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

Member since 2021 · 11 posts · 14 votes

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.

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

@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.

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Casey Caton
Investor · Member since 2017 · 69 posts · 65 votes
4y
@Jacqueline Blue With all of the due diligence that I do for each tenant, I would be comfortable and confident with a two year lease. I use turbotenant for marketing and tenant screening purposes. I'm able to run a criminal and credit score check. I do a social media check, a google search, an arrest search, and I call all of their references including their landlords and employers to verify everything. When it comes to tenant screening, it is much better to be safe than sorry. Hope this helps!
4 Reply
Chad Williams
Member since 2020 · 6 posts · 2 votes
4y
@Jacqueline Blue
Hi, I leased 1 rental on a 2 year lease. In fact I did it again with another tenant. I love the idea, it's leased for 2 years. No turn over, after year 1! Saves you re renting & you know with out a doubt, your property has positive cash flow for 24 months. You have done the work by checking their credit. I say go for it. Chad
2 Reply
Paul Endress
Rental Property Investor · Central PA (Harrisubrg, Hershey) · Member since 2018 · 8 posts · 12 votes
4y
This is interesting because 2YR leases have been good for me. Of course I have had people leave during the lease, but every one of them has continued to pay me rent even after they moved out until I found a new tenant. Even during the COVID year, I had people who lost their jobs and moved back home continue to pay me. Never lost a penny.
One of the things I do is have a provision in my lease where they give me specific permission to report their payment (or lack of) to a credit bureau and we talk about it before lease signing. I probably never would report them, but this is a powerful incentive to someone with excellent credit.
2 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
4y
@Jacqueline Blue no no no. Rents typically go up every year. If they’re a good tenant you can keep the rent the same. Do not let them sign a 2 year lease. Trust me
3 Reply
Account Closed
Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes
4y
@Jacqueline Blue it depends on the area. I have a couple rentals in an area where 2 year leases are common. As long as the one tenant qualifies by themself, then I would consider it. It does potentially reduce your vacancy cost a bit.
As someone else said you can renew at the end of a 1 year lease pretty easy, so not a huge deal either way for me.
3 Reply
Jacqueline Blue
OP
Member since 2021 · 11 posts · 14 votes
4y
Originally posted by @Casey Caton:
@Jacqueline Blue With all of the due diligence that I do for each tenant, I would be comfortable and confident with a two year lease. I use turbotenant for marketing and tenant screening purposes. I'm able to run a criminal and credit score check. I do a social media check, a google search, an arrest search, and I call all of their references including their landlords and employers to verify everything. When it comes to tenant screening, it is much better to be safe than sorry. Hope this helps!

It does thank you so much!
0 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Originally posted by @Chad Williams:
@Jacqueline Blue
No turn over, after year 1! Saves you re renting & you know with out a doubt, your property has positive cash flow for 24 months.
Unless they choose to walk on you at any point during the 2 years....... :-)

3 Reply
Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
4y
@Jacqueline Blue
Nope. And especially not for reduced rent.
1 Reply
Sharon Nelson
Member since 2018 · 6 posts · 1 vote
4y
I used to love 2 year rentals with a solid tenant, but with rental rates going higher, I am not in favor.
Also, as someone else mentioned, if this is your first time dealing with a tenant, there will be many unknowns to deal with.
Good tenants will stay because relocating is expensive.
1 Reply
Michael Williams
Rental Property Investor · Sacramento, CA · Member since 2017 · 202 posts · 82 votes
4y
@Jacqueline Blue No, a one year lease is a test period to see what kind of tenants they are, they may be dirty, they could sub lease or move in more people that would not be on the lease, etc. After their one year leases is up and you think they’ve been great tenants you could have them sign another one year or longer lease. If it sounds too good it probably is.
1 Reply
Bob Beck
Member since 2021 · 2 posts · 1 vote
4y
@Craig Janet that's Interesting do you have alot of tenants that leave after 6 months?
1 Reply
Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
4y
I will even do a month to month stipulating it will roll over to a long term relationship. Some are opt because they are not sure they like to stay there that long. Your call.
1 Reply
E.S. Burrell
Rental Property Investor · MI · Member since 2019 · 192 posts · 205 votes
4y
No, and again I say No. I did a two year lease and offered a discount. Tenant was a tenant from H-E-L-L. I ended up paying her to leave. I lost big time on that one. A very good learning experience for me. Never again.
You have the opportunity to learn from others mistakes.
2 Reply
Melissa RobbinsPro Member
Investor · Denver CO · Member since 2020 · 63 posts · 37 votes
4y
For all the reasons mentioned, I would not recommend a two-year lease. If the rental is located in a seasonal leasing cycle and the renter wants to move in December, I might consider a 14-month lease to get this renter through the cold weather season when there is less leasing activity. At that time, you could consider a rent increase and if the tenant moves, you can still increase rent and get the next tenant on a better leasing cycle - starting and ending in the spring is better.
1 Reply
Josue Vargas
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
4y
@Jacqueline Blue

I have not read all the posts above, but I want to say I would not do a lease for 2yrs for the better qualified prospect tenant. You can always say thanks but no and ask them full rent and one year lease. At the end of the lease, renew for one more year and I would negotiate the rent at that time. Or have a month-to-month lease option after the main term of the lease.

1) Don't cut yourself short because you are somewhat insecure.  A two year lease does not necessarily means you will have them paying rent for two years. Read the lease agreement, hopefully prepared by a Broker or an attorney.

