Navigating the Rental Landscape: Pros and Cons of Long-Term Leases

In the U.S., most leases last 12 months, but some tenants might want to sign a lease for two years or even more. If you manage or own properties, you might wonder if offering long-term leases is a good idea. 

If you own more than one property that you rent out, you might wonder which rental option is better: renting short-term or long-term. The decision depends on many things. What are the good and bad points of long-term rental leases? What are your goals for investing? And how much effort do you want to put in for each option? 

What Are Long-Term Leases? 

Long-term leases are rental agreements that last for a year or more. On the other hand, short-term leases typically span less than a year. Short-term leases often refer to agreements lasting six months or less, including month-to-month agreements. Long-term apartment leases are commonly set for a year, but some properties are now exploring longer lease options, such as 13, 15, or 24 months. These extended lease terms offer benefits for both tenants and landlords, providing stability in housing arrangements. With a long-term lease, tenants can secure their living space for an extended period, while landlords can ensure a steady income and reduce turnover costs. 

Pros of Long-term Leases 

Giving tenants the option of long-term leases offers more flexibility than owning a property. But why should you consider offering long-term rental agreements? Here are the benefits of long-term rentals: 

1. Stability 

Long-term leases offer the advantage of stable pricing, as landlords can’t increase rent during the lease duration, with some exceptions. While short-term leases offer flexibility, they often result in inconsistent income for property owners.  

In contrast, long-term rental agreements guarantee ongoing occupancy, ensuring a steady flow of income over an extended period. This stability enables property owners to better predict and rely on their return on investment (ROI).  

2. Simple Management 

Finding, checking, and saying yes to new renters can be challenging. With long-term leases, you only must find new renters every now and then. So, you won’t have to spend as much time and money on paperwork and advertising. 

Also, when people stay at your place for a long time, they will likely handle small problems themselves. In short-term leases, tenants often expect the landlord or manager to fix things like clogged drains or broken appliances. Over time, this can cost a lot of money and take up a lot of time. 

3. Can Charge Tenants for Utilities 

In addition to the rent, tenants usually pay for utilities and maintenance costs. Utilities like electricity or water are calculated using meter readings. Depending on the size of their units, tenants usually pay for other things like cleaning, maintenance, and security.  

4. Affordability  

Long-term rental contracts need less maintenance, have fewer people moving in and out, and don’t need as much advertising. So, they cost property owners less compared to short-term rentals. 

This means that long-term rental contracts are the top choice for property owners who want to make more money from their investments. 

5. Low risk of vacancy 

Signing a longer lease lowers the risk of having your rental property empty. For instance, if a tenant agrees to a two-year lease, they might stay even longer. But with a one-year lease, they are more likely to leave after the year ends. When tenants move out, you are left with an empty property, needing time and money to find a new tenant. Longer leases help reduce this risk by keeping tenants longer, saving you from frequent turnovers and vacancies. 

Cons of Long-term Leases 

Long-term leases have many advantages, but here are a few disadvantages: 

1. Locking yourself into a rental rate 

Having tenants stay for a long time has some risks. You are stuck with one rent price when you have a long lease. It’s hard to know if rent prices in the market will go up, down, or stay the same. It could affect how much money you make from your property. You must check the market carefully to set the right rent for a long-term lease. 

2. Risk of having a less-than-desirable tenant 

A long-term lease can be risky because it might lock you into having a tenant who’s not a good fit for your property. Some problems you might have with tenants include: 

• not following the rules 
• regularly paying rent late 
• causing disturbances for other tenants 

Finding a trustworthy tenant is challenging, so property managers must carefully check if a tenant is suitable before agreeing to a long-term lease. It takes a lot of time and work to do background checks and contact references. 

3. Little flexibility 

If property owners rent out their units for a long time, they can’t use them for other things or to do renovations. That’s why they need to plan everything carefully ahead of time. 

Conclusion 

Choosing between a short-term or long-term rental agreement depends mostly on your preferences. If your place is in a busy city or close to a tourist spot, renting it out for short periods might be convenient. But if it’s in a residential area, it’s smart to check out the local rental scene and think about whether a longer rental agreement is a better fit.  

For any queries or questions, contact property experts at BFPM. 

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