Is a year-long lease too short? Take a look at the benefits of a long term lease for agents, landlords and renters.
In Australia, the standard residential rental lease tends to be for a one year period. On expiry, the agreement rolls on month to month unless otherwise renewed, with the tenant having the option to terminate with four weeks notice. The landlords must give a longer period of notice to vacate particularly if the NTV is for no reason. The landlord cannot enforce a tenant to take a new lease.
If you have unreliable tenants, a shorter term arrangement is one to be grateful for because you have the option to move them on at the end of the lease without breaching the contract. However, if you manage to secure excellent tenants who want to stay for the long term, an extended lease can be worth exploring.
The benefits of a long term lease
Arranging a longer lease of up to five years with reliable tenants who have proven they can pay on time and look after the home like it is their own can be beneficial for a number of reasons.
For landlords
Steady income
The promise of recurring income for a long period of time makes it easier to create a budget and plan for the future. Landlords can more confidently forecast a year in advance what their rental income will be. This can help them when they are seeking to invest in more property (which you as a real estate agent can offer to manage).
While Airbnb may deliver higher nightly rates, the average return of a secure, long term tenant can actually work out more favourably because you don’t have the stress of trying to forecast when the property will be vacant or tenanted.
Less stress
Long term tenants have already proven themselves to occupy a property without causing a fuss. Landlords have peace of mind, knowing requests will be reasonable and there will be less chance of damage.
Better property upkeep
Landlords can work with the tenants to improve the property for a win-win. For example, the new tenants may want to paint and may be happy to do the work themselves. They may be motivated to do some landscaping and create a great-looking garden bed, which can add value to the property.
If they are in the property for a while, tenants are also more likely to be concerned about its upkeep. This means small issues will be reported before they become big ones and the landlord will know the property is in good hands.
Less vacancy
Having a tenant move out and nobody move in to replace them is every landlord’s worst nightmare. Having a long term tenant means you can rely on the steady income, even if the rent is slightly lower than market value.
For property managers
Less paperwork
Speaking of tenants moving out, for property managers this means advertising the home, vetting new tenants, arranging contracts and collecting bond payments. When you’re flat out with other clients, this is a time-consuming task you don’t look forward to.
With long term tenants, you’re faced with the job of finding and onboarding new tenants far less often.
Reliable income
Long term tenants improve the value of your rent roll because you know they will be in residence for several years. If you’re thinking of selling your rent roll, this can really help add to the value.
Improved reputation
Having several long term tenants on your books is a great reflection of your agency. It means these clients are happy to live in a property managed by your business. The tenancy arrangement cuts both ways and people will only be excited to stay on if they feel they can rely on you so be proud if a request comes in for a longer agreement.
Long term relationships
We all like to work with people we know. As you deal with the same tenants year in, year out, you’ll get to know them. If you’re choosy about the residents you create long-term agreements for, you’ll be able to enjoy hearing from them and working together to ensure the property is well looked after. You may even be able to negotiate less frequent inspections, reducing pressure on your team.
For tenants
Cost savings
Moving can cost thousands and some tenants find themselves faced with the expense every year. Staying put also allows them to budget and save money.
Consistency
There is a lot to be said about having a place you can call home and a long term tenancy is the next best thing to a mortgage. Tenants have the benefit of a home for many years, without the financial pressure of maintaining it. This makes it easier to remain in a job and get to know the local community.
Relationships
Relationships count for tenants as well. They prefer to have a property manager they know will respond to their calls and they tend to take good care of the property in return for the extended agreement.
With Airbnb all the rage, it can be tempting to go for only short term rentals, or to ask tenants to move out so you can profit during the high season. However, this can be a risky move, especially when the tourism market becomes unpredictable. A longer term tenancy can be a more favourable arrangement to ensure steady income for your agency and the landlords you represent.