Calendar icon May 11, 2023

What is Long-Term Lease? How to Win with Long-Term Property Management

A long-term lease is a rental agreement that lasts longer than the standard in an industry. Designing and managing a long-term lease can help create stability for property managers, investors, and residents. 

Or, as we like to say – long-term property management creates a triple win.

Today we’re diving into all the nuances of the long-term lease, the pros and cons, and why engaging long-term property management can build a win for you, your residents, and your investor clients.

Related: State of Resident Experience Study

 

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What is a long-term lease?

A long-term lease is a lease agreement that lasts longer than the standard in an industry. In commercial real estate, long-term rentals could be ten years or more. 

In single-family homes, a long-term lease could be anything more than one year. Long-term leases have the benefit of locking in payment for however long the lease lasts. It benefits property managers by guaranteeing cash flow and reducing vacancy, though with less frequent lease renewals, you may not be able to increase the price as often as you feel you need.

The concept of a long-term lease agreement may spark some preconceived notions among professional property managers. Locking a resident into their rental for two-plus years seems like something of a gamble where you bet on the quality of the resident and the value of the lease remaining high. While it’s true that this type of lease comes with some tradeoffs, many PMs don’t see the positives, which have begun to outweigh the risks in an evolving market.

Benefits of a long-term lease 

A long-term residential lease can offer several benefits for residents, property managers, and owners, including:

  1. Stability: With a long-term lease, residents have the security of knowing that they can stay in their home for an extended period, often one or two years, without having to worry about the possibility of the owner deciding to sell the property or not renew their lease. This can be particularly important for families or individuals in single-family residences who want to establish roots in a community and avoid the hassle and expense of moving frequently.
  2. Predictable Expenses: With a long-term lease, residents know exactly what their rent will be for the duration of the lease, which can help them plan their budget and avoid any unexpected rent increases. Similarly, property managers and owners can count on a steady stream of rental income, which can help them plan their expenses and investments.
  3. Reduced Vacancy Rates: A long-term lease can help property owners and PMCs reduce the vacancy rate of their properties by providing them with a stable, reliable resident who is committed to staying in the property for an extended period. This can save time and money that PMs would otherwise spend trying to find new residents and dealing with turnover.
  4. More Responsible Residents: Renters who sign a long-term lease are often more committed to taking care of the property and being responsible “tenants.” This can lead to fewer damages, less maintenance, and a better overall experience for both residents and property managers.
  5. Better Creditworthiness: A long-term lease can also help residents build their creditworthiness by establishing a history of paying rent on time and staying in one place for an extended period. This can be particularly useful for young adults or those who are just starting to build their credit history. With Second Nature’s Resident Benefits Package, they can receive the benefit of getting their on-time payments reported to credit bureaus. 

Overall, a long-term residential lease can offer a range of benefits and create a Triple Win for property managers, owners, and residents. However, it's essential to establish clear terms of the lease to ensure that it meets everyone’s needs and expectations.

Liabilities of a long-term lease

Of course, along with benefits, long-term lease liabilities exist as well. The primary drawback of long-term management is that you need to be more certain that the lease – and the resident – are the right fit for you and your investor. 

A few things to consider before starting with a long-term lease apartment or long-term lease house:

  • Ensure you do a thorough background check and credit check for all renters
  • Ensure the lease clearly outlines behavior that could lead to eviction
  • Be prepared that it may be more difficult to transition a difficult resident out
  • Account for the fact that you won’t be able to raise the rent as easily or quickly as with a short-term rental

Long-term lease vs. short-term lease

A residential long-term lease and a residential short-term lease differ primarily in their duration, with long-term leases generally lasting for a year or more and short-term leases lasting for less than a year. 

