Great Prospect Wants 9/1 Move-In, How to Retain?

Question

I’m house hacking a duplex and the last tenant’s lease ended on the 31st. I’ve been looking for a new renter for two weeks and haven’t found anyone who I liked who also wanted the unit. The rent is on the higher end in the area, but it’s also the nicest place in the area. A lady who would be perfect came by yesterday, but she’s locked in at her current place until 9/1. She liked the place and said she wanted it and the rent is lower than what she’s paying now. I said I was pretty confident I could find someone before then and get pro-rated August rent, but I liked her and we could sign a lease if she paid half a month of August rent to lock down the unit. She said that was reasonable at the time and still wanted to apply. Now, she said that this would be too much. We agreed on a $500 move-in fee as well (no deposit).

I really don’t want to forego all of August rent, but she is a great tenant. I’m thinking of maybe offering to skip the August rent is she signs a 2-year lease. Thoughts? Can you think of any other ways I can keep her without losing a month of rent? Thank you!

Matthew Olszak · Answer

@Art Maydan To understand your perspective, what do you like about a longer-term lease? Here's my thoughts on it:

For you as a landlord, you likely have a lot at risk if you violated the lease. You've got a huge asset, likely good credit and income, likely cash reserves and other assets, insurance, etc. If a tenant sued you, they could expect to collect on any judgement. But a tenant, not so much (in general). Their biggest asset is likely their car, and that is likely almost totally encumbered by a loan if its of higher value. So if a tenant breaks the lease, what can you expect to get? Likely nothing. Tenants are very hard to collect against - not impossible - but difficult and expensive. Plus with the amounts we are talking about, you'd likely chew up anything you'd collect in legal fees.

If a tenant wants to move, they don't have to pay a cancellation fee. They can take their things and leave and pay you nothing, you can't physically force them to stay. You are obligated to mitigate the damages and attempt to re-rent the unit as soon as possible. Lets say that's one month - you'll spend $2500 in legal fees to win under $2k. And that's just the judgement on paper, it'd be more fees and time to actually try to collect. You have a lot to lose by not living up to your end of the agreement, so you truly are bound by it, while the tenants usually have very little to lose, especially if this is a case of them moving out of state or if they buy a house, so the terms are more of a gentleman's agreement.

No decent tenant will want an eviction on their record, but as a landlord you shouldn't want to spend more than what you'll recover in legal fees and have your unit vacant 3+ months either. Through compromise a deal will be reached and the tenant will leave. If a deal isn't reached, that's usually when crazy emergency maintenance complaints start to pop up where you are spending 100s if not 1000s to correct, with the tenant trying to use it as an excuse to break the lease at each occurrence.

On the flip side, if you want a tenant to leave, you're almost out of luck unless they want to go or they break the lease. There are a lot of ways a tenant can make your life hell without breaking the lease, especially if you live in the building. One example - they leave the trash cans open and the city fines you $300. How are you going to prove it was them and not someone walking through the alley? Or they pay late but not late enough for the fee. Or constant calls/texts/emails about everything, even stuff out of your control. That's a headache I don't want to be locked into dealing with for 2 years.

Renting in the winter here does suck, but so does moving. A solid applicant in my opinion, and among other things, is one who shows a history of not being transient and is not new to the area. If they know the area well they won't have the urge to move because the bus, store, or nightlife is too far away or its too loud, etc, and a history of staying 5+ years in the same unit shows they value stability. You don't want the lease to obligate them to live in the unit, you want them to be there by their own will. All other terms of the lease except for the term are the same on a MTM lease as it is on a 10 year lease. I have multiple tenants with MTM leases who have occupied the same unit 10+ years (not all of those years with me). At any time if I'm not happy with them, I can simply give them 30 days notice. Equally, if they are unhappy, I will usually get 30 days notice as well from them. I realize for higher income folks they usually want the stability of a lease of at least a year so they don't worry you'll throw them out in December just because your sister needs a place, but I wouldn't go past that as an initial term until you really know who/how they are.

Anthony Hurlburt · Answer

You are speculating that she is a great tenant. If you aren't willing to give up a months rent to see if she is a great tenant then you should keep looking for someone who can move in sooner.

Matthew Olszak · Answer

@Art Maydan A couple of things. Until you know that she is a good tenant, I wouldn't want to be locked into a 2 year lease with her. Leases are more burdensome on the landlord than the tenant. If something major changes in a tenants life, they are leaving, lease or no lease. If she is completely high maintenance and complains constantly and calls all the time, you'll have to deal with it for 2 years without much of an option.

You didn't say how much in total you are charging her upon signing the lease, but always get at least a full month + deposit (or move in fee). There are folks out there who play a game where they want to move in mid-month and just pay 1/2, and then that's the last $ you'll get. Especially at your price-point, you don't want someone who can't come up with the full month's rent until the last Friday of the month; they should have enough at least in savings to be able to pay you a full month's rent anytime during the month.

2 weeks vacancy isn't much if you are the most expensive in the neighborhood, even if that price is justified. At this point, we're in Aug. 2, so most responsible tenants who are looking right now are going to want to start the lease Sept. 1. If she strongly meets your criteria, I'd agree to let the lease start Sept. 1, but she has to sign now and pay in full now as if she were doing so on Aug. 31. Until the lease is signed and $ is in hand, its not a done deal.

Don't panic and let yourself fall into a mindset of scarcity, there are always more tenants out there. Review your rental price, review your advertising methods and format, review if your applicant base can meet your criteria, and expand/improve those as necessary to find the right tenant.

Mike Cumbie · Answer

A 2 year lease protects her and not you.

Do you envision it just being good to live next door to this woman? Have you ran any checks on her at all or is it pure gut from talking to her for a few minutes?

Not trying to make too fine a point but is the reason you want her to move in strictly business? If not, then find someone else even if she could move in tomorrow.

Art Maydan · Answer

@Matthew Olszak Thank you, Matt!

Matthew Olszak · Answer

@Art Maydan

Its a good in-person conversation to have so you can judge their body language when you mention a MTM arrangement with a signed lease. Phrase it that, "I really prefer a MTM lease, it makes it a lot easier when situations change if you need to move out [pause], but if you'd rather we can write it up as a regular 1 year lease". But before having that conversation, understand their pattern of moving, ie if they are transient, and what their long term plans are.

A MTM or 1 year lease isn't a deal-breaker for me personally at your rent level, although it certainly is when renting something in the 500-750 range (MTM all day). I know others here are of the opinion that you shouldn't give that option to a tenant, but I believe it can't hurt either way. Just don't go over a year at the start, its really no good for either party. And if you do a 6 month lease like I've done in certain situations, don't let month 6 fall in December :-).

Art Maydan · Answer

@Matthew Olszak

That makes a lot of sense. Thanks a lot, Matt! So you would offer MTM leases as a baseline and then if you see they're a good tenant who just want security and they push back, offer a year?

Art Maydan · Answer

Thank you, everyone.

@Mike Cumbie @Matthew Olszak

You guys are right that I'm speculating. Obviously, this would be conditional on a great MySmartMove report. I'm just getting antsy to get someone in here. Could you please elaborate on how a longer lease protects them more than me? I get that a tenant will move if they really want to regardless of lease, but they'll have to pay a lease cancellation fee of at least a month of rent. On the other hand, they could give their 30 day notice in the middle of winter and now I have to find a new tenant in the off-season.

Great Prospect Wants 9/1 Move-In, How to Retain?

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