Lease term, price or deposit?

Question

In my small town rental pool...it's common for tenants to sign a year lease and leave before the lease is up. I've gone to court, etc and all story short it cost me a lot of money with no recourse on the past tenant.
I've got a small 4 bedroom home that is hard to rent only because it falls in the middle of price and size. I've had this home for 5 years and it use to rent easily ..even though we keep it remodeled and ready to rent it's getting and harder and harder to rent. Right now I think it's all about the deposit and the length of lease. I want a year...hopeing I can find someone that might stay a while. No tenant for a month now. The last tenant stayed 3 months on a year lease and moved out of town.
Everyone wants 3 months tops....I don't want someone to mess it up and then move out when it's harder to rent. On the other hand I can't find a qualified tenant that will stay longer.
Month to month? Year Lease? Lower the deposit? Lower the rent. Rent and deposit is lower than anything in town. $575.00 rent $500.00 deposit.
A side note. In my area there's been a big fire where people lost their homes. I'm getting calls from families that want to rent for 3 months ONLY.
Help me figure this out. I'm at a standstill..
Thanks to All.

Bill Gulley · Answer

I doubt anyone here can tell you the best thing to do since your problem is really your market and we are not familiar with the town.

Raising deposits is a barrier to entry, having a shorter lease term really won't solve anything since it's the problem is the type of tenants you are leasing to. IMO A shorter term just lets them off the hook, but if the hook can't be set, you don't really catch anything.

You problem as I see it is you selection process and qualifying your tenants. I suggest you raise the standards, not the deposit. It may take longer to fill the vacancy, but a high turn over is worse IMO, as over the year you'll be cleaning and repairing damages more often.
I'd hold out for a better tenant that would take the annual lease, one who has a decent job that they will not be leaving and therefore, one who would end up having to pay any judgment from a steady paycheck.

Anyone who thinks a burned out hosue will be move in ready in 90 days is probably cutting it close. Lots of variables there.

Kyle Meyers · Answer

One thing you might try is when people ask about a 3 month lease, tell them you can do that, but the rent is higher. I have been looking for a summer apartment and it is very common in Indianapolis for the rent on a 3 month lease to be $50 or $100 higher each month than if I were to do a year lease.

Jon Holdman · Answer

What you describe is that the market has changed and you have not. You have a pool of potential tenants that are interested in shorter terms because their job moves and they have to move with it. There are now a pool of landlords that are catering to this population. As long as you stick to your current business model, these prospects are no longer interested in your property. If there were other potential tenants that were interested in your property, this would be fine. But what you say is that a large majority of the prospective tenants are interested in the properties from these new landlords and are not interested in what you're selling. The new group, the "group of Hispanic that buy and fix up homes and rent" have outflanked you by offering a different sort of property and have taken away your customers.

Adapt or die. If these are really your only prospects, or, perhaps your only prospects given the property and its location, then you will need to change your business model to serve them. Even it that means doing things in a way that's uncomfortable to you. Your other alternative is to sell and move your business to a different location, perhaps even a different city, that has a pools of customers that fit with your desired business model.

If you run an upscale bar in an area that's going down hill, and someone else opens up a dive bar next door and takes all your customers away, you're toast. You either adapt to the new customer's desires or you close down. I'm sure I don't fully understand your area, but what you write makes me think this is exactly what's happening.

I've also had problems with prospective tenants not having enough deposit. Raise the rent. Go with a lower deposit and increase the rent enough that you have sufficient money in your pocket.

DG H. · Answer

My local area is oil field related also small town (8,000). Lower wages makes up most of the town, so the rental pool are mainly those that don't want to buy because they will move on and the others don't have the credit to own.

There are very few rentals that house the upper middle class. Mostly blue collar housing here. Two years ago we started getting a larger Hispanic population...which has been growing. They were renting from everyone..... now I've noticed I don't get the calls like I use to and found that there is a group of Hispanic that buy and fix up homes and rent. The houses are lower end and cheaper AND they don't have rules on number in the property or do a credit check.

I'm afraid to lower the rent because.even a lower tenant pool will apply. We don't have Section 8 here and only one low income apartment complex. The city doesn't allow more than this.
I do know my area as far as rents and equal properties. I have a nice clean property in a blue collar area. Most have the rent but not the deposit.
Thanks to all for replies.

Shawn Dawson · Answer

In the case of displaced homeowners through insurance agencies, usuallym, the insurance company provides everything. They pay for the rent, security deposit, and any and all furnishings. Most also cover utilities.

Jon Holdman · Answer

A one year lease ties your hands, but as you've learned, has no effect on the tenant. The tenants are going to leave when they want to leave. Go to month-to-month leases and untie your hands. Then you also have the option of making the tenant go away.

Have you done a rent survey recently? You say it used to be easy to rent and now its getting harder and harder. You say you think its about the deposit and lease length. Drive around the area, look in the paper, look on craigslist and find all the for rent properties. Give them a call and find out the details. Compare those to your property.

Perhaps there's a larger change. You say you're from Texas. I used to live there, its a big place. Are you in a small town that's lost a major employer and people are leaving? Is there an influx of temporary construction workers dealing with that fire? Something else? Perhaps there's some macro change in your area that's affecting all rentals. What you're describing tells me something has changed about your market and something about your property makes it unattractive.

Jon Klaus · Answer

Good point about furnishings. In my friend's case I believe the rental was furnished. Perhaps that could be accomplished separately with a furniture/appliance rental service.

DG H. · Answer

Thanks for the great replies. This is a little more about my small town and reasons for my post. Thank you John for answering.

My local area is oil field related also small town (8,000). Lower wages makes up most of the town, so the rental pool are mainly those that don't want to buy because they will move on and the others don't have the credit to own.
There are very few rentals that house the upper middle class. Mostly blue collar housing here.
The judge is good and fair..but from this type of tenants...they don't have anything and in Texas you can't garnish wages.
I don't want to lower the rent just because of the reason you provided..even a lower tenant pool will apply.
We don't have Section 8 here and only one low income apartment complex. The city doesn't allow more than this.
I will use the displaced policy holder idea. I think I will advertise online at a higher rent for temporary housing.
First I need to find out if that means I have to furnish everything for temporary rentals.
Anyone know?

Jon Klaus · Answer

Another thought. Contact property insurers in your area and offer to rent to their displaced policy holders.

I have a friend who was burned out several years ago and his insurance company paid for his temporary rental. It was month to month, but the rent was near twice the market rent. He was there about 4 months. And he was/would be a fantastic renter.

Jon Klaus · Answer

A homeowner who was burned out might make a very good tenant. Why don't you try a 3 month lease with a well qualified tenant, and as Bill says, it may well turn into a longer tenancy. If it is 3 months, you can lease again at the end of summer when school starts.

Lease term, price or deposit?

Lease term, price or deposit?

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