Here are some of the main differences between the two types of leases:

  1. Duration: As mentioned above, the primary difference between a long-term and short-term lease is the length of the lease term. A long-term lease typically lasts for one or two years, while a short-term lease can be as short as a few weeks or as long as 11 months. 
  2. Flexibility: Short-term leases are generally more flexible than long-term leases, as they allow residents to move out relatively quickly if they need to. This can be useful for renters who are unsure about their future plans or who need to move frequently for work or other reasons. Long-term leases, on the other hand, provide more stability and predictability but can be less flexible if the resident needs to move out before the lease term is up.
  3. Rent Amount: The cons of short-term leases are they can be more expensive than long-term leases month-to-month, as owners or property managers can charge a premium for the flexibility they offer. Long-term leases generally have lower monthly rental rate, but residents are required to commit to paying that amount for the entire lease term.
  4. Renewal: Long-term leases typically include a renewal clause, which allows residents to extend the lease term beyond the initial period. Short-term leases may or may not include a renewal option, and residents may need to negotiate with the PM or owner to extend the lease or agree to a new lease. 
  5. Maintenance: Long-term leases often place more responsibility on residents for maintaining the property, as they are expected to stay in the property for an extended period. Short-term leases, on the other hand, may include more maintenance services from the property management company, as they are more likely to have turnover between residents.

 

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Long-term lease examples

A long-term residential lease typically refers to a lease agreement between a resident and an owner that lasts for a year or more. Here are some examples of long-term residential leases:

  1. One-year or two-year lease: A one-year lease is the most common type of long-term residential lease. It lasts for a period of one year and requires the tenant to pay rent on a monthly basis. Two-year leases are less common but still fairly standard.
  2. Multi-year lease: In some cases, owners may offer a lease agreement that lasts for three, four, or even five years. This type of lease provides residents with a high level of stability and predictability, but it may be less flexible than shorter-term lease options.
  3. Corporate lease: Some companies may lease a property for their employees on a long-term basis, typically for several years. This type of lease often requires the company to pay the rent directly to the owner.
  4. Lease-to-own: This type of long-term residential lease allows residents to rent a property for an extended period with the option to purchase the property at the end of the lease term. This can be a good option for residents who are not yet ready to purchase a home but want to establish roots in a community.

How the long-term lease helps investors

Gregg Cohen of PWB Properties is one of the property managers leading the charge on the long-term lease. PWB has positioned itself as a different kind of property management company, one that's focused on helping investors achieve their highest possible return on investment.

"As with most things in life, if goals aren’t aligned, one party typically loses. In “normal” property management, this is an unfortunate truth as well. It’s a shame that so many potential investors who see the incredible opportunities for earning above-average risk-adjusted returns on investment passively in rental property investing are so fearful of a poor property manager and resident relationship that they give up on their investing journey before they even start. At JWB, we are not trying to be “better” at property management. We are DIFFERENT."

JWB is successful because they have perfectly understood how to create a Triple Win in an environment that is increasingly demanding of a relationship-focused property management strategy. As a property management company that offers far more than just plain old management of properties, they've built a business model that is extremely attractive to investors, part of which includes the long-term lease. Note their 5-year case study below on the financial results for the investor of signing residents to long-term leases.

The key takeaway is the dramatic decrease in fees paid by the investor. These numbers may scare you at first. JWB is willingly forfeiting profit from tenant placement fees, and quite a bit of it. Understanding the context of this decision is critical though, lest you end up playing catch-up with the rest of the industry over the next decade. JWB's commitment to their investors creates so much value that the growth of their business and retention of clients offsets the short-term profit decreases from this strategy. Property management strategies and business models built around short-term profit from things such as tenant placement fees will lose whatever staying power they're clinging to over the upcoming market cycle. Those types of companies will struggle to attract clients and many will eventually go out of business. JWB has proactively avoided being swallowed by the commoditization of the industry by offering something more personalized, relationship-driven, and value-creating.

As mentioned, JWB is focused on long-term investors that intend on growing their portfolios, holding properties for at least a full real estate market cycle, which is typically 10 to 20 years, and are  intending to create income via real estate investment over a long period of time. The returns for these investors are diminished by property vacancies, so note the vacancy percentage decrease with JWB's long-term model versus the high-turnover model.

All of these benefits come together to provide clients with longer-term, goal-focused property management instead of short-term profit-focused property management, which is differentiating JWB right around the time that property management is becoming commoditized. It creates an enormous amount of opportunity to sign a large number of long-term clients by providing something that isn't otherwise available, creating a sustainable business model ready for consistent growth and prepared to sustain threats such as commoditization and do-it-yourself property management technology.

