5 Things You Need to Know About Leases

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. 

  1. 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! 
  2. 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. 
  3. 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. 
  4. 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.
  5. 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! 

 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 as a landlord.

The Benefits of Multi-Year Leases

I know many landlords who are hesitant to sign a multi-year lease. This is because if you sign a new lease every single year, you are able to raise your rent, and in turn make a larger amount in passive income every year. While I understand this way of thinking, I tend to take the opposite approach. 

Personally, I don't care about implementing an annual rent increase. When a tenant asks to sign a long-term lease, they’re telling you how much they love your house. They like and respect your property, and they want to stay put. I think that’s a plus!

Certainly there is money to be made in the small rent increase, however I find that tenant turnover is one of the most costly processes in the real estate business. As you probably know by now, I factor the cost of vacancy into my ROI formula, but tenant turnover can still be a hassle.

Think about it like this: a tenant turnover is like a double whammy. Not only are you forgoing rental income while your property is vacant, but you’re also spending money on the cost of the turnover. You’ll have to paint, re-carpet, and patch any drywall.

Let’s say your property rents for $700 a month, and during a tenant turnover, you don’t collect rent for a month. Let’s figure in the cost of repairing the rental while you find a new tenant, probably around $300. Total, you’re looking at about $1000. I would rather mitigate that cost by allowing a tenant to stay multiple years.

My experience has been that tenants that want to stay for a long lease are quality tenants. They pay on time, and they treat my property as if it were their own. To me, it’s worth it to allow a tenant to sign a multiple-year lease.

For more on leases, check out my new video, 5 Things You Need to Know About Leases! 

 I know many landlords who are hesitant to sign a multi-year lease. But there are some benefits multi-year leases when you own rental property that you may not have thought of...

Single-Family vs. Multi-Family Investments

How do you decide between single-family and multi-family investments? Most things in real estate come down to a personal preference. For example, some investors love mobile homes, commercial properties, or duplexes. There’s no right or wrong answer, but I typically suggest choosing one niche and sticking with it.

For me, single-family homes are my bread and butter! I do own a few duplexes, but there’s something about single-family homes that works for our business. I don’t have to deal with some of the issues that accompany hosting multiple tenants on the same property. There are bound to be issues when you have many people living in one space. In single-family homes, you don’t have your tenants complaining about each other.    

I also find that my single-family tenants love their rentals; they treat my properties like their own homes. It just feels good to come home to an actual house with a driveway and a yard. Their children have their own bedrooms; their pets can play in the fenced-in yard. They view the property as their home, and I love that. Not only do the tenants take care of the house, but they also tend to stay a long time! It’s not uncommon for me to sign a multi-year lease on a single-family home.

As for multi-family homes, it does appear on paper to have higher ROI than single-family. However, multi-family properties tend to have a higher tenant turnover rate. Like I mentioned, the tenants simply don’t get attached like they would to a single-family home. It’s just not as comfortable and homey!

However, if you’re set on multi-family investments, there are a few ways to mitigate that tenant turnover. Make sure you find a larger duplex with a higher square footage. You want your tenants to stay put, as tenant turnover can be one of your highest expenses. Another thing to consider is qualifying your unit for Section 8 housing. That qualification can convince your tenant to stay longer, just because it can be difficult and time-consuming to find Section 8 housing.

Regardless of what you decide, it’s important that your rental property is a great home for your tenants. For me, real estate investing is not only about ROI, but also providing safe homes for my tenants and revitalizing neighborhoods.

Interested in picking up a totally done for you single family home in America’s best rental markets? Let’s talk! Pick a 30-minute time slot from our schedule, and we’ll talk about how turnkey real estate can help you reach your goals.

 How do you decide between single-family and multi-family investments? Here are some things to consider when investing in real estate.

Should You Purchase a Rental Property Near a Busy Street?

Is it a bad idea to purchase a rental property in a busy area? Many great investments are located near major highways. Because it can be loud and bustling, many investors hesitate if they realize a prospective investment is on a busy street or near a busy intersection.

However, you might be surprised to learn there are a number of benefits to purchasing a property in a busy area. In my experience, a rental property located in near a busy street or intersection performs very well.   

Having a property near a busy area can be advantageous for both you, and your tenants! Think about it: when your property management team is advertising the property, they do so on busy streets. Since many passersby will see your signage, your property will be rented out quickly!

You’ll get more phone calls, and more applications! The more people apply to rent your property, the more selective your property management company can be. This will yield a high quality tenant! This situation might even allow you the opportunity to sign a multi-year lease.

