Long-Term Rentals Strategy in Real Estate Investment

Rental property investment has seen a surge in popularity nowadays. An average of 86% of people can’t afford to buy a home in the current market, which gives them only one solution: to rent. This is why the U.S. had an average of 45 million homes occupied by renters.

Despite the market conditions, people still need a place to live. This brings us to long-term rental strategies. Rental units are more affordable than home ownership and offer more flexibility for tenants. This benefits you as an investor because there will always be someone out there looking for a long-term residence.

However, you’ll need a strategy if you want to succeed. This protects you from complications in the long run. This article will offer more insights into long term rentals and how to make the most of them.

What Are Long Term Rentals?

Long-term rentals are properties that you lease out to someone over a longer timeframe. Most of the time, this is 6 months or longer. These types of properties cater to those seeking steady living arrangements but don’t want to bind themselves through ownership. It also benefits landlords, as it offers a source of consistent income.

Unlike short-term and mid-term rentals, tenants can personalize their living quarters to make them feel like “home.” They can use their own decorations and furniture, as long as it doesn’t decrease the market value of the property. This lets tenants enjoy a pseudo-sense of home ownership while giving landlords an easier source of income.

Some common real estate options that can be rented out long term include apartments, houses, apartment complexes, and many more. Owning a flat requires tenants to pay twice the income they would through renting, so rental properties give them more flexibility. Long-term properties appreciate with time, giving more profit opportunities for landlords.

Benefits of Long-Term Rentals for Tenants and Landlords

Long-term lease agreements can bring a series of benefits, including the following:

Stability and Security

Long-term rentals (LTRs) bring fixed rent and the potential for a long-term relationship with the landlord. If things go well, they offer stability for months or perhaps even years. Landlords receive stability in the form of steady income, as tenants send their rent every month. This leads to less turnover, saving costs in the long run.

Less Bureaucratic Hassle

Mid-term rentals are convenient but take tenants through constant renewal processes. Depending on the property, they will have to sign a new agreement every few weeks. Some long-term rentals offer yearly renewals, but in most cases, the same contract can apply for years. This means less administrative work and fewer negotiations for both parties.

Reduced Turnover Costs

Moving is expensive for tenants, since they will have to pay for movers and potentially miss work. Landlords also pay the price, since they have to once again go through the advertising, cleaning, and preparation process. Leasing out in the long term keeps turnover costs low.

Potentially Lower Levels of Depreciation

People constantly moving in and out of the house can lead to faster depreciation of the property. When you lease out in the long term, tenants can personalize and care for the space themselves. Vetting tenants is important to make sure this happens.

Risks of Long-Term Rentals for Tenants and Landlords

Long-term rentals have advantages, but they also come with risks, such as:

Lack of Flexibility

Most contracts require the tenants to live in the space for a determined period. If they want to move out, they will have to pay early termination fees. Landlords can also have difficulties adjusting the rental terms if they lease out in the long term. They may also not be able to easily sell the property since they are bound by the contract.

Tenant Issues

Tenants are at risk of coming across a difficult landlord who fails to meet their requirements. This leads to tense relationships and higher expenses in the long run.

On the other hand, landlords could end up with a problematic tenant. Some will damage the property or fail to pay their rent on time. This lowers the property value in the long term. Even their deposit may not be enough to cover the costs after they move out.

Property Maintenance and Repair Costs

Tenants have to wait for the landlord to address repairs and major maintenance issues. This leads to discomfort and frustration if they are delayed.

Long-term leases also increase maintenance costs for landlords, since everything in the household is used on a regular basis. Sometimes, short-term or mid-term rentals have lower occupancy rates based on the season. This means the house won’t see as much damage.

Difficulty in Eviction

Tenants who want to move out early might face legal complications and extra fees. They are bound by a contract, and they have to respect it.

Landlords can also face time-consuming and expensive eviction processes if the tenant proves to be problematic. Tenant protection laws are on the tenant’s side for the first 6 months, so landlords have to go through a lot of hassle to evict someone.

How to Manage Long-Term Rentals

You will need effective rental property and tenant management if you want your rental property to succeed.

