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.
@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 too consider 10+ years to be long term. Now that you understand some common characteristics of long term tenants, you can set up units that meet their needs and market to that niche!
Here's our snapshot: We have 15 units. Of those, we have 5 who are long term (26, 22, 13, 13, 11 years in tenancy) and 2 others who have already passed year 5! Of the long timers, one is in a house, two are in duplexes, and two are at our 8-plex; 3 are retired and 2 are younger but can't work because of qualified disabilities. The other two who passed year 5, but are not quite to year 10, are both of working age and gainfully employed.
@Marcia Maynard Awesome. That was actually what I was trying to get out of this thread. Trying to understand the market behind the long term tenants. This thread has been very helpful, and I got a glimpse of the type of people who prefers to be a long term tenant. Thank you very much!
You wrote some thought provoking things that make me wonder and worry, who am I going to sell to when I don't want to/can't do this anymore?
I always order from the dollar menu (if I don't have my lunch). But most people are not like me, or the restaurant would close.
I'm not a good consumer.
@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.
Roy:
In our home jurisdiction, the Residential Tenancies Act defines a long-term tenant as >5-years and attributes them with additional rights w/r to receiving a termination of lease {there are only four reasons a landlord may terminate the lease}, raising of rents {no higher than any other comparable unit in the premise/neighbourhood} and lease term (the tenancy is considered month-to-month from the tenants perspective, but the landlord must give 3-months notice as if they were on an annual lease).
@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.
Roy:
In our home jurisdiction, the Residential Tenancies Act defines a long-term tenant as >5-years and attributes them with additional rights w/r to receiving a termination of lease {there are only four reasons a landlord may terminate the lease}, raising of rents {no higher than any other comparable unit in the premise/neighbourhood} and lease term (the tenancy is considered month-to-month from the tenants perspective, but the landlord must give 3-months notice as if they were on an annual lease).
That's interesting! Another good reason to check landlord-tenant laws before giving notices. In our jurisdiction, the termination and rent raise process is the same whether the tenant has been in place one year, or five, or ten, or twenty.
@Roy C. My best friend lives in Chicago and he and his wife are in their late 30s and have always rented. He owns his own law firm and she is a CEO and they could very easily afford to buy. But they love to travel and not be tied down, so they decided renting a penthouse for the flexibility was the best plan for them. They have one kid. They spend December and January in Florida most years and travel extensively throughout the year. They also have the ability to relocate if they want, move to Europe for a year, etc They are not building equity, but they are also not dealing with maintenance, etc.
They actually took a hard look at buying something a couple years ago and after weighing all the Xs and Os, decided to keep renting and invest the difference.
A home that is used just for living is an expense/liability, not an asset.
Not everyone has the information needed to make the decision to buy a house. To some people the thought of buying a home is scary, because they may not have anyone around them to let them know how easy it is or educate them on buying vs renting. Some people may just like the idea of not having to be responsible for the home and having the freedom to move after the lease is up.
I've actually considered going back to renting myself so I'm not tied down by homeownership. I would continue to invest my money in rentals but I want to be free to move around also.
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 had neighbors like this in our townhouse complex, the same demographic as yours. They had been there renting, a family with 3 kids, as long as I'd owned my unit - 18 years. We have the best public schools in the area. Within a month or so of their youngest child graduating high school, they moved out. The owner told me they'd always paid the rent on time and rarely asked for anything. All he did over the years was repair, never renovate. With refinancing, they paid off the townhouse for him and he got 18 years of cash flow. He totally renovated after they left, and sold the place.
I have a friend in Los Angeles who rented the same apartment for nearly 30 years. It was affordable and easy to live there, in an area she could never have afforded to buy in. Again, the landlord never renovated, only repaired the bare minimum, and rarely raised the rent. The only reason she left was because the landlord wouldn't let her have another cat. At that point, his kids were running things and wanted to renovate and double the rent. They wanted her out. She bought a condo so she could have the cat and complained about the taxes, the maintenance fees, and doing her own repairs.
Some people are simply not of the mindset to own. They want an ease of lifestyle, an option to give 30 days notice, the ability to get repairs done with a phone call and no money involved.
Mindset is an interesting part of it, and a lot of that can have to do with your perception of your "place" in society. I remember my dad and uncle talking about how frustrated they were at the time with my grandfather's refusal to buy a house (in Brooklyn in the 1950's... yeah, I know, that would be nice to have in the family now, right?) But my grandfather had moved to the US from England, where people of his generation and social class were renters, that's just the way it was. He saw buying a house as a dangerous, risky endeavor "not for the likes of us". And he wasn't poor either, he had a fairly important managerial job at a big shipping line. It was definitely more of a class thing.
