What's your #1 tip for finding a tenant that stays a long time?
Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
What's your #1 tip for finding a tenant that stays a long time?
Most Popular Reply
1.) Finding a long-term tenant:
- A tenant who has lived in that city/town for many years.
- A tenant who has limited economic opportunity or interests in career improvement.
2.) Keeping long-term tenant:
- Take away any incentive for them to move. AKA provide a better value than any competitor.
25 Replies
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
treat them well never raise the rent. and a lot of luck. I have one in Madison MS that the tenant has been there since I bought the home as a newco ( remember the GOZONE) 6 years ago I think now.
Find: When screening prospective tenants, look for candidates that have been in their last rental for several years and are moving because of no fault of their own. For example, the rental is being sold to a buyer/occupant.
Keep: Keep your prime location unit in good condition and the rent below market for your great tenants.
- Rental Property Investor · State College, PA · Member since 2013 · 287 posts · 99 votes12y
I'm curious why you would want to keep your rates below market rent. I understand if the residents are 100% awesome, you may 'shadow' the market rate a little (5-10% below market), but if done right, can't a turnover happen rather quickly?
- 12yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
I went to meet with an owner of a building last night about their desire to retire and what we might do to help that come true. The building was constructed in 1991/92 and just under half of the tenants have been there since the beginning (22 yrs). I was amazed and, as the potential purchaser, delighted ... despite being full, the building is performing at ~84% of its potential due to the number of below market rents.
Finding these tenants was easy :-). Keeping them will likely depend on patience and not raising the rent too much nor too quickly.
I have several long term tenants. One guy has been there 12 years now. The biggest complaint that I've heard tenants make about their landlord is, "They don't want to fix anything".
When something breaks, I get it taken care of quickly.
To find the long term tenants, I agree with @Jon Klaus to find people who have been at their previous residence for a long time. The long term tenants that I have were either renting from a landlord who let the house go to foreclosure, or owned their own home and did a short sale or were foreclosed.
- 12yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
Originally posted by @Liam Goble:
I'm curious why you would want to keep your rates below market rent. I understand if the residents are 100% awesome, you may 'shadow' the market rate a little (5-10% below market), but if done right, can't a turnover happen rather quickly?Liam:
Because turnover is very, very expensive. When you turn-over a {long term} unit you must:
1) update the unit or, as a minimum, affect repairs and replacement of worn items and paint;
2) Clean the unit (both before and after repairs/renovation);
3) Advertise and show the unit;
While you are incurring all of the above expenses, you will also be loosing 1-2 months revenue.
Say, I have a 2-bdrm unit presently renting for $700/month {a long term tenant of 15 years} and market rent is $850 {just to make the math easy}. I decide to raise the rent to market and my long-term tenant serves notice. I then incurr the following:
1) Update bathroom and kitchen (repair, perhaps reface, cabinets; replace appliances; update fixtures to low flow), replace carpets, and paint the unit - 6 - 8K;
2) Advertise, show and fill the unit: say we do this ourselves and cheaply for nothing (if you were using a PM, it would be 1/2 to 1 months rent);
3) We are quick and only incur one month's vacancy: $700.00
In this scenario, I have costs and missed revenue totalling a minimum of 6700.00. Once I land my new tenant at $850, it will take me ~45 months (3.8 years) to recover the costs and missed rent.
Even if I only had to replace flooring, maybe the fridge, update the toilet to low flow and paint ... only spending 2K in the process; with missed rent, that is 2700.00 ... it will take 18 months to recover once the new tenant is installed at $850.00
- The # 1 is the numbers. Past rental history + income. I recently processed several applications where the applicants had yrs of paying rent on time. That's great but a 40% increase in their rent obligations will seriously effect their future performance if there is no change in their income. It's easy to get excited walking into a freshly painted 4 bedroom house with new carpet when you have lived in an 2 bed apt for the last few yrs. The agents are excited, the tenants write personal letters of promise, etc. I go by the numbers. If After paying rent , auto ins, electric and water you only have $15per day to feed, clothe and entertain yourself and 3 kids it's not going to work. The numbers have to work in all parts of the deal. Don't blow it by buying right, fixing right and renting wrong.
- Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes12y
Obviously they have to qualify on their own merit, but when a tenant tells me they like the area bc their sister/mom/etc lives in the neighborhood, I expect they'll stay awhile.. Free close babysitting, and already an "in" with the neighbors.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
As @Roy N. has said turnover is expensive, and vacancy is overlooked and under estimated as an expense, a very costly expense, by many people. A ONE month vacancy costs you 8% of your yearly gross, and of course much more of your yearly net. You never get back lost rent due to vacancy, you just kiss it good bye.
