Reduced rent for longer lease terms?

General Landlording & Rental Properties
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Reduced rent for longer lease terms?

Mark Douglas
Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes

I usually do a 1 year lease, but I have a vacancy I'm getting ready to fill, and I'm tossing around the idea of offering a slightly discounted rent with a two year lease. 

I've heard that if you offer a great property with great customer service, it doesn't really matter how long the lease is, but it would be nice to anticipate longer stays...?  I don't want to seem like I'm trapping someone in a lease though.

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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y

Tenants rarely feel trapped by a lease, they will leave when ever it suites their needs.

I never have any issues with having all my tenants on M2M knowing that regardless of a lease their life dictates when they come and go not their landlord.

If you offer the lower rent and they break the lease at a year for life reasons I am sure they will be very appreciative of having had the reduced rent.

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  • David Panzera
    Real Estate Broker · Columbus, OH · Member since 2015 · 205 posts · 62 votes
    9y

    Maybe offer both so they have an option. Does your one-year lease have an auto-renew? That's how we do it, and when we send notices out re: the auto-renew at the 11-month mark, they usually let it renew if they've been happy with us and they're not moving for other reasons.

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  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    9y

    ANother thought is to have a small increase in the second year

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  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @David Panzera  It's got an auto-renew if I don't receive a 30 day notice, but I

     may try and offer both and see if that works

    @Kim Meredith Hampton thanks !

    0Reply
  • David Stone
    Rental Property Investor · Davenport, FL · Member since 2013 · 285 posts · 220 votes
    9y

    Also consider being trapped with a tenant on a long term lease.  

    I think with proper tenant screening and digging in to see how motivated people are in staying long term might go further to helping you land the right tenant regardless of terms.  I think people would feel more comfortable with options (ability to leave if they are signing with a nightmare landlord or unexpected life change).  

    We actually had some really good tenants in a 1 year lease and offered to sign them into a longer term lease with no rent increase so they could lock in the rate for a longer term after they proved to us that they paid on time and kept the place clean.

    Good luck!

    2Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Tenants rarely feel trapped by a lease, they will leave when ever it suites their needs.

    I never have any issues with having all my tenants on M2M knowing that regardless of a lease their life dictates when they come and go not their landlord.

    If you offer the lower rent and they break the lease at a year for life reasons I am sure they will be very appreciative of having had the reduced rent.

    5Reply
  • Zana Blue
    Investor · Saint Augustine, FL · Member since 2015 · 227 posts · 61 votes
    9y

    Even with the best screening you could end up with an awful tenant and then you are stuck with them for 2 years...what is the advantage 

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    A term lease has all the advantages for the tenant and none for the landlord. As all landlords know an eviction will only be necessary if a tenant is on a term lease.

    A landlord could take the tenant to court for breaking their lease but the conscious on this forum seems to be that it is not worth the fight. So if it doesn't force a tenant to stay to the end of the lease, and if they break the lease it isn't worth fighting for compensation what is the advantage of a term lease to a landlord. 

    A scenes of false security or maybe wishful thinking. A lease does not determine if a tenant will stay or go.

    2Reply
  • Account Closed
    Investor · Santa Rosa Beach, FL · Member since 2016 · 232 posts · 153 votes
    9y

    I don't like doing leases longer than 1 year with a new tenant. I like to feel them out for a year, if they are good, I'll renew for 2 years. 

    0Reply
  • Chris T.
    Investor · Downers Grove, IL · Member since 2015 · 1k+ posts · 955 votes
    9y

    @Mark Douglas

    instead of offering a slightly discounted rent for a 2 year lease, why not offer a lump sum of "move-in bonus". BUT applied at the last month of the lease of year 2 ?

    Some people might see a $600 incentive more attractive, vs a $650 rent (if market rate is $700). People may not see that value of a lower rent if they don't know what the market rent is.

    0Reply
  • Zach F.Business Member
    Property Manager · Cincinnati, OH · Member since 2016 · 82 posts · 55 votes
    9y

    Depending on the area, I love 18-24 month leases.  They are especially nice if you are leasing a property that is beginning in the 'off-season'.  

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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    I've had good luck offering 2-year lease terms on a property that seemed to turn over each year.  So I started offering a slight discount if they sign a 2-year term instead of 1-year, and now it turns over every 2 years instead of 1.  I also only allow a well-trained family dog with a minimum 2-year lease as it's not worth the risk of a pet for a one-year term, especially in a newly renovated home.  I renew for 1-year terms if the rent is rising in the area or the tenant has been late once or twice.  Otherwise, I offer a 1-year and 2-year renewal option for slightly less, and so far it has worked well with most accepting the 2-year renewal.  

    0Reply
  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @Thomas S.  So do you just do month to month for everyone? Or are you saying just do the standard year lease, and if the tenant wanted to go, they go either way?

