I think there's another term for it, but I can't think of it currently. It's got me thinking, maybe it's better to have a tenancy at will rather than having a fixed term lease. One big driver is that currently I pay one week's rent plus GST to annually renew the leases, which stacks up to over $3k a year. Some might say that fixed term leases offer certainty and security, but I've had quite a few tenants break their lease and leave whenever they wanted to anyway. I could still issue a rental increase, if I wanted to. What are your thoughts? A valid consideration or not?
Fixed term vs periodic The first 6 months is usually fixed term. After the 6 months, you can chose either fixed or periodic. I prefer periodic term as well because it's more flexible. However the downside is if the tenants fail to pay the rent and the landlord insurance may refuse to compensate you because the term is periodic (I've heard about it somewhere)
Do you mean periodic? There's certainly pros and cons for each otherwise they wouldn't need to both exist. Most tenants prefer to be on a lease as it gives them some stability and certainty of where they'll be. Downfall of periodic lease is removing someone though. If things become troubled on a fixed lease, you send a notice at the end its only 28 days, the end is predictable etc. With periodic you have to give 90 days (unless you have one of the other exit reasons available to you) and it seems tenants often get disgruntled then. Periodic is less favourable in break lease situations too. On a fixed lease we can charge the tenant pro rata of the letting fee and rent til new tenant found but on periodic only really rent in lieu of their 21 day notice period. As an investor, especially one with a few properties thinking of this like a business, you really should be on fixed. Businesses of all types in all industries need to project their revenue and cashflow forward. It needs to be predictable and not suddenly stop. The case for periodic can be if you want to some day renovate or move in and want to have those exit points available to you.
With tenants breaking leases more frequently than moving out at the end of a fixed lease, where's the certainty though?
I like the greater SANF of a fixed lease, although only have 1 IP, so can't speak to managing a portfolio. If the tenants break leases all the time, aren't you paying the fee more regularly anyway? How is avoiding a fixed lease going to save on your costs? I'm not a fan of the 1 week's rent fee to renew (although understand it's an industry standard), so asked @D.T. to offer the tenant a 2 year term, which he secured (at a rate higher than I suggested in the first year ).
No, I'm paying for a new lease fee, not the lease renewal fee. Obviously I'd prefer to avoid this, but whether I go with fixed or periodic leases wouldn't make a difference when a tenant just leaves.
What % of your leases reach the renewal period (i.e. 12 months) resulting in the fee? If they are good tenants can you consider a 2 year lease to at least halve the cost? Obviously it then limits your ability to increase rents, which could easily outweigh the fee savings.. just depend on what you think rents might do over that sort of time frame.
Yep - you'd need stats on average durations to work it out as letting fee costs more than renewal fee. Also need to factor in the cost of vacancy time and some non-tangible stuff like SANF as well. Typically, the longer the better in my view.
I've got 13 tenancies, I'd say that I've got maybe two that break the lease a year, so that's still 11 that don't. I'll consider 24 months, but I'll also keep having a think about going to periodic.
Speaking as an owner and on behalf of my owners (not PM)... in the current Sydney environment (oversupply, rents going down etc etc), I definitely want tenants to be on fixed agreements for as long as possible - if I can get them to agree - as it gives me some piece of mind... As @D.T. said, cash flow and stability is very important in current climate. Having someone on fixed term doesn't stop them from giving notice, but it is a deterrent for most when they know they have to keep paying until a new tenant is found and they are liable for all advertising costs as well. This one week plus GST renewal fee of yours though... I don't know where your properties are at, but I reckon it is time you went visiting your PMs again to review your fee structure. I have a sneaky suspicion, you will find them a lot more open to some negotiation right now and they'd be happy to work a little harder for your business
One wwek's rent plus gst to renew an existing tenant? Why? It is NOT the same amount of work as hunting for a new tenant. No writing an ad, taking enquiry, runnings opebs, processing applications, or doing background checks. You should be paying no more than $77 incl gst to renew an existing tenant.
Does fixed vs periodic affect landlords insurance? I used to have all periodic but tenants kept leaving in winter when the rental market dies. One time the place was vacant for 12 weeks even with heavily discounted rent! I only have fixed term now.
Spludgey, I have more doors (still) than you currently have & I agree totally. Periodic leases cost less & gives you more flexibility to move rents up, when the market moves, instead of waiting 12 months to be able to do it. Most of my tenants are long term & I have had no issues at all with periodic tenancies. I prefer to start with a 6 month lease & then just roll it over, unless there's issues in the area. For instance I do have one at the moment that I NEVER allow to roll over to periodic so I'm more in control of when it's likely to fall vacant & I've got a couple of NRAS which are all fixed leases, but all others are, and always have been periodic. I've never had any issues with getting new tenants due to tenants leaving at inopportune times, other than once, I think, over Christmas, but the small cost of that was less than paying lease renewals every year. I've also never had an issue with insurance due to this either. I think it's good that you are taking a good look at your outgoings, which is something that many don't think to do. Check on your agents as well. If they are not performing, then change to someone who will look after your properties better. Did you take a look at your rents, like I suggested in another thread?