I was talking with a LL this past weekend who has a property that he has owned for 8 years and never had a tenant stay for a year, always less. In eight years he has had 8+ tenants and many months of vacancy. If it were me I would either identify and fix the problem or more likely I'd sell the property.
@Jon Klaus is also right in looking at the rental pattern of the tenant. One time I rented a SFH to a tenant who had lived in their last apartment for 16 years, and it was less than 1 mile away. That tells me that they don't like moving, and that they know and like the neighborhood.
In some tenant selections I've done some counter intuitive decisions. I've rented to tenants that maybe others would reject. I mentioned before that I lost several tenants to the $8,000 first time home buyer's credit. All of those that I lost had owned houses previous to renting from me but rented my place for up to seven years and qualified for the credit which only required not owning a house in the last three years. One of the ones I lost was a Doctor and another was a CPA.
The Doctor had a foreclosure at their last last home. The CPA had a divorce and less than stellar credit. Both of them had excellent income in relation to the rent. Both were excellent tenants and I was sorry to see them go, but after seven years of renting from me, I was still sorry. I think that if they didn't get the incentive of the $8,000 credit they would be still renting from me.
I have another tenant that is a married couple with 10 kids. They were having a difficult time finding anybody who would rent to that many people in one house. They've stayed for more than a decade.
I've rented to multiple people who have had foreclosures, bankruptcies and divorces that have impacted their credit reports. They have lived and owned SFH and know what responsibilities come with a SFH as opposed to an apt. They like living in SFH. And once they move in and live their for a long time both the tenants and the neighbors think and act like they own the place. That's a good thing.
I ask prospective applicants, "If we would rent you this house how long do you think you would like to live here?" Their answer says volumes.
Usually the first lease the tenant signs is for 1 year. But if that first year is successful, then i often offer up to a 3 year lease as the first and subsequent renewals. I present the longer term as being in their best interest as the rent is fixed for the longer term. And I say that they can still sign a 1 year renewal, if they like but I can't fix the rent beyond that term.
When there is a turnover, there will almost always be a rent increase for the new tenant moving in, usually more than the rent increase would be for a sitting tenant. We don't increase rent for no reason and every year some expense does increase. But one of the nice things with SFH is most or all of the utilities are paid directly by the tenants. If the utility costs increase, that increase is paid direct to the utility for the tenant's account, I'm not involved and the rent doesn't have to increase because a utility bill increased. And of course the tenants take care of mowing the lawns and shoveling the snow, so that expense in not my expense either.
We've also had tenants improve the properties. One tenant installed new wall to wall carpet in the entire house. Another tenant built a deck totally at their expense on my house. A tenant built a sports court at one of my houses. A tenant wanted a specialized shower and paid for the materials and labor to install. Here's another tip: Tenants who make improvements to your property will stay longer.
Tenants who bring their own appliances, imo stay longer AND I don't have to repair or replace their appliances when they fail. If they own the frig, I never get a call saying they want me to pay for spoiled food because their frig stopped working.
Which brings us around to the 50% expense rule. When the tenants are paying for all the utilities and some of the other expenses, my cost of expenses goes down. Some tenants even take care of minor maintenance, so that in some years at some properties the only expense is taxes and insurance. We've had expenses some years as low as 11%.
@Joe Fairless is that enough tips for you?
One more we respond quickly to repair situations. we had a furnace quit on a Saturday night a couple weeks ago. We had a serviceman there on site within an hour and the tenant had heat again in zero temps. It doesn't always happen that quick, but we make the effort and use trusted, competent service people over and over again for years, so we get the best service back.
- 12yBrian LevredgePro MemberInvestor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
@Roy N
Yes, turnovers are indeed expensive, but there is a flip side to the coin you are talking about, especially if your property is leveraged (or even if it's not). Let's stipulate that you have a 20 unit building and they're all the same unit as you used in your example, and it takes 8k per unit to get the additional $150 in income at market rents.
If your additional NOI is $75 ($150 - 50% expenses) per month then you have an addition $900 per year in income. At a 10cap that creates an extra 9k in value per unit, or 180k in forced appreciation for your property. Simplistically, if you had to redo your whole building (not at once) within a short time frame, you would get a 12.5% ROI in value alone off your capital investment. That's not bad at all, imo.
And since you had made a major investment in each unit, your future turnover costs per unit (assuming they haven't been trashed) are not going to be as high and you will have an easier time giving rent increases and keeping your tenants because your units will be at the upper end of the market in terms of quality.
- Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes12y
Some really insightful information. Thank you! Some of my faves from this thread so far:
- "look for candidates who have been in their last rental for several years" - @Jon Klaus
- "when something breaks I get it fixed quickly" - @Rob K
- "I ask prospective applicants, "If we would rent you this house how long do you think you would like to live here?" - @David Krulac
And, just for the record, I'm not implying you shouldn't raise rent. I'm just curious on strategies on finding people who tend to stay longer and learning some tactics that work to keep them there.
- Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes12y
Thank you for flossing my mind with this topic! My longest term tenants were in place when I purchased the property. I didn't raise the rent until I had secured a good relationship with them and had added value to the property by focusing on the things they identified as needs.
1. Show concern for the people, not just for the property.
2. Listen, listen, listen.... read between the lines and quickly attend to what they are telling you they need. Address their wants as well, within reason.
3. No deferred maintenance and quick response to repair needs.
4. Do upgrades for people who are in place, not just at turnover.
5. Allow them to "make it their own own home" by allowing some property modifications, within reason. Chip in and help them make it happen, by investing some of your time, talent and money too.
6. Accommodate their changing needs related to disability, aging, change in family member make up, etc.
7. Participate in improving the looks of the neighborhood, not just your own property.
8. Do what you can to make your properties safe and the neighborhood crime free. We partner with law enforcement.
9. Maintain quiet and peaceful properties by choosing the right tenants and addressing nuisances as they occur.
10. Adequate parking and proximity to public transportation stops.
Current # of years tenants in place in our properties: 26 - 22 - 13 - 13 - 11 - 7 - 7 - 6 - 5 - 2 - 2 - 1/2 - 1/2 - 1/2 - 0 (vacant).
Some characteristics of our longer term tenants: retiree, disability, felony in the distant past, limited English skills, bus rider, semi-truck driver with need to park the rig, section 8, low income.
- Investor · Milford, CT · Member since 2012 · 592 posts · 285 votes12y
For my properties I actually don't mind turnovers because it gives me a chance to go in and update then charge market rent.
My parents were long time landlords and they had/have tenants 20+ yrs but comes down to rent. My parents kept rents way below market and in turn tenants stayed a long time. Only drawback is after these long term tenancies turnover the units require full Kitchen/Bath remodels and refresh of walls and floors. And if you aren't charging market rent where are you going to get the budget $$$ for turnovers?
I'd rather have turnovers more often than not only to have the opportunity to go in and update the units and charge market rent. This strategy works for me because I am buying multi's from old timers who never kept the units updated or charged market rent. At some point I would most likely be leveling off on updates but the key is that I run my properties like a business. I treat tenants like customers so if they need something I am quick to resolve in a balanced manner.
When I think of turnovers, they aren't 6months but 2-3 yrs. I think that would be a good sweet spot to go in do a few minor repairs/refresh then market rent.
I wonder if anyone else is in my situation: my properties are in areas that appeal to a demographic that tend to have short tenures -young professionals in their 20's.
It has been my experience that usually within 2 or 3 years young professionals will have a reason to leave 2-bedroom apartments: marriage, relocation or baby.
I definitely do things that keep my tenants happy. But it can not overcome the tendency at this stage in life to move every few years.
- 12yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
Originally posted by @Brian Levredge:
@Roy N
Yes, turnovers are indeed expensive, but there is a flip side to the coin you are talking about, especially if your property is leveraged (or even if it's not). Let's stipulate that you have a 20 unit building and they're all the same unit as you used in your example, and it takes 8k per unit to get the additional $150 in income at market rents.
If your additional NOI is $75 ($150 - 50% expenses) per month then you have an addition $900 per year in income. At a 10cap that creates an extra 9k in value per unit, or 180k in forced appreciation for your property. Simplistically, if you had to redo your whole building (not at once) within a short time frame, you would get a 12.5% ROI in value alone off your capital investment. That's not bad at all, imo.
And since you had made a major investment in each unit, your future turnover costs per unit (assuming they haven't been trashed) are not going to be as high and you will have an easier time giving rent increases and keeping your tenants because your units will be at the upper end of the market in terms of quality.
Brian:
I model the "flip-side" as well. While forced appreciation is nice, it is only meaningful if I wish to sell or refinance and matters not to the loss of revenue experienced during turnover.
As for future turnover costs, if I have to endure a vacancy to affect an upgrade to a unit, I'm already behind. Performing a substantial lift now, only translates into less work during a future turnover if I do not secure another long-term (>5yr) tenant ... I would much rather have to undergo a major rehab every 10-15 years than "light" turnovers every 1-3 years.
Further to this position, where possible, we upgrade our units with the {long term} tenants still present. The advantage here is we have much more control over the timeline and can upgrade appropriately to the tenant and use this as a way to move their rent closer to market.