A good plan leads to a steady income stream and helps maintain the property value while keeping your tenants happy. Below are some things to keep in mind:

1. Contract

The lease agreement is the groundwork of every successful long-term rental. It makes sure that everyone understands what’s expected of the other party. This helps avoid disputes and misunderstandings in the long term.

Make sure that the document is thorough and clear, outlining every term that could be relevant for your property. The average contract contains the following aspects:

• Duration of the lease (move-in and move-out date).
• The monthly rent amount (and its due date).
• Security deposit terms (and the conditions for its return).
• Rules on pets, subletting, and smoking inside the house.
• Maintenance responsibilities (which tasks fall on the landlord or the tenant).
• Eviction process in case of lease termination.
• Information on the lease renewal process (how it will be handled or whether rent increases are allowed).

The stronger the contract, the fewer loopholes a tenant can find. This protects your investment in the long run from those who want to take advantage.

2. Landlord Responsibilities

The landlord's responsibilities don’t end the moment you lease out the property. You will have responsibilities towards that tenant to ensure they enjoy a safe and habitable living environment. Here’s what you have to do:

• Set up regular inspections and maintenance to ensure the property is well-maintained.
• Give proper notice before visits or inspections to respect the tenant’s privacy.
• Be aware of tenant rights, rent control laws, and eviction processes to prevent legal issues.

Tenants have their own responsibilities in this calculation. They have to care for the property and report repairs to prevent further damage. It’s best to outline these in the lease agreement to ensure you’ve reached mutual understanding.

3. Maintenance and Repair

Tenants can deal with minor issues such as replacing the light bulbs or changing the HVAC filters. However, major repairs fall on you, the landlord. You will have to conduct regular inspections of the property to ensure that everything’s going smoothly. It’s best to hire property managers or reliable contractors to make that happen.

Landlords have to respond quickly to maintenance repairs. Instruct your tenants to report maintenance issues immediately, offering as many details as possible so the landlord can handle things. In the meantime, tenants have to keep the property in good condition by cleaning or fixing minor problems.

4. Rent Payment

Set up a smooth payment system to keep the cash flow going. About 42% of tenants pay their monthly dues by check, but you’ll have to make yourself (and them) available for those times.

Times have changed, and a good idea is to automate rent payments via bank transfers. Make the late payment policy clear in the contract. If you plan to increase the rent, make sure it’s within local laws and you notify them in advance.

Advise tenants to make their payments on time. This helps make everything easier to follow, as you’ll have a clear eye on the deadline. Many banks let you set up automatic payments, so there’s no risk of forgetting. You can use tools such as REI Lense to determine the rent amount.

5. Disputes and Conflict Resolution

Satisfied tenants are likely to stay with you for a longer time. This is why it’s important to handle disputes quickly. As a landlord, you should document their complaints and find a way to solve them before they escalate. Professional mediation is helpful if you can’t manage it through direct communication.

Tenants should document these issues and approach them with respect. If the situation persists, they can look for support or legal help.

6. Compliance with the Law

Legal issues can put you at risk of a lawsuit, and that’s the last thing you want as a landlord. Check the rent control laws when you plan a rent increase, and be aware of a tenant’s rights when you want to evict. You will also have to meet privacy, proper maintenance rental property, and safety codes to ensure everything is up to standard.

Current Market Conditions and Future Forecasts

The rental market has been constantly shifting in the past couple of years. Mortgage rates increased by 6.82%, and home prices are higher than they were several years ago due to the demand. Taxes and insurance fees are increasing left and right.

This makes it difficult for the average person to buy their own home, but it’s good news for investors. This will make people more likely to rent, because they can't afford to buy a house.

That said, renters are shifting towards suburban homes. The average tenant seeks energy-efficient properties with technology that helps them reduce their energy bills. Thus, landlords will have to invest in property upgrades if they want to maintain their success.

The Bottom Line

Long-term rentals are a convenient way for both tenants and landlords to find stability. Tenants can move into a property they can personalize to their wishes, and landlords get a steady cash flow. It’s best to use tools such as REI Lense Investment Project Calculator to ensure you get a good property.