Would you do a 2 year lease for you first ever rental?

61 Replies

My husband and I are renting out first place (yay!). We have a few people lined up to see the place. But one of the best potential tenants on paper asked if we would do a 2 year lease for a slightly reduced rent. 
they are moving to our state, one person has a job here and is already working for said company, amazing credit and no debt at all. The other person (their partner) is starting a new career and so doesn’t really make any money. But the first person make enough to cover the rent and then some. 
I guess my question is would you all do a two year lease for for very first lease. Or are we getting in to trouble? All stories, thoughts, and feeling are welcome. 
Thanks for your time. 

Originally posted by @Jacqueline Blue:

My husband and I are renting out first place (yay!). We have a few people lined up to see the place. But one of the best potential tenants on paper asked if we would do a 2 year lease for a slightly reduced rent. 
they are moving to our state, one person has a job here and is already working for said company, amazing credit and no debt at all. The other person (their partner) is starting a new career and so doesn’t really make any money. But the first person make enough to cover the rent and then some. 
I guess my question is would you all do a two year lease for for very first lease. Or are we getting in to trouble? All stories, thoughts, and feeling are welcome. 
Thanks for your time. 

 No way. Too many unknowns. If he is a good tenant for 12 months, then automatic renewal.

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@Jacqueline Blue in my experience (hundreds of rentals, 12+ years) tenants will often ask for a two-year lease as a means of enticing you to take their application over others, or to talk you into lowering your standards or rent. I used to allow longer leases, but at least 80% of them left before the full term. Most renters can't say where they'll be in two years. Also, it can make it more difficult to remove them if they are problematic.

Stick with your plan of one year. No discounts. Wait for a well-qualified applicant. Tenants that offer more than you are asking (longer lease, cash in hand, offers to renovate for free, etc.) are all red flags.

Residents will move when they need to move. Long term leases only lock the landlord in. Best thing I've learned in 13 years - M2M rental agreements.  You can deal with misbehaving residents immediately, and they know it. 

Originally posted by @Nathan G. :

@Jacqueline Blue in my experience (hundreds of rentals, 12+ years) tenants will often ask for a two-year lease as a means of enticing you to take their application over others, or to talk you into lowering your standards or rent. I used to allow longer leases, but at least 80% of them left before the full term. Most renters can't say where they'll be in two years. Also, it can make it more difficult to remove them if they are problematic.

Stick with your plan of one year. No discounts. Wait for a well-qualified applicant. Tenants that offer more than you are asking (longer lease, cash in hand, offers to renovate for free, etc.) are all red flags.

 Thank you for your advice! 

Originally posted by @Terrell Garren :

Residents will move when they need to move. Long term leases only lock the landlord in. Best thing I've learned in 13 years - M2M rental agreements.  You can deal with misbehaving residents immediately, and they know it. 

 Thank you! We haven’t looked on to the pluses and minuses of M2M we’ll have to! 

@Jacqueline Blue

I hope all is well with you. My strategy has been to signed MTM leases with new tenants. This allows both parties to get comfortable with each other. After a six month "trail period", I will go back to them and offer a year lease. Sometimes, I just keep it at MTM, because it allows more flexibility. I can give a 60 day notice to raise rent if I am in a MTM. Signing a two year lease locks you in at a rent rate that will be out of date when the lease is up. This will bring calm, because you won't have to worry about signing a lease; however, it is less money over the long run. I hope this helps from a different point of view. 

If you ever want to chat about RE, please feel free to contact me.

Beleza,

Charles Anthony

@Jacqueline Blue

I do 2 year leases to people who seem like good fits and will be with me for years. This prospective tenant will most likely move out after their two year lease based off what you’re saying. No thanks, I’d pass on them.

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If you are not familiar with local laws or how courts are ruling for evictions for money VS possession, term vs month to month in the jurisdiction where this home is you really should do so before signing a 2 year lease.  Precovid we would do them but not at a reduced rate.  Post covid we no longer do them.  In some areas that we have homes in we won't even do year leases, only month to month because of how the courts have changed during covid times.  Some courts it is difficult to evict on a term but easy on month to month.  So to protect ours and our clients downside we stopped doing term leases in those areas.  

Originally posted by @Bjorn Ahlblad:

@Jacqueline Blue welcome to BP! No way! Why?

Exactly.  We need to take what state you are operating in into account.

In some states (like WA),  any agreement longer than 12 months requires notarized signatures. 