    0Reply
  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @Lynn McGeein Just curious, are these SFRs you're renting?  Sounds like you've found what works for you, sort of on a case by case situation.  I'll have to play with it for a few tenants/turnovers and see what tends to work for me.  Thanks ! 

    0Reply
  • Christos Philippou
    Wilmington, DE · Member since 2016 · 116 posts · 59 votes
    9y

    Hey @Mark Douglas, learned something worth gold in one of the podcasts, I forget what it is now. @Zach F. kinda touched on it, but wanted to dive in a little more. When you are placing a new tenant and signing al ease in the winter months, it's bound to be trouble for everybody.

    Nobody wants to move all their belongings when it's cold outside. Sure, there are people that don't have a choice, but for those who do, they will just wait until the Spring. For you as a landlord, that means it will be harder to fill vacancy. If you place a 1-year tenant in January, you're gonna have to place another tenant next January, which may be a challenge.

    Instead, what the podcast offers is: offer a lease that pulls you into the warmer months. If you are placing the tenant in January, offer a 15 month lease, with the month to month option after that. That way, if they leave, you can place a new tenant in the Spring, and you're back on a good cycle.

    3Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    We have found that reducing rent doesn't usually impact the length of the stay.  We have tenants that we have raised rent every year and they have been there 10 years.  

    0Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    @Mark Douglas

    I rented a house, talked about it briefly on Bigger Pockets Podcast #82, where I rented a $1,000 detached house for $750 on a 3 year lease.

    1.  House is 35 miles away

    2. I did nothing to the house, no cleaning, no painting, that would be the tenant responsibility

    3.  There were no appliances that came with the house, had to be tenant supplied

    4. The tenant would pay for all utilities including heat, electric, water sewer and trash.

    5.  The tenant would mow the lawn and shovel the snow. (In Nashville snow is not that much an issue, but when I lived there we did get a 17 inch snow fall)

    6.  There was no management involved essentially the tenant was self managing.

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    @Mark Douglas

    All my tenants are M2M from day one. Initially I would start new tenants on M2M to test them out for a year before offering them a term lease but found that for good tenants after the year was up they felt no need for a term lease. I do not have any term leases only M2M for all tenants now. In my jurisdiction there is no legal advantage as only a tenant has the power to terminate a lease aside from a justified eviction which is very rare. On M2M I have found tenants do not feel bound by a lease and as a result are extremely forth coming with their plans to move. They have generally always let me know far in advance allowing me more than enough time to find new tenants without a vacancy. When I had tenants on a term lease they rarely informed me in advance when they intended to break a lease. This would often result in a vacancy as tenants become very dishonest and wait till the last minute to walk when they know they are doing something wrong. It's human nature.

    2Reply
  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @David Krulac sounds like the ideal situation !  Was it harder to find a tenant without supplying the appliances?

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  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @Zach F.  thanks for the input ! I think I'll do a 15/16mo lease to start, so I can end in a spring/summertime month, then resume with a one year term from there

    0Reply
  • Josh Braun
    Investor · Nashville & Chattanooga, TN · Member since 2015 · 182 posts · 138 votes
    9y

    One small trick I've used and works quite well is to offer a "discount" for paying rent on time.  If tenant makes more than 2 late payments, the discount is removed and full-price is required going forward.  Make sure to check your local/state laws on how this is worded in your lease.  You could advertise the discounted price in your marketing and then explain the rules when you sign the lease.

    0Reply
  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @Thomas S.  You make a good point too.  What's been your experience trying to rent in the winter?  Maybe if I do a 6 month lease just to get me through till June?   But to your point, nobody wants to move in the winter, so if I did a M2M, it isn't very likely that they'd skip out at 3am right?

    0Reply
  • Brendan R.
    Investor · Lancaster, PA · Member since 2016 · 48 posts · 28 votes
    9y

    I am signing a lease Saturday for a lease that starts December 1st.  I am going to see if they want to 16 month lease, so that way it will renew in the spring and not the middle of the holidays.

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  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @Josh Braun  is the "discounted" price the effective market rate, and the surcharge is what you'd rent it for ideally?

    0Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    @Mark Douglas

    The reduced rent helped to offset no appliances. For SFH I typically don't supply frig, washer and dryer. I only supply range, so this isn't much of a stretch. I have found that house renters as opposed to apt. renters have more appliances particularly if coming from an existing house.

    In apts I do supply range and frig.

    0Reply
  • Mark Douglas
    OP
    Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
    9y

    @Brendan R.  This was my thought process too, but @Thomas S. makes a good point, in that people don't usually want to move in the middle of the winter months.  It'd be interesting to see if they go for the 16mo.  I don't think there's a right/wrong way to do it.  I think different scenarios work for different situations

    Thanks for sharing !

    Best !

    Mark

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