What is the Average "Lease Expectancy" of a Tenant?

[CairnsInvestor]

Trying to gain some knowledge here from some of the more experienced investors here; the ones who have fully tenanted IPs for the last 5 years or more.

Over the past 5 years or more, what has been the Average "Lease Expectancy" of a Tenant? What I mean is: how long have your tenants stayed in your IP(s)? Have you been turning them over every 6 months? 12 months???

I know it depends on each case-by-case basis; but on average? Give some examples please.

Have you learnt after 3 or 5 years of leasing property that it's far more cost-effective to have a long-term tenant at under-market rent, than constant tenant changes every 6 months or so? Or you don't care about extra vacancy periods or letting fees, so as long as the rent is market or above?

 

[alexlee]

You're very hung up on this rent thing, CI. You do realise that the main gains from resi IP investment is NOT from the rent, right?
Alex

 

[wylie]

I voted "six months" before I read your question fully. I thought you were asking what the "tenants" expect as far as length of lease is concerned.

We usually offer a six month lease so that if things don't work out we can "move 'em on". Quite often we give a twelve month lease.

Tenants who are about to leave have been there five years, during which time we have increased the rent, but it has slipped behind the market, especially the past year or so when rents have gone up quickly. We were about to give them a big increase, but it would still have been slightly under market because we wanted to keep them. They are leaving because they are moving cities.

So, they are going, and it is good because we will alter the front steps to give us a fourth bedroom/separate entrance study, increase the rent and ask market rates.

Generally, we are happy to sit slightly undermarket (say $10 per week) in exchange for a long term tenant. To lose $450 for a week empty while tenants change over takes a while to catch up, so keeping it slightly lower in order to keep them is a fine balancing act.

Wylie

 

[BayView]

Depends on the type of properties you buy as well.

If you buy in holiday areas, or inner city apartments where the renters tend to be younger and more mobile job-wise, or mining towns where the populations are more transient, then you should expect more turn-over.

Having said that, we have a house in Kalgoorlie with a GEHA lease. It was in place when we bought in 2003, they just renewed their lease this month for a further 3 x 2 x 2 and there has not been a single late payment or vacant day since we bought it. The other property we have there; a 2 x 1 unit in downtown, bought the same year, has had 2 tenants; the latest moved in about 6 months ago, so the first one was from '03 -'07.

If you buy average homes in average suburbs at the average (or lower) prices (like Alex and I) you tend to get more stability from the tenants, hence longer, if not indefinite tenancy.

I would say our average tenancy over the last 5 years would be close to 4 years; not a lot of vacancy. We had 2 shockers close together at the start when we bought our Frankston property in '04, but since then the same tenants. Our 2nd property in Highett, bought in '01 still has the same tenants.

 

[skater]

Unlike many investors, I keep my rents at market. I am very proactive at raising the rents and I find that I don't get additional vacancies by doing so. It is a pain the neck for a tenant to move, so for the sake of an extra $5-10pw, they are usually better off just staying put & dealing with the increase, rather than the costs & inconvenience of moving. I have many that stay 2-3 years unless I move them on & some longer than that.

 

[CairnsInvestor]

I would say our average tenancy over the last 5 years would be close to 4 years; not a lot of vacancy. We had 2 shockers close together at the start when we bought our Frankston property in '04, but since then the same tenants. Our 2nd property in Highett, bought in '01 still has the same tenants.

Using your IPs examples above, have you raised the rent to market rent for the 6 year tenant in the Highett IP or have you kept it undermarket to please the good long term tenant?

 

[CairnsInvestor]

Unlike many investors, I keep my rents at market. I am very proactive at raising the rents and I find that I don't get additional vacancies by doing so. It is a pain the neck for a tenant to move, so for the sake of an extra $5-10pw, they are usually better off just staying put & dealing with the increase, rather than the costs & inconvenience of moving. I have many that stay 2-3 years unless I move them on & some longer than that.

So Skater, do you consistently increase the rent $5 or $10 at each new lease renewal no matter if a new tenant or same tenant?

 

[lizzie]

i try to keep my rents at market with $5-10 increases every 6 months - i'm running a business here and with tight rental markets (atm) no one is moving anywhere.

unfortunately because rents have risen so quickly recently the $10/wk increases haven't kept pace with what vacant properties are renting at - but i will keep plugging away with an increase every 6 months until they eventually catch up.

i haven't yet, in 9 years of being a landlord, had a tenant leave because i've increased the rent.

 

[MickInvestor]

Having said that, we have a house in Kalgoorlie with a GEHA lease. It was in place when we bought in 2003, they just renewed their lease this month for a further 3 x 2 x 2 and there has not been a single late payment or vacant day since we bought it. The other property we have there; a 2 x 1 unit in downtown, bought the same year, has had 2 tenants; the latest moved in about 6 months ago, so the first one was from '03 -'07.


I pray that I get this type of tenant for my first IP - I just bought in Banyo QLD

 

[skater]

So Skater, do you consistently increase the rent $5 or $10 at each new lease renewal no matter if a new tenant or same tenant?

I consistently keep an eye on the market rent & raise the rent at every opportunity. If rents are rising, then I will raise them every 6 mths. Some of them have been by $20 this time around, however there have been others that have only been $5, as it all depends on what the market is like in a specific area. I do not wait for a new tenant. I believe the key to keeping your rents at the optimum level is to consistently raise them as often as possible, otherwise you could be stuck trying to play catch up with a longer term tenant.

Like Lizzie, I have never had a tenant vacate because of an increase in rent.

