Rental Property Investor · NC · Member since 2014 · 132 posts · 40 votes
I don't understand people who are long term tenants, and the logic behinds it bothers me.
They are paying monthly rent to other people, which doesn't make sense to me. If they have money to pay rent each month for long period of time (I am talking more than ten years), why not save and buy their own property? From what I heard, there seems to be a vast amount of long term tenants.
Am I missing something here?
Can you guys share the story of your long term tenant and why do they decide to be tenant instead of a homeowner?
Eugene, OR · Member since 2014 · 5 posts · 10 votes
11y
My parents rented the same house for 20 years when I was growing up. There were two main reasons:
1. They couldn't afford to pay rent, raise 3 kids, AND save up money for a down payment. Any extra money went towards paying for school supplies, after school activities, and tent camping vacations. Their focus was completely on child-rearing and just surviving month to month.
2. They claimed bankruptcy when they were younger and assumed it would ruin their credit forever. They weren't financially savvy, and didn't realize that you can rebuild your credit over time.
Eugene, OR · Member since 2014 · 5 posts · 10 votes
11y
My parents rented the same house for 20 years when I was growing up. There were two main reasons:
1. They couldn't afford to pay rent, raise 3 kids, AND save up money for a down payment. Any extra money went towards paying for school supplies, after school activities, and tent camping vacations. Their focus was completely on child-rearing and just surviving month to month.
2. They claimed bankruptcy when they were younger and assumed it would ruin their credit forever. They weren't financially savvy, and didn't realize that you can rebuild your credit over time.
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Roy C. Your putting your own sensibilities on other people. The majority of Americans can't come up with $2,000 in thirty days. I mean by any means including borrowing it. (So much for the self-reliance this country was founded upon.) That means the majority of Americans do not have ability to save money and are probably heavily in debt.
Then you have people who for whatever reason don't want to own a home. They like the fact that if the A/C goes out someone else has to handle those expenses.
Still there are others who don't like change or don't like to move.
Thank you for your response. Yes, you are right. I am biased about this. But just for the sake of argument....
For your first scenario, if people can afford rent for say ten years, I am sure they can save enough money for down payment. Bad credit can be a problem, but if they pay credit card on time, they should be able to pull their credit up in time.
If there are people who don't want to own home b/c extra expenses, again they could save extra few bucks each month to save reserve for it.
Thank you for your response, Destiny. I mean it's just hard for me to believe that their net balance for each month is zero or little below zero for 20 years. But I understand their circumstances especially with three kids.
Rental Property Investor · NC · Member since 2014 · 132 posts · 40 votes
11y
Just for clarity, the reason why I am asking this question is not to look down on the majority of population, but rather overcoming one of my doubts with REI. Because one of the fear I developed while learning about REI is the risk of having bad tenants. From what I can tell from BP, after careful screening tenants, having consist tenants doesn't seem to an alarming issue.
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
11y
Again you're putting your own sensibilities on to others. The majority of Americans live paycheck to paycheck, month after month, year after year. One of my best months to fill a vacancy is February because that is when people get their tax "refunds." Most of the rest of the year they don't have enough money saved for a security deposit. Its sad, but these are the facts.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
11y
@Roy C. my dad has been a renter for about 20 years. He was a homeowner when I was growing up, but he doesn't want to deal with any of the maintenance issues a home has. He doesn't want to cut grass or shovel snow. Since he's getting closer to retirement he wants the flexibility of being able to move to a warmer climate should he decide to do that.
For me, I'm the opposite. I rented until I saved enough to own my home. I'm paying down the mortgage and building equity. I also don't like cutting grass and shoveling snow so I just get other people to do that for me. But if there's a maintenance issue, I pay for it. On the flip side, if I wanted to take a sledgehammer to one of my walls, I don't have to worry about losing my security deposit (as there isn't one). I will take that over sharing walls.
Saint Petersburg, FL · Member since 2014 · 41 posts · 47 votes
11y
For many it has nothing to do with living paycheck to paycheck. Some simply just like having more flexibility. Lower maintenance expense. No property taxes.
