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?
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.
I have quite a few long term tenants. the current longest is 30+ years.
I had another tenant who rented from me for 17 years and only left because I sold the building and the new owner wanted to use the property themselves.
I had another tenant for 13 years, long enough to see their kids graduate from the #1 public school in the area. Kids out of school they moved. I sold the place then after having them as my only tenant there. In the 13 years, I did not clean, paint, or do much there so it needed a bunch, ended up refinishing the hardwood floors and redoing the kitchen as well as paint every where inside and out.
I have a current 12 year tenant, who will probably stay for more years, as their circumstance precludes moving.
Another tenant I have has been there 30 years, though I've only owned the property a few years, they were living there a long time before I was the owner. This tenant, different from the one in the first paragraph above, told me that "we will never move." They like the place a lot and want to stay there.
About 25% of my tenants are the only tenant that I ever had at their address, iow, they current tenants are my first tenants for that property.
Here's why tenants stay:
1. The like the place
2. Often times the rent is cheaper than buying.
3. They don't want to fix things and rather call me.
4. Their initial intention may not be to stay many years. the tenant in the first paragraph signed a 1 yr lease in 1984, still there.
5. They don't like change.
6. Renting gives you more flexibility to move than buying, some people like having the right of flexibility, even if they don't exercise it.
7. Sometimes you can rent a nicer place than you can afford to buy. Same logic as leasing a Corvette rather than buying a Toyota.
8. When the tenants stay a long time in SFH, the neighbors don't know that they are renting and think they own the place. Several times I've had neighbors tell me about a certain person owning my properties, I don't correct them.
9. Why do people rent furniture, appliances and TVs? Same mentality. One tenant was renting a washer and dryer, and if I remember right, told me that the rent on the appliances was $1 a day each. In a year you bought it, whether you get to own it or not.
10. If your rent is 2% of the value of the property, the tenant buys your property for you in 50 months. If your rent is 1% of value, it take them 100 months to pay for the property!
As Alfred Lord Tennyson said, "Ours not to reason why..."
@David Krulac Wow thank you very much for your detailed explanation. I am just surprised to see the % of long term tenants you have. And I guess it makes sense if you factor in all those points you made.
You want rentals in areas where people want to be like good schools, and low crime. I like SFH in neighborhoods that are predominately owner occupied. Once owned property on a street with 22 house of which 20 were owner occupied, guess who owned the other 2?
Flexibility, especially for younger people is a major motivation to rent instead of buy. I think 20 and 30 year olds are in no rush to buy these days, and really I can't blame them. Being able to pick up and leave for a new job somewhere across the country is nothing to discount. There's an economic security in that for many people, that outweighs the economic security of owning a home.
If your rent is 2% of the value of the property, the tenant buys your property for you in 50 months. If your rent is 1% of value, it take them 100 months to pay for the property!
This! I bought a SFH in November 2012 for $23,000 and put $2,000 into it over these 2 years. The same tenants are still there and they've been paying $875/month and that amounts to $21,000 over these 2 years. In 4.5 months they will have figuratively given me enough money to pay for the building. (This is gross rent, not net cash flow, but you can see what I'm talking about.)
In addition to all of the logical reasons mentioned by others, some tenants do not have the mental capability and/or physical capability to purchase, own and keep a home maintained/repaired. We have several long term tenants who are in that situation. There are also undocumented immigrants who may not qualify to purchase their own home in this country.
I guess I should have made a distinction between "direct" and "indirect" choice. You are correct, those who make good money, but spend it as fast (or faster) than it comes in are renters as a consequence of the choices they are making.
I think part of it is people do not like change, it can cost a lot to move if they have a lot of stuff, and if you are a great landlord, they may be fearful of getting a overbearing landlord.
There are lots of reasons to be a renter as apposed to owning your own home. Here are a few:
(1) You can generate a higher return by investing your capital out of state than you would by buying a home in the state you live. This is the case for me in the San Francisco Bay Area. Also, when the market peaked prior to 2008, many of my millionaire friends sold their homes in San Francisco and invested this money in Dallas to generate high returns.
(2) Not the right time to buy / Market Cycle reasons. If you are at a peak where you live, it may be best to rent until your market is at a bottom or expansion before buying.
(3) They will likely move within the next 5 years. If you are planning to not stay in the same area or your company will move your job every few years, it likely doesn't make sense to buy.
(4) Lack of Funds for Down payment. A large percentage of Americans live paycheck to paycheck and do not save. Generally these are people that either (A) had children very young or (B) do not generate sufficiently income at their jobs to save enough to buy.
(5) Lack of Credit. They cannot get a loan because they either lack credit or have a low credit score.
I concur with the reasons you've cited. I think mindset does have a lot to do with it.
