Incentive to get a long term tenant

From: Apprentice Millionaire


Hi all,

I have had what some people may think is a crazy idea. I have a property, and I want to secure a long term (say 5 years) tenant. Currently, the tenant pays $165 pw. My incentive plan to entice this tenant to sign for 5 years on the following contract terms (the numbers are ball park figures at this stage) is: in year one, rent in $170pw, yr 2 it is $175, yr 3 $180, yrs 4 & 5 it is $185 pw. If the tenant stays for 5 years (not a day less), I will pay the tenant 2 return flights to Europe up to $3500. The tenant leaves after 4 years and 11 months? He/she forfeits everything. If the tenant stays for 5 years, the contract is then renewable for the next 5 years with a new set of figures. And another trip to some other destination. Variation on the theme: tie the rental increase to the CPI.

My aim is obviously to have zero vacancy. No reletting costs, no hassles trying to find a new tenant, no loss of rental... This has a price, and I think what I am offering is good. Sounds crazy? What would the more seasoned landlords out there think of this?

How would you go about getting your tenant to sign for 5 years?

Cheers
Apprentice Millionaire
 
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Reply: 1
From: Michael G


AM,

Does the increase in rent less less inflation and less market growth plus savings in re-leasing fees and vacancy cover the COST price of the tickets?.

That kind of offering may need to be reviewed under the trade practices act. For if there is a dispute it may go to tribunal to the consumer commission?

I.e. who would mediate in a dispute. Not a crazy idea if it works :)

Michael G.
 
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Reply: 1.1
From: PT Bear


I read in a book on how to manage your own property (I don't remember the exact title) that you can't legally enforce a lease past 12 months. I don't remember the exact details so I may be way off course here.

I don't think this a great bearing on what AP is proposing as what he's suggesting is an incentive, but it might be worthy of further investigation.

PT_Bear
 
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Reply: 1.1.1
From: Michael Croft


Hi,

Tenancy legislation is state based and so it varies. But it used to be in NSW and ACT, that anything over two years gave the tenant a registerable interest in the property, ie they could lodge a caveat and prevent a sale - major hassle!

I haven't looked at it for a while as all my tenants start on 12 month leases and I don't bother resigning them - just let them continue on a month to month basis. In other words, check this info out for yourselves.

regards, Michael Croft
 
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Reply: 1.1.1.1
From: Apprentice Millionaire


Thanks for the feedback, guys,

Michael G: I am a travel consultant, so I know what the cost base of my tickets are. The tenant will get 2 tickets valued at a total of $3600. I pay much less for them :)

PTBear: it is indeed an incentive. No skin off my nose if the tenant leaves earlier. Just his or her loss :)

Salut Michael C: my plan is to hold the property for at least 5 years (my strategy is a boring buy and hold one!), so I don't mind if there's a caveat on the property.

All good info that I will take on board! Thanks again!
Cheers
Apprentice Millionaire
 
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Reply: 1.1.2
From: Les .



G'day PT (and others),

Happened to have a glance thru some seminar info that another let me view - in there, one of the ideas was to set up a tenant on a Commercial Lease rather than residential. This apparently allowed a bunch of things to happen that couldn't with straight Residential leases.

Piqued my interest somewhat - might be of interest to others (and MIGHT just provide an "outside the square" nudge ....). Note that I have NOT researched or tried this - it is included FWIW, with all faults, etc.

Of course, it might also open up another can of worms .....

Regards,

Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 1.1.2.1
From: R S


I reckon it's a top idea!!! However, just be aware of factors like inflation and stuff.
Either than that, good one!

RS
 
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Reply: 1.1.2.1.1
From: Sergey Golovin


AM,

If they (tenants) want to stay, they will and if they do not, well, not much you can do about it. How can you possibly hold them back? And 5-year term is such long term to think about in advance specially to rent. It is OK when it happens naturally though.

Might as well introduce the concept of lease options to them while they are there. It would be satisfactory to everyone and you do not have to come up with free travel tickets. They will buy it, well your laughing if not you will get new tenant and start again.

Tell’m they can be proud owners of real estate… while they are thinking about it buy another house for them. It is plenty of houses in Australia to chose from.

Serge.
 
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Reply: 1.1.2.1.1.1
From: Yuch .


Knowing AM is a buy and hold person, I have an idea here. :)

In my opinion, 5 years is a long time, I don't know if people are happy to stick around just for the air tickets.

So instead of getting them to sign a 5 years lease, if they sign a 2 years lease they get one ticket and if they sign up another 3 years lease they get the second ticket at the end of the 3 years lease.

Regards
yuchun
~ The secret to success is to start from scratch and keep on scratching. ~
 
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Reply: 1.1.2.1.1.1.1
From: Apprentice Millionaire


Thanks Yuch!

That's a good idea, too! Actually, the current tenant has been in the property for the last 5 years, and is ready to sign for another full 12 months. The likelihood that this tenant will stay for longer is good, I just wanted to make a long term lease and regular rent increases palatable!

Cheers
Apprentice Millionaire
 
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Reply: 1.1.2.1.1.1.1.1
From: Sergey Golovin


AM,

You might as well adopt commercial type approach 2+2+1 (one ticket + one ticket + all family).

But in your case looks like you have to come up with family package almost straight away. And then start sending grandparents away...

Serge.
 
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Reply: 1.1.2.1.1.1.1.1.1
From: The Wife


Oh AM< why not suggest from another country to australia, that way they can say "grandma in 5 years time, I am going to pay for you to come here to australia for a holiday?

same sorta thing I guess? But hey...its an idea ;o)

TW
~Life is a daring adventure, or nothing at all~
 
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