Is a long term tenant really better than semi frequent rotation?

[Highlygeared]

Has anyone done the maths on whether its better to keep a long term tenant paying lower than market rent, lets say 10-20% less than market b/c theyve been there forever or better to keep jacking up the rent and getting market? Assuming of course new tenants arent going to destroy the place.

In a tight rental market (and corresponding higher int rate climate), I think charging under market to reward the tenant is a very good moral decision, but not the best business decision. Turnover can be costly if property is vacant for more than say 2 weeks or agent charges at least 1 week's rent to lease out but otherwise...

 

[alexlee]

Case by case, I think. I have a tenant who has stayed in the property for 8 years (before I bought it), and it’s probably under rented. I’m ok with that because I don’t have vacancies and he’s not complaining about the property, which does need work. If he vacated I would have to spend a couple of grand to fix it up.

Another is rented to a quasi government agency. It’s probably slightly below market, but they pay one month in advance every month, no troubles at all.

While it may not make total business sense to keep the rent under market, there is value in having a hands-free tenant.
Alex

 

[ozi]

I agree with Alex. In one of my IPs I have a tenant who has been there for 12.5 years. I have owned it for 2.5 years. The rent was a little under market when I bought it and I have raised it twice since buying it. But I have done some work on the property to justify this. At the end of the day, the tenant is happy and so am I. As mentioned, vacancies are generally not an issue and the tenants treat the place like their home. If you are going to raise the rent to market levels, maybe don't do it in one hit... thats if it is a big increase.

Cheers,
Ozi

 

[chrispy]

I have all long term tenants in Melbourne, the problem with this is the rents fall behind, then when you finally do get them to move there is so much to be done!!! So the property is vacant for some time.

I think you are actually better off if the tenant moves every 3 years or so, that way you can keep the property up to scratch and relet at the higher market rent.

Chris

 

[GoAnna!]

I think that very frequent change overs in tennsts can be very costly in maintenance becuase my experience is that long term tenants tend to just live with the quirks of the house over time while new tenants notice all them all and want them all fixed. Which is fair enough

 

[Highlygeared]

[I think that very frequent change overs in tennsts can be very costly in maintenance becuase my experience is that long term tenants tend to just live with the quirks of the house over time while new tenants notice all them all and want them all fixed. Which is fair enough/QUOTE]

Thats a true statement - I guess the ideal is having a LT tenant and raising the rent every 6-12 months but LT tenants seem to think they should be rewarded for being LT tenants by paying under market. Which is also understandable.

Hence, I agree with the adage of buying average properties in average condition in average-good locations. That wayit never has to look/stay swanky

 

[HandyAndy888]

I agree with Alex...by case. In a low socio area, high turn over may also be beneficial until you find an excellent tenant...my 2c

 

[BayView]

I have all long term tenants in Melbourne, the problem with this is the rents fall behind, then when you finally do get them to move there is so much to be done!!! So the property is vacant for some time.

I think you are actually better off if the tenant moves every 3 years or so, that way you can keep the property up to scratch and relet at the higher market rent.

Chris

I agree with this.