Although you might think the topic of leases is rudimentary, having an accurate lease is an important part of any rental property investing business. If you want to create passive income and cash flow, there are certain mechanisms you'll want to have in place.
In my experience as a landlord and real estate investor, there are five big details you need to take into account when figuring out how to construct a lease.
- What is the purpose of the lease? A lease is a legally binding contract between the tenant and the landlord. Its purpose is to protect both parties. The lease lays out the obligations, including the length of time, rental amount, procedures for collecting rent and more. Be sure to check out our list of the 5 most landlord friendly states to learn about investing in states that have your back as an investor!
- What is the difference between a lease and a rental agreement? The two are not interchangeable! A lease is a one-year contract (or other specified amount of time). A lease cannot be changed by either party, and is legally set-in-stone until the lease expires. A rental agreement, on the other hand, is a 30-day agreement that renews at the end of each month, unless either the tenant or landlord cancels the agreement.
- Who signs the lease? Either the landlord or their property management company should sign the lease, as well as all tenants over the age of 18.
- Who should create the lease agreement? In my experience, my property management companies are able to create a fantastic lease agreement. You can also work with lawyers, or find loose guidelines to use as a starting point online.
- How long should the lease be? Anywhere from 1-20 pages is an appropriate length for a lease. The more in-depth the lease is, the more protected you will be. However, don't confuse a long lease with a throrough lease! It doesn't need to be wordy, just comprehensive.
As always, do your own due diligence before entering into a legal agreement. We are not lawyers or financial advisors, but real estate investors sharing our experience. What is your experience with constructing a lease? We would love to hear your thoughts on our video about leases!