Is there a sweet spot for tenant length?

With today's hot rental markets boasting historically low vacancy rates, investors have a real incentive to flip tenants to maximise rental income – but is there an ideal length of time to keep a tenant?

Yes, say CREW readers. The overwhelming majority of respondents to a recent CREW poll believe that 12 months or longer is the ideal tenancy length.

Nearly three-quarters (73 per cent) of readers said more than 12 months is the ideal length of time to keep a tenant, while an additional 16 per cent chose a one-year lease.

Only 10 per cent of respondents chose a short-term option, while five per cent said six months is the ideal tenancy length and six per cent said less than six months.

Investor Edward Renkema agrees with the poll, saying the longer the tenancy length the better. “There are only two advantages to turning over a tenant: they are a bad tenant or you want to increase the rent," he adds.

"If they’re a good tenant, why would you want to turn them over? Whenever you do, it costs money.”

Erwin Szeto, investor and sales representative at Rock Star Real Estate, says that it would be difficult to set a lease longer than 12 months with a tenant you don’t know. “But if you’ve done 12 months and you love the tenant, I think most landlords would appreciate a longer term, even three, four or five years,” he added.

But Matt Elkind, a sales representative at The Condo Store, says that it’s good for investors to take advantage of natural turnover. “Turnover isn’t a bad thing,” he adds.

“The worst thing you can do is have a tenant for 10 years, because you’re limited to what you can increase the rent. If I lose a tenant in one of my income properties, I go back to market and rent goes up a significant amount.”

Ontario has capped rent increases for 2015 at 1.6 per cent; this is double what the cap was in 2014. At 0.8 per cent, it was the second lowest cap since the introduction of rent regulation nearly 40 years ago.

A comment on the CREW Forum pointed out that the province’s capped rent increases doesn’t take into account the real costs of managing, repairing and upgrading real estate. “For instance, the City of Toronto is increasing garbage collection rates by about 50 per cent, but the 2015 Ontario rent increase for existing tenants is only 1.6%,” wrote Jon.

“As a long-term landlord, I have also found that Toronto and the GTA have many rentals available. If the landlord does annually increase the tenant's rent by even the small amount allowed by the government, the rent can soon exceed market rent, meaning the tenant will leave to find more competitively priced accommodation.”

Share your view on this topic in the CREW Forum
 

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