A lengthy lease extends beyond the norm in the field, offering stability for property managers, investors, and tenants. Long-term property management is a triple win. In this article, we explore extended leases, their benefits and drawbacks, and how they can lead to success for all stakeholders.
What is a long-term lease?
A long-term lease surpasses the industry standard duration. In commercial real estate, this could span a decade or more, while for single-family homes, it usually exceeds a year. Extended leases ensure consistent payments throughout the lease period, benefiting property managers with stable income and reduced vacancies. Yet, infrequent lease renewals might limit price adjustments.
The idea of a lengthy lease can evoke concerns for property managers. Committing residents for two or more years may seem like a gamble on their quality and lease value. While such leases involve trade-offs, many property managers recognize the advantages outweighing risks in a changing market.
Benefits of a long-term lease
A lengthy residential lease provides advantages to residents, property managers, and owners:
- Stability: Extended leases offer residents security, preventing sudden property sales or lease non-renewals. Families and single individuals seeking community roots benefit from avoiding frequent moves.
- Predictable Costs: Rent remains constant during the lease, aiding residents in budget planning and preventing unforeseen rent hikes. Property managers and owners enjoy steady income for expense and investment planning.
- Lower Vacancies: Long-term leases decrease property vacancy rates, providing reliable, committed residents. This reduces turnover costs and time spent finding new tenants.
- Responsible Tenants: Residents with long-term leases tend to maintain properties better, leading to fewer damages, lower maintenance, and a positive experience for both parties.
- Enhanced Credit: Extended leases help residents establish a rent payment history, improving creditworthiness. Second Nature’s Resident Benefits Package even reports on-time payments to credit bureaus.
Ultimately, a prolonged residential lease yields a Triple Win for property managers, owners, and residents. Defining clear lease terms ensures that all parties’ expectations are met.
Liabilities of a long-term lease
Naturally, despite the advantages, long-term leases come with their share of obligations. The principal downside of extensive management lies in the necessity to ascertain the lease and resident compatibility with your investor.
Before embarking on a long-term apartment or house lease, several considerations should be kept in mind:
Conduct comprehensive background and credit assessments for all tenants. Outline eviction-inducing conduct explicitly in the lease agreement. Anticipate challenges when removing problematic residents. Recognise that raising rent swiftly, as done with short-term rentals, might be more complex.
Long-term lease vs. short-term lease
A residential long-term lease and a residential short-term lease primarily differ in their duration. Long-term leases usually extend for a year or more, while short-term leases span less than a year. The key distinctions are as follows:
- Duration: Long-term leases usually persist for one or two years, while short-term leases can range from a few weeks to 11 months.
- Flexibility: Short-term leases provide greater flexibility, accommodating quicker moves, which suits uncertain or frequent relocators. Long-term leases prioritize stability but can be less adaptable for early departures.
- Rent Amount: Short-term leases can be costlier month-to-month due to the flexibility premium. Long-term leases generally feature lower monthly rates but require consistent payments for the entire term.
- Renewal: Long-term leases typically allow renewal, extending the lease. Short-term leases may not offer automatic renewal, necessitating negotiations for extensions or new agreements.
- Maintenance: Long-term leases shift more property maintenance responsibility to tenants due to their extended stay. Short-term leases often involve more property management-led maintenance due to higher resident turnover.
The choice between the two types of leases depends on factors like your future plans, stability needs, flexibility, and budget considerations.
Long-term lease examples
A residential long-term lease typically pertains to an agreement between a tenant and an owner that extends for a year or more. Here are illustrations of long-term residential leases:
- One-year or two-year lease: The most prevalent long-term lease type is the one-year lease, spanning a year with monthly rent payments. Less common yet still standard are two-year leases.
- Multi-year lease: In specific instances, owners might offer leases spanning three, four, or five years. These leases ensure high stability and predictability but offer less flexibility than shorter-term alternatives.
- Corporate lease: Businesses might lease properties for their employees over several years. Such leases often involve direct company payments to owners.
- Lease-to-own: This long-term lease lets residents rent a property for an extended period with an option to buy it at the lease term’s end. This suits those who want to establish roots without immediately committing to homeownership.
How the long-term lease helps investors
Gregg Cohen from PWB Properties spearheads the movement for long-term leases. PWB stands out as a unique property management firm, prioritizing investor ROI.
JWB’s success lies in their adept grasp of generating a Triple Win in an era requiring relationship-focused property management. Beyond conventional property management, they’ve crafted an investor-friendly business model. This includes a focus on long-term leases, as evidenced by their 5-year case study showcasing the financial outcomes of enrolling residents in extended lease agreements.