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Roy C. Long term (non-hoarders) tenants are usually a great thing to have. As long as you raise rents periodically. Your painting and flooring replacement costs are likely going to go way down. Your vacancy rate will plummet. Your advertising costs and procurement costs are gone.
Yes there can be problems, but I'd still love to have lots of long term tenants.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
11y
Originally posted by @Cal C.:
I'd still love to have lots of long term tenants.
I love the long-term tenants I have. They're buying me the building. I don't have vacancy costs. I make a little improvement each year and I don't have to completely overhaul the place like I do when someone moves out. For example, on one long-term tenant, last year I painted the kitchen. But I didn't have to paint the rest of the house. This year I replaced the tub surround. The tenants like it. And with each improvement it keeps the place looking nice and it's less I have to do in the future.
Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes
11y
We all have our different philosophies on life. Us real estate investors tend to be open to risk. Other people are not and set their lives up for simplicity and risk aversion.
I don't understand why people dye their hair or why some people spend so much time and effort keeping things detailed and organized. But it does not bother me that they do it. :)
Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
11y
There are a lot of reasons people are long term tenants. I was in my late 30s before I bought my first property and was a tenant for all that time before it. Though at different places for typically a few years at a time.
Flexibility was a big reason for me. For all of my 20s, I wasn't married or really that tied down to where I lived, so I wanted the flexibility to move wherever the wind (or an awesome paying job) might take me without having to worry about selling a house, at possibly a loss.
With all that said, if I could go back in time knowing what I know now, I wish I would have bought my first duplex YEARS ago! Who knows how many rental properties I might have under my belt now if I had started sooner.
And, yes, I also think coming up with a down payment/closing costs is a big deterrent to most tenants. Many people, especially in the US, are just not very disciplined savers. I know I wasn't when I was younger.
Real Estate Agent · Owasso, OK · Member since 2014 · 517 posts · 400 votes
11y
For those that could afford to buy but choose to rent, it is a value proposition. For my target demographic, (lower income), affordability, credit quality, ability to save for down payment etc are issues all discussed above. The other side is being able to afford a home once you get in one. Most of my tenants won't be able to instantly replace a major appliance or water heater if it goes out. They won't be disciplined and save up for that roof or new window job that will be needed in 6 years. By paying a higher monthly amount to a landlord, they can effectively get all that but not deal with the stress of how to pay for it when it happens etc. Are they ultimately paying for it? Of course they are....and then some. But it is a set monthly payment they know about. Not a mortgage for $350/month less but with the risk of needing $6000 to dig a new sewer line, or $1200 to replace the heat exchanger...or even the $1000 needed to pay the deductible on a covered insurance claim for the hail damaged roof.
Now....for the other, higher income, potentially more sophisticated tenant. It is simply a value proposition. 1) the higher end you go rental wise, the better deal it is for the tenants. People talk about it all the time here. Lower income B & C properties cash flow better than higher end properties. More risk, but properly managed, more reward in terms of cash flow. Imagine you are in Southern California making big money for a tech firm and you tend to job hop every few years. Right now you are in Carlsbad but next year you might be in San Francisco. Choice A) A nice rental at $2800/month with $2800 deposit and 1 year lease with the ability to move with 30 days notice. Or purchase a similar property for $450,000 with 20% down, a long term mortgage with payments not much less than renting and the associated hassles and costs of selling before you can move to your next job. Maybe you buy in a down year and sell in an up year. Maybe you don't. Risk/Reward. The higher end you go, the better it works out for the upwardly mobile tenant.
Just like leasing a car. Over time, will you pay more than someone like me that drives it for 12 years or so. Absolutely. But by leasing, you will never have a car that is out of warranty. Assuming you don't wreck it or suffer other damage from a vandal etc, by leasing, you essentially guarantee yourself never having a repair issue and will always have a late model car with the latest features. Is it worth it? Beauty is in the eye of the beholder.
Rental Property Investor · NC · Member since 2014 · 132 posts · 40 votes
11y
@Dawn Anastasi Thanks Dawn. I can see your dad's point especially he is near his retirement age. I guess I think like you, since I prefer to have a freedom to do whatever I want to my property.