 

[BayView]

Using your IPs examples above, have you raised the rent to market rent for the 6 year tenant in the Highett IP or have you kept it undermarket to please the good long term tenant?

The first 2 years of the Highett property there were no rent increases. The rental market when we bought there was soft. Bad timing by us, but we were able to buy then so we did.

As per the PM's suggestion, we decided not to put up the rents during this time, and given that they have been excellent tenants, we were ok with that.

Since then we have been going at market rates, and the increases have been only 20% since then. A yearly average of 3.3%, but there is another rent increase due next month, so the average is moving up a bit.

There is no need to keep the rents under market to please a good tenant, as the cost for them to move elsewhere for no real benefit is not worth the effort.

As long as you don't try to stiff them with the rent increases, they will generally accept it as a cost of living.

 

[buzzlightyear]

Trying to gain some knowledge here from some of the more experienced investors here; the ones who have fully tenanted IPs for the last 5 years or more.

Over the past 5 years or more, what has been the Average "Lease Expectancy" of a Tenant? What I mean is: how long have your tenants stayed in your IP(s)? Have you been turning them over every 6 months? 12 months???

I know it depends on each case-by-case basis; but on average? Give some examples please.

Have you learnt after 3 or 5 years of leasing property that it's far more cost-effective to have a long-term tenant at under-market rent, than constant tenant changes every 6 months or so? Or you don't care about extra vacancy periods or letting fees, so as long as the rent is market or above?

CI, for my IP's I have found the folloiwing;

* 4 different tenants in 3.5 yrs
* 3 different tenants in 4.5 yrs
* 2 different tenants in 2.5 yrs
* 2 different tenants in 3 yrs

Another IP which was purchased in June (which has house and a SCU at the back). The SCU has had three tenants in that time (end of lease and lease break for the first two), but at least the rent has increased 20% in that time.

Regarding rents, I try and keep them as close to market rates as possible. In the current market, the LL is playing catch up for a number of years when rents were stagnant. So because of vacancy rates and general rental increases, I will endeavour to keep them very much in line with market increases.

 

[alexlee]

I've honestly lost count with mine. I never meet them, and don't want to. I just keep an eye on when the lease expires so that I remember to talk to the PM beforehand.
Alex

 

[ianvestor]

I've honestly lost count with mine. I never meet them, and don't want to. I just keep an eye on when the lease expires so that I remember to talk to the PM beforehand.
Alex

I was thinking the same thing Alex. For me it's more about PM turnover if anything And thankfully that hasn't happened yet in 5 years.

 

[marg4000]

We have found that, on average, tenants last about 18 months.

With one exception. In 1991 we purchased a unit on the GC with an existing tenant. Sold the property recently with the same tenant after 16 years.

The rent pretty much followed market rates, was a bit higher at one stage, and at another time when vacancies were plentiful we didn't raise the rent for 3 years (in keeping with market prices in the mid 1990s - checked with a local PM who said if we had a good tenant to treat them like gold). The rent did fall behind over the last couple of years because of the sudden and steep rises. At this time we raised the rent $10 each 6 months.

We considered this only fair, as we never paid PM fees, no vacancies, the tenant deposited the rent religiously each fortnight into our nominated account, paid in full beforehand when travelling. Repairs were minimal as we had a single older lady tenant who was friendly with the other residents and they used to do all sorts of odd jobs for her.

AND when we sold we received more than the asking price because of the immaculate condition of the unit.

Rent received is not the whole story. Look at the big picture and proceed accordingly.

My opinion only
Marg

 

[wylie]

Old chap we know who has more property than you could poke a stick at, commercial and residential, told us recently he was off to the funeral of one of his tenants who had been in the same place for 27 years

Canny old chap, looks like he doesn't have two pennies to rub together, but loaded.

Wylie

 

[tourist]

Thats difficult to work out because different properties and different economic conditions will result in different lengths of tenancy.

Our first property bought in '94 went through a period of short term and difficult tenants but times have changed and I am increasingly picky about the PMs I use. The latest tenant has just signed the lease for their 3rd year.

I have one property with the same tenant since new, 8 yrs ago. They have outlived 4 PMs. The difficulty with a long term tenant is the PM gets attached and isn't keen on increasing the rent.

Another property,a townhouse, is constantly changing tenants every 6 months. Others have varied depending mainly on the PM. A good PM can find and keep a good tenant.

Generally I believe a well maintained property, good PM and happy tenant should result in a longer term lease and I don't have to spend too much time thinking about them.

Reading my post again before I send it sounds like I am really tough on my PMs but my preference is to let them get on with their job. I hope I have learnt how to recognise avoid the bad ones now.

cheers

 

[BayView]

Old chap we know who has more property than you could poke a stick at, commercial and residential, told us recently he was off to the funeral of one of his tenants who had been in the same place for 27 years

Canny old chap, looks like he doesn't have two pennies to rub together, but loaded.
Wylie

That's who I want to be; that annoying old ba$tard with the flanno shirt and army disposals pants driving around in a brand new Bentleigh; just to piss everyone off.

 

[kathryn d]

There was an old guy like that here. He was dirty and lived in an old run down travel trailor, because the house was unlivable.It was on a big parcel of land.
He was always scrounging at the dump, picking up money back bottles on the side of the road.
To look at him, you would think he was just scraping by.

When he died, he left everything to a family who were always kind to him.They built themselves a nice, but nothing fancy,home on that property.

You just never really know who has money.

 

[Harris]

driving around in a brand new Bentleigh

you can drive around in Bentleigh , however not sure if it a brand new suburb ... been there for a while..