long haul. In particular, young families who know how many children they want, and empty-nesters who are downsizing, are both groups that aren't interested in moving around every year, and want somewhere stable where they can settle in for at least five years. Most families will live in only two houses between when they move into their "family-size" house and when their children move out, which makes young families a good bet for long term tenants. Couple whose grown children have moved out generally look for a smaller and more manageable home, and one they can happily occupy for many years to come (signing a new rental agreement every year is a young couple's game, not an older couple's idea of fun).
Which brings us to people who are not likely to sign a long term rental agreement or stick around for much longer than their first year. Young couples, groups of unrelated roommates, and single people are probably only looking for temporary housing, and usually just want a fun place to live for a year or two.
Areas that attract families tend to be extremely safe, suburban, with a strong local job market, and a strong public school system. Families generally want a yard for their children to play in, and a community with (surprise!) a lot of other families with young children. So, if you want to attract young families to sign on the dotted line of your rental agreement, look for neighborhoods with these features. Local parks and family recreation areas are an added bonus.
Empty-nesters and older couples are drawn to different experiences, and some never leave the family home even after their children leave. Others want to be near arts and entertainment establishments, and move to more urban areas that attract young professionals and the arts communities. Older couples tend to be less crime-tolerant than their younger counterparts, and appreciate amenities such as off-street parking and high-visibility local security.
Aside from the demographics most likely to stay for a long tenancy, you can offer persuasive incentives to try and keep good tenants for the long term. First, you can try to induce them to sign a long term rental agreement, by offering two different rents: the "normal" rent for a standard one-year rental agreement, or a discounted rent for longer term rental agreement. Alternatively, you might require a higher security deposit for a one year rental agreement, and offer to reduce it to a single month's rent for a longer term rental agreement.
After the tenants have moved in, and the expiration date on the rental agreement draws near, consider ways to encourage them to stay and sign another rental agreement. Stay in touch with them to keep your finger on the pulse of how they're leaning (stay or move), and if you get the sense that they're leaning towards moving, consider offering them some kind of incentive, such as sending a cleaning service over twice each month as a signing bonus for a new rental agreement.
The bottom line is to attract and keep long term tenants, which is worth a certain amount of initial investment in time and money. Find the right tenants for your rental agreement the first time, maintain a good relationship with them, and keep them for as long as possible, and you'll find that being a landlord is not nearly as difficult as many real estate investors make it out to be.
by: Kevin Kiene
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