Different rents for different length of lease?

Question

Was kicking around this idea today and wonder if anyone does something like this....say offer a one year lease on a unit for $800/mo, or you can get a six month lease for $1000/mo....month to month lease? $1200/mo. Obviously meant to incentivize people to stay long term. Thoughts?

Matt K. · Answer

Why would you want a longer term at lower rent... This is how you get to a undermarket rents and or terrible tenant.

A long term lease really doesn't do you much good, or maybe I should say won't protect you like you think. If a tenant leaves what are you going to do, probably not a whole lot. You can't collect something that doesn't exsist or damage something that is already in bad shape.

You will have a duty as the landlord to get it rented back out in a timely manner...you won't be able to double dip. As in you're not collecting lost rent for the remaining months and then leasing it back out...

At best you could get them to pay a termination fee voluntary, more likely they leave and up to you to TRY and collect, or you so worried about vacancy you fail to screen properly and have an eviction and lose more money then you would have sitting vacant.

And let's be real, no one renting at the 800 price point is going to pay 1200 month to month....and no one at 1200 mo is going to be looking at an 800 mo property.

You could do a discount for long term good tenant say like raise rent 50/mo each year but offer 25/mo discount. This way you set the expectation of annual raise BUT also reward/acknowledge the good behavior by giving a discount.

You need to figure out your property then your renters and then your lease terms. It you're looking for a stable job history,high credit history, and low turnover.... that's probably not at 800/mo for most places.

Nathan Gesner · Answer

Rent at market rate for a one-year lease. If they want anything shorter, you charge a higher rate to compensate you for the risk of higher turnover and possible vacancy.

EXAMPLE: a 3bed/2bath home rents for $1400 which is standard for the market. Tenant wants to rent month-to-month while he looks for a house. I charge him $1,680 (20% increase) because there's a good chance he'll leave in the fall when it's tougher to find a replacement tenant.

Jerry Cloe · Answer

The gap between your numbers seems a bit high, but that aside, this is a very common practice. The hope being the longer the tenant is locked in, the lower certain other expenses (vacancies, between tenant repairs, refreshing the unit, etc) would be in the long run.

Jordy Train · Answer

This is more the thought process I was running on. The year long lease would be market value (or even slightly higher), and the higher amounts for shorter terms would both encourage a longer commitment but also it'd be a bit of a marketing ploy to make them think they're getting a good deal.

For reference, I live in a small midwest town of about 3500 people that has a college with a population of 700 kids. If I buy in this small town it most likely will be a college rental.

Matt K. · Answer

College kids and someone going month to month because they want to buy a house aren't the same thing though...

A college kid is probably going to either be inexperienced or have a cosigner who probably is also inexperienced. They'll want a fixed term lease. You probably could charge higher if you did less months and only did the school year... But not sure why you'd want to do that really not much benefit.

I'd just put in a lease termination fee and require a cosigner. Put each person on their own lease that way when friendship dissolves you can replace one person vs an entire lease. Probably could charge more per room vs house as well...

Bryan Blankenship · Answer

@Jordy Train Like everyone else has said, that's not a great way to do it. There's a BIG difference, at least around here, between an $800/month unit and a $1200/month unit. If it could ever rent for $1200/month, then market it at that rate and get someone in there for a year like you normally would.

The only time we do short-term leases is for companies, like insurance companies, who send one of their agents temporarily to an area for 3-6 months at a time. THEN the rent amount is higher just because of their immediate need and lack of wiggle room on terms. Hope that helps!

Different rents for different length of lease?

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