Within some families, generations of people have never owned. This could be due to extra responsibilities, extra cost, false perceptions, or mis-education.
Just think about the percentage of people in NYC who rent. It's about financial financial discipline, information, access to capital, education, and mindset (perceptions of money and how it should be used).
Absolutely. One our tenants, who would not be able to mentally handle the complexity of being a homeowner, has lived in the same apartment for 26 years and has never paid rent late. Being a tenant is much easier than being a homeowner. We also have other long term tenants who at one time owned their own home and are now retired. Because of aging they physically and cognitively can't maintain their own home today. One of our tenants even told us he plans to stay in the apartment we rent to him until the day he dies. I bet he will. Tenants also stay long term when they are in a place where they can live with dignity and respect. Tenants have choices. If they are treated well and respected by you, they are more likely to stay long term and follow the terms of the rental agreement.
You make a good point. A large percentage of retired people prefer renting in MultiFamily communities where they have less responsibility, amenities and more activities.
@Marcia Maynard That makes perfect sense. "Tenants also stay long term when they are in a place where they can live with dignity and respect. Tenants have choices. If they are treated well and respected by you," That was deep, Marcia. I like your philosophy on how to treat tenants. I will keep that in my mind.
You want rentals in areas where people want to be like good schools, and low crime. I like SFH in neighborhoods that are predominately owner occupied. Once owned property on a street with 22 house of which 20 were owner occupied, guess who owned the other 2?
Roy C. - pay attention to this advice. Since renters are somewhere between 30% and 35% of housing units, I try to have my SFR rentals on streets that are not dominated by rental units. Being close to the mean is good; getting a rental on a street with too few rentals can irritate the owner occupants ("we don't like rentals" mindset); on streets that are close to 100% rentals you will find that some of the landlords don't care, and it shows in the tenant quality in some of the units there (and that can drive away the better tenants).
For this debate , what are you considering long erm ? 2-3 years , 5 + years < 10 + years. for some their job uncertainty would preclude them from making such a long term commitment, so they would rather rent . I had one long term tenant (8+ years) that had a goal of a certain promtion at work, and that would have meant a move to a different city , she wanted to be able to move with short notice and minimal hassle
@Kenneth Hynes By long term, I mean 10+ years. 2-5 years tenant, I understand, because they either have to relocate due to their job or they just simply are not ready to settle down. But this thread made me realize why some people decide to be 10+ years long term tenants, thanks to BP.
I am very familiar with the current rental trends locally and even wrote an article about this on linkedin about 5 months ago. How the New Rental Market is Changing Opportunities for Investors
I see a broad array of renters. I have a home that rents for over 4X the median income for my area that is being rented by a Real Estate Attorney and a Commercial Realtor. They are both divorced and decided to get a place together and signed a 2 year lease. I actually have several doctors, attorneys, and even one nationally syndicated radio personality that rents from us... but I don't expect most of these to be long term tenants.
The biggest trend that I see today is the Millennial Generation. Our society has trained them to get a new smart phone every year, a new car every two years, etc. We have become a society interested in flexibility and convenience, even if it costs more. I have met some moderately educated and successful young people who rent higher end properties for the convenience. They are not interested in a 20+ year obligation, don't want to worry about maintenance, and may plan on relocating in the future. If the home quits meeting their needs, then they can move as soon as the lease is up. The American Dream of home ownership doesn't apply the way it used to. It's not about money... it's about conveniences.
@Ross Denman It's funny that you mentioned Millennial Generation. My company just had a conference meeting about the characteristic behaviors of Millennial Generation, and some of the things you pointed out came up during that meeting. I find it hilarious that (I am a part of Millennial Generation) my generation is being studied as if we are some kind of alien substance. And you raise an interesting point, which clarify the trend of renter around the country. Thank you for sharing, Ross!
@Roy C. They did the same thing to my Generation (Gen X.) Every Generation is shape by the recent moves of the culture providing different mindsets and different opportunities. By studying the up and coming Social Movements & Trends, a business man can better cater to the marketplace. If the next generation prefers to pay high rents for conveniences, then we may never see the Real Estate Market Rebound as anticipated, but the Long-term hold market may perform like never before (Cheaper than we are used to homes providing great Rent.) I see one of our competitors at the local sheriff sale every few weeks spending over 1 million dollars of Private Money... and they are almost always buying Less than 20 year old Vinyls in the Suburbs. That was not even considered rental option 20 years ago. The landscape has certainly changed...
@Roy C. I have a long term tenant. Her and her husband are young, in their 20s. They have 2 kids and he has one from a previous relationship. They have a very nice car and massive amounts of credit card debt and student loans. They have pretty awful credit and don't understand how to improve it or care.
They pay their rent on time and have been great!
I don't understand it either, but that's how a lot of people are!