Idea: Aligning Landlord and Tenant Interests with Incentives

[Brad Morgan]

Many tenants would like to stay long-term in the home they rent because moving sucks, kids are in local schools, friendships are made with neighbors, etc. Most landlords would like their good tenants to stay long-term as well because vacancy sucks and finding new high-quality tenants can be a challenge.

In this case both the tenant and the landlord have a similar objective, which is to make a longer-term agreement. We’ve all heard of 2-year leases, and of course longer term agreements, but these are not always ideal.

Here’s the idea: sign a typical lease agreement with an evergreen clause and the following included:

Each month where the payment is received on time, a part of the rent (perhaps $25-50) goes into a separate “incentive account.” This money grows over time and the longer the tenant is there, the larger the sum becomes. If the tenant decides to move, the landlord keeps the money. If the landlord decides to sell the house or boot out the tenant, then the tenant gets the money.

For this to work certain stipulations like on-time rent payments, not damaging the property, etc must be part of the agreement. Also an agreement to peg rent increases to an inflation index would be necessary.

What are your thoughts? What are the major holes in this idea that perhaps I’m not seeing?

[Greg M.]

You're making things way harder than they need to be. You're trying to find a way to incentivize the tenant to stay. The way you do this is by running a professional operation and have rates in line with the marketplace. The tenant will leave at any point they want to leave. 

My tenants generally leave because they change jobs or buy their own place. No $25 a month in a savings account is going to change their mind and have them stay.