The longer lease is just one element of this triple win, but it's a significant one. As the case study notes, the dramatic decrease in costs is very attractive to investors. However, the long-term lease only works if the residents are willing to sign such a lease. So let's make this double win into a Triple Win.

How the long-term lease helps residents

Uncertainty has been a big theme over the last two years, mostly as a result of the coronavirus pandemic throwing the SFR space into quite a predicament. PMs have certainly taken some hits as a result with eviction moratoriums, residents being furloughed, and other challenges. But residents are experiencing significant challenges of their own as a result of the uncertainty they’ve experienced within their jobs, their ability to pay rent, and the potential of changing rent. 

These are problems, but problems demand problem-solvers, and problem-solvers create solutions that end up differentiating their business. The long-term lease is proving to be that solution for many PM companies. The stability that it provides is proving to be a welcome sight for residents. Knowing where they will be in three years and exactly what their rent will be is valuable to residents who are fearful of a changing market, and the percentage of residents who see that value is continuing to increase. The result is one of the best resident retention tools out there.

For the PM, this doesn’t mean that rent is stuck. Rent adjustments are still possible, but they’re baked into the lease from the start. This allows the PM to plan for a changing market while giving the resident notice of pending changes prior to them signing the lease. Residents are much less likely to react negatively to rent increases if they signed off on them before ever moving in.

“Stability starts with helping them understand what their financial responsibilities are going to be years in advance. That’s where it starts and that’s a big reason why residents do like long-term leases.”

People find value in knowing where they will be in 3 years. A long-term lease is a commitment for a resident, but it's one that JWB has found that many are willing to make. Implementing a long-term lease program isn’t for everyone, but it’s proving an effective method for creating a Triple Win by creating stability, something everyone is after in these uncertain times.

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How to Optimize Operational Frequency with Processes and Software

Property management software is currently helping property managers establish efficient and reliable processes at a higher rate than ever before in the PM industry. With that development in the proptech industry has come the development of tech for self-managers that has changed the capacity of the accidental landlord. Thus, the demand for efficiency at scale has risen in order to separate the professional from the amateur, and the establishment of processes that allow such a thing has become a critical topic for professional property managers. Optimizing property management processes Carter Fleck of Triton Property Management, a growth-oriented firm out of northern Virginia that is approaching 300 units with larger goals for 2024, joins us to share his expertise on process definition. Fleck is the General Manager responsible for operations and strategic growth, and he has been developing effective processes to ensure efficiency at Scale at Triton, and in the process, he has garnered an understanding of how to do so. “A lot of failing,” says Fleck. “In the early days, we were getting a lot of good and bad feedback, but typically the bad feedback is what you adjust off of.” Fleck believes that assumptions are the enemy when it comes to defining procedures and sourcing software for your PMC. “The image that we use is if you're going to build a sidewalk before people even start walking on a field, it's kind of dumb. You have to see where people will walk first, and then you'll build a gravel path. So number one, you see where they walk, see where their intentions are in the grass, then you build a gravel path. And then eventually, once that walkway is established, that's where you build your processes and procedures.” The analogy is a visualization of the concept that you have to see how people operate before you can establish processes to make how they operate more efficient. Fleck encourages the negative experiences of process breakdown and cites them as the only way to really nail down what your processes should look like. “Over time, between the tenants giving feedback and owners giving feedback, we adjusted our processes. It's a mix between figuring out where the owners walk and where the tenants walk, and then building paths that align.” Fleck details an example of how Triton adjusted its process after an assumption it made got challenged: "We had an assumption that payment plans were helpful for residents," says Fleck. "And so the way we handled delinquency is we would reach out to them and would be like, ‘you need to pay this. Do you have a payment plan option?’ And they would always say yes. Our process was we'll put you on a payment plan, we'll invite you to a payment plan, you'll accept the payment plan, and then we'll monitor the payment plan. That in itself was a lot of work, but we thought it was doing well. But some of the owners that we had managed for mentioned that another property manager doesn't allow any payment plans. And if you're not fully paid up by the end of the month, then the eviction process starts if you’re over $500 due. So we're like 'alright, well, we'll serve you in that we'll change our processes.' And we did, and our delinquency percentage shrunk significantly. So, consistently, by the end of every month, we're around 5% APR. Whereas with payment plans we're like 5 to 10%.” Fleck obviously credits seeing the assumptions in motion as what prompted the need for process iteration, and he firmly believes that making too many of these assumptions is one of the biggest mistakes growing property management companies make. Like any business experiencing growth, process definition is critical to achieve efficiency at larger volumes. What Fleck is essentially advocating for is processes based on what you know, not what you think, and there is a big distinction. Managing property management software Fleck has installed both general and tech-based processes, and cites that understanding of how people interact with processes as the key in both areas. "They don't focus on user experience. That's really important. Number one, how the tenants like the tech, but specifically how the people who are using the tech are gonna adopt it. So when we were choosing a rent inspection software, we had so many people recommend one, software and I, we almost pulled the trigger on it. But then I was like, let's do a trial run on both these two. And we chose the other one because it was way better user experience for property managers. So user experience, both for us and for residents." Tech is a tool that is ultimately as good as its users, and if it's not used correctly or at all, its potential is wasted. An over-reliance on technology can actually go hand-in-hand with an under-reliance, as both often spring up from a lack of understanding of how to choose, implement, and manage it. In this vein, Fleck can't recall many property managers who operate with too much tech. As long as you're not purchasing redundant software and you've done and continue to do your due diligence, tech-based process can make your business more efficient. "I more often find myself having that conversation," says Fleck. "When I'm talking to property managers in my sub-market, who aren't connected with like a NARPM, who aren't connected with like a Crane group, or who aren't connected with a Second Nature, aren't connected to the tune of what the property management industry is doing and the cutting edge of it, I'm just like, 'you could save so much of your time and you could scale this so much more if you only even if you just had tenant Turner, or if you had LeadSimple.'" No matter what your story is a property manager, if growth is in the cards, so is process and technology refinement. Hopefully, Fleck's experience in these areas can help you stay efficient and organized as door counts grow.