As for tenants, I’ve found that many of my tenants enjoy being in a heavily populated area. In the best rental markets, tenants are blue-collar workers. Many of them need public transportation, and city bus routes run through these busy areas. Being located near a busy street is actually an ideal location for many tenants!

Don’t hesitate to purchase a rental property near a busy street or intersection. Want to know more about finding a great rental? Here’s how to assess a rental market!

 Is it a bad idea to purchase a rental property in a busy area? Many great investments are located near major highways. Because it can be loud and bustling, many investors hesitate if they realize a prospective investment is on a busy street or near a busy intersection.  However, you might be surprised to learn there are a number of benefits to purchasing a property in a busy area.

Should You Sign a Multi-Year Lease?

What should you do if your tenant wants to sign a multi-year lease? I know many landlords are hesitant to do this. If you’re signing a new lease with a new tenant every year, there’s an opportunity to raise your rent. And if you’re signing a multi-year lease, you might miss out on that chance.

Personally, I couldn't care less about the annual rent increase. When a tenant asks to sign a long-term lease, they’re telling you how much they love your house. They like and respect your property, and they want to stay put. I think that’s a plus!

Certainly there is money to be made in the small rent increase, however I find that tenant turnover is one of the most costly processes in the real estate business. As you probably know by now, I factor the cost of vacancy into my ROI formula, but tenant turnover can still be a hassle.

Think about it like this: a tenant turnover is like a double whammy. Not only are you forgoing rental income while your property is vacant, but you’re also spending money on the cost of the turnover. You’ll have to paint, re-carpet, and patch any drywall.

Let’s say your property rents for $700 a month, and during a tenant turnover, you don’t collect rent for a month. Let’s figure in the cost of repairing the rental while you find a new tenant, probably around $300. Total, you’re looking at about $1000. I would rather mitigate that cost by allowing a tenant to stay multiple years.

My experience has been that tenants that want to stay for a long lease are quality tenants. They pay on time, and they treat my property as if it were their own. To me, it’s worth it to allow a tenant to sign a multiple-year lease.

What has your experience been with multi-year tenants? What's the longest lease you've ever signed? I’d love to hear your thoughts. Please leave a comment on our YouTube channel!

 What should you do if your tenant wants to sign a multi-year lease? I know many landlords are hesitant to do this. If you’re signing a new lease with a new tenant every year, there’s an opportunity to raise your rent. And if you’re signing a multi-year lease, you might miss out on that chance.

Should You Rent to Pet Owners?

When you become a landlord, there are decisions you’ll have to make about your rental business. One of those decisions is whether or not to allow pets to live in your property. This can be a difficult decision—there’s a lot to consider!

We’ve all heard the horror stories involving urine, scratching, digging, and destruction. It’s scary to think about, but I’ve found that allowing pets on your premises can be a major benefit!

Let me give you an example: one of my rental properties in Michigan has a fenced in backyard. When I considered that this might be appealing to pet owners, my property management team informed me that I could make an extra $50-$75 every month in fees. Most renters expect to pay pet rent every month.

I went ahead and agreed to allow pets on the property, and the outcome was fantastic! That particular tenant was willing to sign a five-year lease, and this is because pet owners struggle to find a great home for them and their furry friends.

It’s a pain to find a place to rent that is pet-friendly! My experience has been that dog lovers stay in my properties for long periods of time.

But what if the pet damages your property? It’s ultimately the tenant’s responsibility. That’s why you should collect a pet deposit, plus a security deposit. Any expenses you might encounter during a tenant turnover should be covered by those funds. I find that the benefits of being a pet-friendly landlord far outweigh the drawbacks, and highly recommend you consider it!

For more on being a landlord, check out our list of the 5 Most Landlord Friendly States!  

 Landlords have all heard the horror stories involving urine, scratching, digging, and destruction. It’s scary to think about, but I’ve found that allowing pets in your rental properties can be a major benefit.

The Best Time of Year to Find Tenants

When is the best time of year to place tenants in your rental property? Many investors wonder if winter weather will discourage prospective tenants from viewing their properties, or if snow will deter renters from moving to a new property. I find the opposite to be true! 

Perhaps around the holidays people aren’t looking to move, but the period of time right after the holidays and before tax time is the best time to find tenants. When renters receive their tax refunds, they are eager to catch up on their bills and prepay a few months of rent. I’ve even had renters pay their entire year in advance! 

You can use this to your advantage as a landlord, and be selective about your tenants. We love to select tenants that are willing to put down rent in advance!