From my experience, the majority of the time they rent because they can't afford otherwise. Their income and possibly self-discipline prevent them from saving the money they need to buy a home. They don't look very far into the future. They're simply trying to make ends meet and get through the month. I certainly cannot complain about a long term tenant!
A point I have not seen raised here is societal norms or expectations. The mindset that you should own your own home is a very North American purview and, a relatively recent one (post WWII).
Many places in the world where I've worked, renting is for more prevalent - often more so than owning.
Prior to the end of WW2 and the start of the baby boom, with the exception of rural areas, mortgages were much more difficult to obtain in Canada and the U.S.A. - down payments were larger and there were no Fanny, Freddy, or CMHC to insure the lender's risk and more folks rented, and for longer, than today.
In a nutshell you can no longer make the case its a smart move to own a home. In fact a good case can be made not to. Things have changed so get over your peav.
@Jay C.
I am curious. By saying "a good case can be made not to" own a home. Are you making a distinction between rental income properties versus primary home (non rental income producing) properties?
The 'long term tenant' looks pretty smart if you go back 10 years. The number of foreclosures where astronomical for leveraged purchases in 2005-2007... and many of those homes are still not back to where they were at the top of the bubble. I'd have to say that 0% of these tenants had a foreclosure. 0% suffered through a short sale. 0% are "under water". In a financial sense, many tenants probably slept better than the owners.
@Chris Martin Your explanation makes sense. I guess the fear of bubble burst plays some factor for these long term tenants. Thanks Chris
@Account Closed O I am not complaining about long term tenants either. I was just curious to see why people chose their long term tenant path. I think I am seeing a general pattern now.
It would be nice if all tenants thought like successful REIs, poor people thought like wealthy people, and crazy people thought like sane people but life just doesn't work that way. There are people who will be tenants forever through life circumstances and life choices. There will be people who work as a cashier at McDonalds for 10 years. There will be people who spend 10 years in prison, get out, and go back to spend 10 more years in prison. There will be people who spend $30K on REI programs and never use the training. There will be people who will be rich from birth to death. This is all a part of how the world spins even though we may not understand the logic that drives the result. The poor, working class, and lower middle class are a large population in comparison to the rich and wealthy. Just from these numbers, I could see why there would be a lot of long term renters. I would think that most smart REIs would be targeting the demographic that are most likely to be long term renters.
There are people who chose to be renters, though they have more than the capability and income to buy real estate.
I had a 7 year tenant who is a Doctor and family. They could have easily bought a house, wife also had a high paying job and there income exceeded mine.
Another tenant was a CPA/Comptroller for a medium sized corporation, with a name you'd probably recognize, they also rented from me for 7 years. Could have bought a house chose not to.
Another tenant that rented from me for 4 years had a corporate job and left that job to be a college professor. That person could also have easily bought a house rather than rented.
Another tenant, transferred here with their corporate job, makes a high salary, but is thinking they may get a future promotion to another corporate office and choses not to buy. I think its a wise choice as their rent is less than the cost of buying and when they do transfer, they don't have to worry about selling a house and what the housing market may be like when they have to move. That tenant told me that renting allows them to SAVE money for a future home purchase, possibly in a high priced market where they much be transferred.
I mentioned the 13 year tenant previously who wanted their kids in a particularly fine school system, who then moved as soon as the kids graduated. That tenant was commuting 70 miles one way to their high paying job. When the kids graduated, they BOUGHT a less expensive house much closer to work, but in an inferior school district. They could have bought a house anytime during the 13 year tenancy but chose not to buy.
Several tenants of mine ended up buying the house from me that they were renting from me. They chose to rent, which allowed them to have a 4 year home inspection, aka test drive. That's happened multiple time with me.
Another tenant an executive rents to be in a certain good school district. I have offered to sell them the house they rent and they have the capability to buy, but have declined.
This year I offered 6 tenants the opportunity to buy their home that they rent. All have the income to buy their houses, all have declined.
I've rented to a Colonel in the military, who not only was high salaried but also gets a significant housing allowance. But since they were on 3 year orders, they chose not to buy a house.
I have another tenant who specifically moved to be in a certain school district and signed a 3 year lease. They could have bought chose not to.
Another tenant owns a successful small business and signed a 3 year lease to rent, but could have bought a house.
