Personally, I couldn't care less about the annual rent increase. When a tenant asks to sign a long-term lease, they’re telling you how much they love your house. They like and respect your property, and they want to stay put. I think that’s a plus!
Certainly there is money to be made in the small rent increase, however I find that tenant turnover is one of the most costly processes in the real estate business. As you probably know by now, I factor the cost of vacancy into my ROI formula, but tenant turnover can still be a hassle.
Think about it like this: a tenant turnover is like a double whammy. Not only are you forgoing rental income while your property is vacant, but you’re also spending money on the cost of the turnover. You’ll have to paint, re-carpet, and patch any drywall.
Let’s say your property rents for $700 a month, and during a tenant turnover, you don’t collect rent for a month. Let’s figure in the cost of repairing the rental while you find a new tenant, probably around $300. Total, you’re looking at about $1000. I would rather mitigate that cost by allowing a tenant to stay multiple years.
My experience has been that tenants that want to stay for a long lease are quality tenants. They pay on time, and they treat my property as if it were their own. To me, it’s worth it to allow a tenant to sign a multiple-year lease.
What has your experience been with multi-year tenants? What's the longest lease you've ever signed? I’d love to hear your thoughts.