Calendar icon April 19, 2024

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Why offer a tenant benefits package?

In the residential real estate sector, like everywhere else, residents and property investors alike are getting younger – and with this generational shift comes expectations for a certain level of convenience and support. To put it bluntly, today’s residents want their needs proactively anticipated. It’s something they're willing to pay (and stay) for. That’s where a tenant benefits package comes in. In this article, we’ll explore what a tenant benefit package is, how it improves the experience for both property managers and tenants, and crucial mistakes to avoid. Before we get into the details, we want to give a shoutout to our very own “Resident Benefits Package” – which is how we refer to the benefits comprised in the “tenant benefits package.” “Tenant” is not yet a legacy term, but we here at Second Nature are trying to evolve it. That’s because, in our experience, property managers work hard to make renters feel like they’re not just parties to a contract – they’re residents. On one hand, this is just humans being humans, but on the other hand, it also encourages them to invest in care for their new home and add value to the property. Ready to get started now? Build your Resident Benefits Package today. What is a tenant benefits package? A tenant benefits package is typically a bundle of services, conveniences, and provisions offered by a property manager on top of the basic lease agreement. They represent a triple-win situation for property managers, residents, and property owners, as they enhance the overall rental experience, generate additional income, and protect the real estate investment. It might include conveniences such as online monthly rent payment options, or portals for submitting maintenance requests and tracking their status. It could also include various financial perks, such as credit rating improvements that are contingent on on-time rental payments, or discounts on nearby services such as fitness centers. It might also include amenities ranging from move-in concierge or utility set-up services, to identity protection services, to HVAC filter delivery. The cost for resident benefits packages is typically included in the lease and added as a monthly fee, with the fee being dependent on the specific benefits. Indeed, the benefits contained in a tenant benefits package will vary depending on the property manager and the type of rental property. The overall goal is to provide tenants with an enhanced quality of life while simplifying the experience of renting. At Second Nature, we pioneered the only fully managed resident benefits package, in response to PMs who wanted to make their business stand out. Our RBP includes an array of services and supports for residents, from filter delivery to credit building to maintenance. Why should property managers offer a tenant benefits package? Beyond the triple-win considerations mentioned just above, there are compelling and concrete reasons why property managers should offer tenant benefit packages. We'll turn to these now. Ancillary revenue Some tenant benefit packages include optional services or add-ons that can generate additional revenue streams for the property manager. This might include things like renter insurance or HVAC filter delivery. Resident experience Tenant benefit packages deliver numerous savings and value to tenants, beyond the value they would get if they were obtaining the same benefits "à la carte." Additionally, by offering additional services and conveniences, benefit packages can make tenants feel valued and more satisfied with their living experience. For instance, maintenance hotline requests, tenant portals, and air filter replacements all make life easier. Add-on services like identity theft protection can offer a sense of security. And discounted renters insurance coverage, utility concierge services, or other perks can save tenants money. Decrease tenant turnover and vacancy rates In a competitive rental market, tenant benefit packages can be a major differentiator toward boosting retention rates and reducing vacancy rates. Properties that offer these packages can also attract a wider pool of qualified tenants, and potentially command higher rents. Note that certain benefits in the package, like online rent payments and maintenance requests, can automate tasks and free up the property manager's time. This allows them to focus on more value-added initiatives. How does the tenant benefits package improve the tenant experience? Tenant