Another approach we have used is when we do have a vacancy and update the unit, we encourage another long term tenant in the building to move into the fresh unit (often with a bump in rent). We just did one of these where we updated a unit on the ground floor and then asked one of our more senior long-term tenants if they would like to move from the 3rd floor ... they thought it was a good time to give-up all the stairs and gladly accepted the opportunity.
I haven't been a landlord too long (about 5 years), but I do have 2 long term tenants (5 years). The key for me? Both sets are former homeowners who fell on hard times due to divorce (one of them) and poor investment decision (the other one) that caused them to lose their homes and need to rent. They wouldn't have been attractive tenants to lots of people due to bad credit. However, I could tell they were decent people who came upon hard circumstances through no fault of their own. One had good income and poor credit, and the other had a lower income but a parent with deep pockets who was willing to help them out financially. Obviously neither will be a homeowner again for a long time. So the key to keeping them has been keeping rents slightly below market and making improvements to the property when they re-sign a lease.
So, yes I am advocating for giving people with poor credit a chance, so long as they are responsible and have decent income.
- 12yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
Originally posted by @Dan C.:
I wonder if anyone else is in my situation: my properties are in areas that appeal to a demographic that tend to have short tenures -young professionals in their 20's.
It has been my experience that usually within 2 or 3 years young professionals will have a reason to leave 2-bedroom apartments: marriage, relocation or baby.I definitely do things that keep my tenants happy. But it can not overcome the tendency at this stage in life to move every few years.
Dan,
We have several student rentals in the local "universityville". In those properties, we consider it a "home run" when the same set of students stay for 2-3 years.
Most of the tenants in our Florida condos are the same demographic as @Dan C. - younger working singles or couples. They are mostly upwardly mobile, and what makes them good tenants - stable jobs, clean background, financially responsible - will eventually make them good homeowners.
We do as much as we can to keep our tenants as happy as possible, and they tell us that...but as Dan points out, ultimately they will get married, have 1 or more kids, and/or decide to buy a home, or lose their job. We actually have 2 vacancies coming up at the end of this month, one due to a new baby, the other to a job loss that was replaced with a job that paid less. Each tenant was only there for a year, and we only have to paint and clean. The rent is now $150 more.
In our SFRs, which are in a marginal area, we've had tenants on rental assistance which they lost when they got a job, and tenants that lost their job and had no financial safety net. Some had to be evicted. In those units, the tenants usually caused damage on the way out and we've renovated one house 3 times. This doesn't happen in the condos - we paint, clean, make minor repairs, and are then able to increase the rent.
So we've never had what's considered a long term tenant (5+ years), and it's possible we never will.
1.) Finding a long-term tenant:
- A tenant who has lived in that city/town for many years.
- A tenant who has limited economic opportunity or interests in career improvement.
2.) Keeping long-term tenant:
- Take away any incentive for them to move. AKA provide a better value than any competitor.
- Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes12y
I honestly believe that it depend on the location and the tenant demographics. I have nice rentals in great areas and school districts. I have found that my military clients sign 3 years leases. That being said I also have a lot of people who rent because they just got married so they are short term tenants.
Honestly so far my tenants have allowed me to show the houses on their way out. In addition all of my leases allow me to show the houses 2 months before the end of the lease.
Of the two houses that I have had turn this year, I haven't lost a day. Since the tenants are only in there for a year, the wear and tear they are allowed is limited. Damages come out of security deposits. Also one year rentals does not require updating. I try to keep my houses as close to market without losing money with them setting open.
The states I operating in allow me to require carpet cleaning and the house left cleaned. This reduces another costs. I work really hard to provide great rentals (clean, updated, repairs made in a quick manner), but they are at market rent.
- Apopka, FL · Member since 2012 · 207 posts · 120 votes12y
Communication.
I communicate with every tenant at least twice per month in addition to rent collection time, and usually every week. It may just be a text about some city work to avoid nearby or maybe best wishes on a birthday. But every chance we get my wife or I reach out to every tenant.
A part of every business is being a salesman. My job as a salesman is to convince my customers to continue paying me what's probably their biggest expense. Indeed a couple of my customers pay me nearly 1 of every 3 dollars they earn. They don't do that if they become dissatisfied. My job as landlord is to keep things running smoothly and keep people happy where they live. That doesn't happen by accident. It happens because we hit every 'touch point' we can to sell our service.
Thus far this approach has scaled reasonably well to 9 residences with 3 more under contract. We'll see how it works going forward.
Edit: Actually this is all on the 'keep' question.
- Real Estate Broker · Evanston, IL · Member since 2014 · 1 post · 1 vote12y
Someone doesn't have very much money. Otherwise will buy a home and move.
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