Offering long term discounts for future renters (tenants, incentive, 2%)

[scubamaniac]

I currently own a couple condos in the CA area which I rent out at about $1500 monthly per condo. The last few years have been pretty rocky for me since i've had lots of turnover in my tenants. Prior to 2009 I had a very good long term (6+ years!) tenant but she left to buy a home in another state. My other condo had a 2 year tenant who had to leave around the same time too.

Since then i've had a steady stream of renters who seem to only manage a year before moving on. In each case i've inquired to see why they left and it was always job related. So i'm pretty certain it's not on my end since I make sure all maintenance issues are taken care of asap. None of my tenants have ever complained about my condo before.

It usually takes me a month to find a suitable tenant when this happens. Unfortunately there's an awful lot of people with bad credit and criminal backgrounds where I live even though it's a pretty decent neighborhood. I think it's just a CA thing.

I'm considering starting up a discount plan to attract long term renters. I'll offer a 5% discount off monthly rent on a renewed second year lease and discount a further 2% on the third and 3% fourth. So a long term renter could potentially save up to 10% by the 4th year. I can only go up to a max of 10%.

The way I look at it i'm losing a month each year looking for tenants and this way by kicking in a $900/annual discount on the 2nd year (1500 x 5% = 75 mo.) I could potentially be keeping a good tenant and saving a lot of hassle at less cost to myself.

Vacancy rates in my area are about 9%.

What do you think about my discount plan? Both my condos are fully paid off and are just an income stream for me.

[beth98]

As a renter I would think this is great, but I don't know that it addresses your problem. If your tenant are moving because of work, offering them a discount wouldn't encourage them to stay.

I was happy my rent didn't go up at all after my first year, that in itself seemed like a discount to me.

[JanND]

Offer them a free months rent w/ a renewal lease, might cost you less overall.

[scubamaniac]

Originally Posted by beth98

As a renter I would think this is great, but I don't know that it addresses your problem. If your tenant are moving because of work, offering them a discount wouldn't encourage them to stay.

I was happy my rent didn't go up at all after my first year, that in itself seemed like a discount to me.

I realize that with my previous tenants it would have made no difference but i'm offering the discount incentive to entice new potentials who look at my property. I'm hoping i'll attract people who plan on being long term tenants.

[STT Resident]

In my opinion it's a very flawed approach. A free standing house might be looked upon differently but tenants who opt to rent condo units or apartments rarely look beyond a year's lease. If you have tenants in good standing who want to extend an initial year's lease then your better option would be to not increase the rent upon renewal. Offering a discount rate up front serves no good purpose. As you've already discovered, situations over which you have no control change as tenants either move on once their lease is over whether it be for a job transfer or for personal reasons related to moving to a less expensive place or looking for something larger to accommodate their particular growing needs.

Your rent income needs to reflect the fact that it may take you a month or more to re-let the unit - that's all part of doing business as a landlord.

[MikeJaquish]

Originally Posted by STT Resident

In my opinion it's a very flawed approach. A free standing house might be looked upon differently but tenants who opt to rent condo units or apartments rarely look beyond a year's lease. If you have tenants in good standing who want to extend an initial year's lease then your better option would be to not increase the rent upon renewal. Offering a discount rate up front serves no good purpose. As you've already discovered, situations over which you have no control change as tenants either move on once their lease is over whether it be for a job transfer or for personal reasons related to moving to a less expensive place or looking for something larger to accommodate their particular growing needs.

Your rent income needs to reflect the fact that it may take you a month or more to re-let the unit - that's all part of doing business as a landlord.

Agreed.
Offering a rent freeze for a subsequent year seems a better approach then programming in a discount in the first year, assuming that you are at a competitive market rent.

[FalconheadWest]

Why don't you instead offer a discount of $1450 if they sign an 18 month lease instead of a 12 month lease or $1425 if they sign a 24 month lease. If they have to break the lease for work, at least you've got their security deposit to offset vacancies. Get them to sign a longer lease up front. That's what I encourage in my market.

[scubamaniac]

Thanks for the comments but I think some of you may have misread my OP. The 5% enticement is for the 2nd year if they (and I) choose to renew the lease. The first year is at full rate.

Anyways, I'll keep your suggestions in mind and the longer term lease as suggested in the post above might work out better.

[manderly6]

I think the amount is probably insignificant for most. Unless the property is already on the low end compared to similar places, I don't think $75 is going to be what makes someone renew. And it is even less in the next years.

[Ellen Pitts]

I also think the amount is insignificant UNLESS you offer it in a lump sum. In other words give a rebate for a signed second year lease. If you're losing $900 every time the condo turns over, offer a rebate of $450 for a signed second year lease. People like lump sums.