benefit packages can significantly improve tenant satisfaction in several ways, by making life easier, more convenient, and potentially more affordable. For instance, if an online portal (a baseline feature for most property management software) is included for rent payments and maintenance issues and requests, this eliminates the hassle of writing checks or waiting on hold to speak with someone about a clogged drain. In other words, tenants have the peace of mind of knowing they can manage their tenancy 24/7 from the comfort of their own devices. Some packages might include features like filter delivery services or regularly scheduled HVAC maintenance. This frees tenants from having to remember these tasks – and ensures their apartment is well-maintained. Certain packages might also offer "verified vendor" services – in other words, a vetted vendor network that can help provide a more secure feeling to residents when service providers are on-site. On the financial side of things, a benefits package might offer discounts with local suppliers for various goods and services, or on a renters insurance policy obtained through the property manager (with applicable waivers for residents who have their own insurance). This can save tenants money on a necessary expense. Some packages also help residents with their credit scores via credit reporting and credit building services, so they can transition from renting to home buying when the time is right. The idea is that the credit reporting program reports on-time rent payments automatically to all credit bureaus, helping residents build their credit simply by paying their rent on time. Some benefit packages include resident rewards programs that represent a powerful and positive incentive for on-time rent payments, including gift cards or cash. As far as living perks go, packages sometimes include added benefits such as access to fitness centers or community events. This provides tenants with additional spaces to relax, socialize, or stay healthy. Packages can include security deposit alternatives that serve to provide a means for residents to be financially liable for damages without having to pay a significant lump sum upfront, such as pure insurance, surety bonds, and ACH authorization programs. Ultimately, tenant benefit packages create a more professional and responsive image for the property management company, which helps tenants feel valued and allows them to experience a smoother, more stress-free rental experience. What are the mistakes to avoid when offering tenant benefits packages? Property management companies should take care to avoid certain pitfalls when implementing tenant benefit packages to ensure they are providing true value to tenants as well as delivering profitability to the PM company itself. For instance, it's important to ensure that the services you're offering are actually relevant to your target renters. For example, young professionals might appreciate discounts on gym memberships, while families might prefer pet-sitting services. You should also take care to clearly communicate what's included and not included in the package to new residents. Don't oversell the benefits – focus on how they genuinely improve the living experience. It's also very important to set realistic expectations for response times on standard maintenance requests, emergency maintenance requests, or virtual concierge services. Likewise, be clear on all available payment methods, as well as rent due dates, late fee structures, and any associated payment processing fees. If your package includes services from third-party vendors, ensure that these vendors are reputable and reliable. Research their customer service record and responsiveness to ensure a smooth partnership and a positive experience for tenants. Above all, regularly monitor the usage of different benefits within your benefits package. This can help you refine your offerings and ensure you're not spending where spending is not required. Looking for a Resident Benefits Package? If you’re looking for a “plug and play” resident benefits package, Second Nature’s RBP is the way to go. Designed to be easy to implement and simple to use, all the services it includes are managed by Second Nature – which means there’s no day-to-day upkeep required from the property manager: Second Nature keeps it running. It’s a simple way to grow your business and create great experiences that residents will pay and stay for. Learn more about our fully-managed Resident Benefits Package.

Calendar icon April 2, 2024

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