I rented a house, here, to a landlord who had 50 houses in ARK. They had 3 years to go to retirement, still had all their houses in ARK. , and were going back to ARK when they retired in 3 years. They chose to rent rather than buy. Life changes though and while here he got a promotion and ended up staying 6 years then retiring back to ARK. My tenant had MORE rental houses than I did!
I've rented group homes, some of which has rented for 14 years to over 20 years. Their business plan is that they NEVER buy real estate, always rent houses and they have 30 or 40 houses that they rent. Its a business decision to rent. For one thing they don't have to come up with down payments, which in their case would be at least 20% down, probably 30% down. They don't have to pay closing costs, and they don't pay real estate taxes. Their business plan allows them to not have dead equity tied up in properties and allows them to operate more house. Its a business decision and imo is a very good decision. Obviously they can't qualify for VA, FHA, USDA, or any residential mortgages, which plays into their business decision.
Another tenant that I had , one spouse had a corporate high paying job and the other had a small business that operated out of the home. Since this was a business that had walk in traffic, but many zoning regulations, they needed to be in a commercial zone, but they also needed to live there as they did not want 2 locations, 1 for their residence and 1 for the business. I had such a location that met their large family needs and their business needs all at 1 place. They chose to rent.
Sure there are people who rent because they have no choice, but there are many more people than you realize, who could buy but chose to rent rather than to buy!
@David Krulac
I totally agree with you that not all renters do so because they have no choice. There are a lot of people who like the flexibility that allows them to fit housing around their life. I am not sure I agree that these people are also avoiding property taxes, insurance, repairs, etc like you and some have mentioned in this thread. If the REI is smart, the rent includes taxes, insurance, vacancy, repairs, etc. The renter may not be paying directly, but they are paying. In your opinion, do you believe the majority of long term renters across the US are similar to the people you described (doctors, CPAs, Colonels, landlords with 50 properties)? That is a pretty rosey picture in my opinion.
@Francis A. You wrote,
I am curious. By saying "a good case can be made not to" own a home. Are you making a distinction between rental income properties versus primary home (non rental income producing) properties?
Let me add some color here. I think your typical investor in rentals already has a home they own. That said certainly exceptions to the rule. If you do not own a home and do not know the ups and downs of home ownership having investment properties will be that much more of a challenge. I see it as a progression. But back to the topic you have some very wealthy people forgoing the home ownership route. You just can no longer make the case its the way to go. In fact just the opposite comes up. As you read many a post on this site the reality is many of these bright eyed posters will be visiting another site soon enough. Its called Empty Pockets. Most of the posts you find on this site are a breeding ground of leverage and more more more flips. Many of this fail. You just dont see folks looping back to brag of the failure. So to make the distiction on the rentals you have to be in the financial shape to do so. If not its a disater waiting to happen. Same goes for primary home ownership.
@David Krulac Wow! thank you very much for the detailed description of your tenants, David. Now I am curious, do you have properties that have a lot of turnover? I am guessing that you researched and bought the properties targeted toward long term tenants. Would you mind sharing your method of picking your properties?
good to excellent schools
low crime rates
mostly owner occupied neighborhoods
locations close to jobs, shopping, etc.
low unemployment rates
I don't know about the majority of renters in the US, I only know about the majority of renters that have rented from me.
Let me add some color here. I think your typical investor in rentals already has a home they own. That said certainly exceptions to the rule. If you do not own a home and do not know the ups and downs of home ownership having investment properties will be that much more of a challenge. I see it as a progression. But back to the topic you have some very wealthy people forgoing the home ownership route. You just can no longer make the case its the way to go. In fact just the opposite comes up. As you read many a post on this site the reality is many of these bright eyed posters will be visiting another site soon enough. Its called Empty Pockets. Most of the posts you find on this site are a breeding ground of leverage and more more more flips. Many of this fail. You just dont see folks looping back to brag of the failure. So to make the distiction on the rentals you have to be in the financial shape to do so. If not its a disater waiting to happen. Same goes for primary home ownership.
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NOTE: I address your passage above by excerpting it in [brackets]
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[[I think your typical investor in rentals already has a home they own. That said certainly exceptions to the rule.]]
I concur. There are exceptions to that rule as I wasn’t “your typical” investor because the first property was a duplex that I lived in and rented ½ out – with no prior experience.
[[If you do not own a home and do not know the ups and downs of home ownership having investment properties will be that much more of a challenge. I see it as a progression.]]
Yes, it will be a progression as is the way with everything that requires any amount of learning in life. You crawl and then you walk.
[[But back to the topic you have some very wealthy people forgoing the home ownership route. You just can no longer make the case its the way to go.]]