@Jennifer T. Thank you very much for being very insightful. I guess I can see the justification of long term tenants.
Rental Property Investor · Lockport, NY · Member since 2014 · 119 posts · 109 votes
11y
This reminds me of the debate of buying vs leasing a car. I have a son-in-law that sells cars and we have had this discussion many times. It always boils down to what are your highest priorities.
And the ability to see another persons priorities (even if it doesn't make financial sense) is not always easy. The truth is ALL of us make decisions that weigh fiscally wise vs convenience. And convenience is different of each of us.
I don't understand people who are long term tenants, and the logic behinds it bothers me.
They are paying monthly rent to other people, which doesn't make sense to me. If they have money to pay rent each month for long period of time (I am talking more than ten years), why not save and buy their own property? From what I heard, there seems to be a vast amount of long term tenants.
Am I missing something here?
Can you guys share the story of your long term tenant and why do they decide to be tenant instead of a homeowner?
We have a few long term tenants. Two of them rent because they are at a stage in their lives where they do not wish to have the responsibility of maintaining a house {much as Dawn described of her father}. These folks have decided to be tenants rather than home owners.
The remainder live hand-to-mouth and either do not have the means to accumulate a down payment (i.e. a single parent on social assistance) or do not have the self-discipline to save a down-payment or maintain a suitable credit history (some of these tenants make fair incomes, but always have new cloths, fancier cars than I, and lots of recreational travel). These folks are tenants by circumstance, not choice.
Real Estate Investor · Santa Monica, CA · Member since 2014 · 199 posts · 32 votes
11y
Hey @Roy C. I know why they do it here in Los Angeles. The rent to price ratio of homes are in rental favor. Also, people in LA like to live above their means (show off) so they can afford to rent a much nicer house than they could actually own.
Some people pay $30k-$50k a month to rent a house!! crazy right?
Hey @Roy C. I know why they do it here in Los Angeles. The rent to price ratio of homes are in rental favor. Also, people in LA like to live above their means (show off) so they can afford to rent a much nicer house than they could actually own.
Some people pay $30k-$50k a month to rent a house!! crazy right?
For that money I could buy 1 house every month (and some months have money left over)! I agree, that is crazy.
Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
11y
Whoa! I cannot even imagine.
I was watching Selling New York (something like that) on HGTV a few years ago and JUST the monthly HOA fees for some of those buildings were over twice my salary, lol.
Investor · Philadelphia, PA · Member since 2014 · 14 posts · 10 votes
11y
@Roy C. Believe it or not, some 35% of US Households are renter occupied (http://www.nmhc.org/Content.aspx?id=4708)…why not get out in your community and talk to people and find out why they rent (you've got a 3.5/10 chance of meeting a renter!!)? Great way to network and to find out for yourself their reasons. Best of luck!
Rental Property Investor · NC · Member since 2014 · 132 posts · 40 votes
11y
@Vala Shahabi That's insane... I know rent in LA is high, but I didn't know it was that high... thanks for sharing info!
@Anthony Kaleta That is a great idea. Though it might be a little creepy to go around the neighborhood and ask them if they are renting or not, but i like the idea!
Real Estate Consultant · Brookfield, WI · Member since 2014 · 873 posts · 350 votes
11y
Owning a home is very expense. When you are only speaking of principal and interest it makes sense to own a home but you also have taxes, insurance, water bill, etc. Many families can not afford to pay all the above expenses plus normal living expenses.
In addition, many individuals like have the flexibility to move around and not be locked in a property for 30 years.
The remainder live hand-to-mouth and either do not have the means to accumulate a down payment (i.e. a single parent on social assistance) or do not have the self-discipline to save a down-payment or maintain a suitable credit history (some of these tenants make fair incomes, but always have new cloths, fancier cars than I, and lots of recreational travel). These folks are tenants by circumstance, not choice.
Roy N., I think those are two distinct types of people. The ones on social assistance are tenants by virtue of their circumstances. The ones who lack the self discipline to save (because they CHOOSE to spend it all) are certainly tenants by choice.
And some might even argue that some of those on social assistance choose that as their lifestyle, but let's not go there ...