Some states revamped their landlord tenant law legislation due to... have you heard of covid and eviction moratoriums?   Imagine a 2 year period with optional rent.  

No real advantage to a longer lease.  It pretty much just locks in the landlord as mentioned.  

Originally posted by @Charles Clark :

@Jacqueline Blue

I hope all is well with you. My strategy has been to signed MTM leases with new tenants. This allows both parties to get comfortable with each other. After a six month "trail period", I will go back to them and offer a year lease. Sometimes, I just keep it at MTM, because it allows more flexibility. I can give a 60 day notice to raise rent if I am in a MTM. Signing a two year lease locks you in at a rent rate that will be out of date when the lease is up. This will bring calm, because you won't have to worry about signing a lease; however, it is less money over the long run. I hope this helps from a different point of view. 

If you ever want to chat about RE, please feel free to contact me.

Beleza,

Charles Anthony

 Thank you for explaining your process! It’s super helpful. 

Originally posted by @Jacqueline Blue:

My husband and I are renting out first place (yay!). We have a few people lined up to see the place. But one of the best potential tenants on paper asked if we would do a 2 year lease for a slightly reduced rent. 
they are moving to our state, one person has a job here and is already working for said company, amazing credit and no debt at all. The other person (their partner) is starting a new career and so doesn’t really make any money. But the first person make enough to cover the rent and then some. 
I guess my question is would you all do a two year lease for for very first lease. Or are we getting in to trouble? All stories, thoughts, and feeling are welcome. 
Thanks for your time. 

 Do not do a two year lease. Let them know you offer lease renewals, so they will have a chance to renew. 

Here are my reasons:

1. People break leases all the time. It is even more common with people relocating to an area. In that situation you have just discounted rent for no reason.

2. Offering a discount for a two year lease hurts you two ways. You take a loss year one, but even bigger loss year two because you have no option for increasing rent.

3. You are stuck with someone for two years. You could end up with a qualified tenant who is high maintenance. They could bring in emotional support animals and you are stuck with pets that you can't charge extra for. One year is tolerable, but two years with a bad tenant at reduced rent is horrible.

New landlords fear vacancy, but you shouldn't. If they want to live someplace two years, they will do it regardless of lease. The time and cost of moving is a big hassle, so that alone is incentive to stay. Some of my longest term tenants are on month-to-month leases. I have had three out of state relocations break 12 month leases - all had excellent credit and claimed they wanted to live there for years.

I only do 6 months leases. I get the first month and security deposit up front, so if things go wrong I don't have to wait very long to get rid of them. If a tenant really wants to move no lease is going to stop them.

@Jacqueline Blue when I first got started I loved 2 year leases because I was doing my own turnovers, but I always had a rent increase of whatever the average rent appreciation for the area was scheduled for the 2nd year, written in to the agreement (10-20% depending on where the property was). Now I do mostly 1 year leases and let them revert to M2M after the term. I would never discount rent for a longer term, there’s no advantage for you as tenants will leave and break the lease with no hesitation, it just locks you in to them. Also expenses will increase every year for you as taxes, insurance, labor, appliances, materials, etc. are getting more expensive, while the value of the dollar is going down due to inflation. You should make it a business policy to never discount rent and always increase rents every year.

Agreed, most states have laws restrict from profiting from lease breaking. Hence you only loose.  If it's a deal breaker consider, renewal at 5-10% or whatever max allowed by city/county. You can always offer lower rate if market conditions warrant.

I'd do one. The market rate has been going up pretty quickly so I'd want to be able to renew and potentially raise rent in a year. If tenants were a little more scarce I would definitely do a two year, but they aren't. At least where I am at.

We found it depends on area/neighborhood.  We found 2-year leases actually helped us in a desirable first-time-buyer neighborhood as it weeded out the many renters looking to be homebuyers there; kept turning over early with 1-yr leases the minute they found a house to buy.  With 2-yr minimum, most stayed the full 2 years or longer. For other areas, 1-year seems to work best, and I renew for a full year as well, not MTM as I do not want vacancies in winter.  As a renter, I personally would never have signed an initial month-to-month, I wanted set terms for at least a year, not worry about notice of rent increase, moving etc., so I don't offer any MTM option, even for renewal.  If you do lease for 2 years, make sure your state/locality allows an early release termination fee.  Mine is approx 2 months' rent.  I've never collected it, but it has deterred some from leaving early when I remind them of it.