I’m not sure if using “wealthy people” who opt out of owning property as a good yardstick to underpin the statements you’ve set forth. I say this because, people with full coffers AKA “wealthy people” have more options than most and therefore are able to opt out of owning property (which is one of many ways to financial security) due to the MANY FINANCIAL OPTIONS AND INSTRUMENTS that they presumably have at their disposal.
Meaning – instead of buying a $500k investment property, I’ll sink my cash into (gold or silver) for example.
[[As you read many a post on this site the reality is many of these bright eyed posters will be visiting another site soon enough. Its called Empty Pockets.]]
This site caters to entrepreneurs. As you know, venturing into the realm of the entreprenur has “risk” built into it with a CAPITAL “R”… period. And where there is risk, there is failure. Meaning,.. “Risk and failure” = the twain shall not be set asunder! (Pardon the ye olde English)!
However, what I have read ad nauseam on site is this: DUE. FREAKING. DILIGENCE… and DON’T BITE OF MORE THAT YOU CAN CHEW, SILLY, ETC ETC! ;-)
As you poke around this site, PLEASE check out the NUMEROUS pod casts. There are many “pro level” investors (WHO HAVE BEEN BURNED BEFORE AND HAVE RECOVERED TO TELL THEIR TALES OF CAUTION.I like to call them “case studies”.
And to their credit, many of these generous investors give AMPLE warning about the need to perform serious due diligence before taking the RE investor plunge. Don’t quote me because I listened to this podcast a while ago.
http://www.biggerpockets.com/renewsblog/2014/07/31/81-quarles-direct-mail/
The advice may not be in the form of a “fire brand preacher” preaching at you saying DON’T DO THIS OR THAT, but as a smart and astute investor that you are, you can infer and extrapolate the advice CONTAINED in what may have gone wrong for said investor.
Failure is part of life. But we don’t seek out failure. We try to mitigate failure.
I believe there are words of caution in @Brandon Turner’s podcast (BP podcast 092) also. But seriously, at least one out of every 5 pod casts the astute investor can glean info on how to mitigate complete disaster which you refer to (tongue in cheek) as “Empty pockets”.
[[Most of the posts you find on this site are a breeding ground of leverage and more more more flips. Many of this fail.]]
Read posts by Ben Leybovich a contributor to this site (justaskbenwhy.com/) you will see ample warning of potential failure if the appropriate due diligence isn’t securely put in place. When you’re done reading his posts, tell me if you didn’t “hear” him preach about losing one’s proverbial shirt IF the PROPER due diligence and safe guards aren’t set in place.I’ve thrown down the gauntlet pal. I’ll be here to hear your response! J
[[Most of the posts you find on this site are a breeding ground of leverage and more more more flips. Many of this fail.]]
Once again, I refer you to Leybovich (among others). That dude will instill the fear of the Flip God in you (if that exists) but you get my point. I for one will avoid flips like the wrath of Zeus! It’s not for the faint of heart.What I believe (and I don’t have numbers to support this) is that a number of people/potential investors may be ENAMORED with the idea of flipping but I am willing to bet that less than ¾ of them have actually tried or will try flipping. First comes first, and it is the buy and hold (and possibly live in ½ of the property) for a while before taking the proverbial next bite like yours truly.
[[You just don't see folks looping back to brag of the failure.]]
I don’t think anyone in their “right mind” SEEKS to “brag about failure” as you put it. What I DO KNOW is that there are CAUTIONARY TALES … (people sharing cautionary tales of past failure) everywhere on this site. Tales that are meant to help YOU/US to TRY TO AVOID past fates like that. And if that ain’t the “spirit of sharing and caring”, then I don’t know what is. :-)
[[So to make the distinction on the rentals you have to be in the financial shape to do so. If not its a disaster waiting to happen. Same goes for primary home ownership. ]]
Even though it “goes without saying” (so to speak), if you poke around this site you will hear over and over the IMPORTANCE of being in “reasonable financial shape” BEFORE taking the RE investor plunge. You won’t find a pod cast "RE INVESTING FOR DUMMIES" type subject line that literally screams BE CAREFUL, DON'T FLIP AND/OR BE IN FINANCIAL SHAPE BEFORE YOU INVEST … but do take the time to spend some time listening and I think you’ll be quite surprised.
There are cautionary tales, everywhere; DESIGNED TO HELP folks like us traverse the often times risky roads that lead to RE investment prosperity.
Hello entrepreneur, hello risk, hello world! ;-)
All the best and good luck!