In this market I would be happy to take a tenant who wants a 6 month lease. It is a sellers market (or landlord market), meaning lack of properties, more people willing to pay more generally speaking.

2) What if the best qualified tenant defaults or breach the lease? I could find a new tenant within a week, but now I'm stuck with this 24 month lease making things harder for me.  24 months is somewhat lengthily for a residential property.

3) Just my personal experience, tenants who moves in from out of state and have great credit scores and very nice jobs wants to buy a house within an average of 8 months once they become familiar with the area. This means you will have turnover often = vacancy + other most likely expenses.
1 Reply
Jacqueline Blue
OP
Member since 2021 · 11 posts · 14 votes
4y
Originally posted by @Melissa Robbins:
For all the reasons mentioned, I would not recommend a two-year lease. If the rental is located in a seasonal leasing cycle and the renter wants to move in December, I might consider a 14-month lease to get this renter through the cold weather season when there is less leasing activity. At that time, you could consider a rent increase and if the tenant moves, you can still increase rent and get the next tenant on a better leasing cycle - starting and ending in the spring is better.

Thank you that make a lot of sense!
0 Reply
Victor Yum
Member since 2019 · 14 posts · 5 votes
4y
I have a few rentals that are real nice properties, so I am dealing with better qualify tenants. I love doing 2 years lease, probably don't want to deal with the turnover. So I ended up having a tenant stayed for 10 years, for 5 years and another for 2 years and just signed another 15 months extension. That's work out fine for me.
0 Reply
Jacqueline Blue
OP
Member since 2021 · 11 posts · 14 votes
4y
Originally posted by @Josue Vargas:
@Jacqueline Blue

I have not read all the posts above, but I want to say I would not do a lease for 2yrs for the better qualified prospect tenant. You can always say thanks but no and ask them full rent and one year lease. At the end of the lease, renew for one more year and I would negotiate the rent at that time. Or have a month-to-month lease option after the main term of the lease.

1) Don't cut yourself short because you are somewhat insecure.  A two year lease does not necessarily means you will have them paying rent for two years. Read the lease agreement, hopefully prepared by a Broker or an attorney.

In this market I would be happy to take a tenant who wants a 6 month lease. It is a sellers market (or landlord market), meaning lack of properties, more people willing to pay more generally speaking.

2) What if the best qualified tenant defaults or breach the lease? I could find a new tenant within a week, but now I'm stuck with this 24 month lease making things harder for me.  24 months is somewhat lengthily for a residential property.

3) Just my personal experience, tenants who moves in from out of state and have great credit scores and very nice jobs wants to buy a house within an average of 8 months once they become familiar with the area. This means you will have turnover often = vacancy + other most likely expenses.

Thank you so much for your advice!
0 Reply
AK Fowler
Investor · Royersford, PA · Member since 2015 · 64 posts · 21 votes
4y
I recommend a 1 year lease with requested/market rent. If they're able to afford the rent plus some then they should be able to pay the higher rent. I'd also look at an autorenewal with a 90 day notice prior to renewal of lease for them to not renew, otherwise they the lease will auto renew for 12 months.
0 Reply
Justin Hoggatt
Investor · Morrison, CO · Member since 2015 · 221 posts · 177 votes
4y
I'll throw my two cents in here. I've been asked to do 2 year leases but nothing ever came of it. Mostly because I don't want to deal with someone that isn't being good to the property (flexibility). If you do go with a two year lease, I'd either adjust the rent to be a bit higher for the duration or make an auto adjustment after year 1 to be at least a 3% increase.
With houses, I've had more success at better tenants and applications come across much stronger. So, I'd play that into the decision as well. If they pass with flying colors, it may be best to keep them in there longer. Apartments, I'd never sign a two year lease. Not only for me, but for the tenant because the move-out rates are much higher and a tenant shouldn't feel trapped if they want to leave after a year - which I've found is much more likely as well.
1 Reply
Maurice D.
Coppell, TX · Member since 2015 · 485 posts · 310 votes
4y
Don't be afraid to say NO. I had my tenant ask for a 2 year lease, I said NO, then they signed the one year lease. They have rented now 9 or 10 years.
0 Reply
Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
4y
I did it on my first rental but didn't reduce the rent but rather reduced the deposit. However, I knew the prospective tenants so it was a safer bet. If you decide to do the 2 year lease don't reduce the rent and just tell them that it works in their favor because you can't raise it. It is a win-win.
However, generally speaking, I agree with what others are saying. It doesn't really give you an advantage by doing a 2 year lease other than maybe no vacancy assuming they stay the entire time.
0 Reply
Curtis Mears
Property Manager · Raleigh, NC · Member since 2014 · 729 posts · 596 votes
4y
@Jacqueline Blue
I would definitely do an extended lease for qualified candidates. Do keep in mind that normally rents go up every year so you will not have the increase. I did a 3 year lease before covid, great tenants, but they are about $400 below market because of the insane rent increases recently.
0 Reply
Todor Ialamov
Real Estate Agent · Burlington MA · Member since 2018 · 114 posts · 142 votes
4y
I would do a year or 6 months lease. If you like the tenant you could always renew, if you don't like them you won't be wasting too much time. If you decide for some reason to do 2 years, the second year should be on a higher rate, not discounted.
Good luck!
0 Reply
Sharla P.
Investor · Raleigh, NC · Member since 2019 · 21 posts · 16 votes
4y
@Jacqueline Blue Agreeing to a 2 year lease at a reduced rent amount does not benefit you. It only benefits the tenant. Not a good idea. One year lease (max) at the market rent rate. After a year, you get to decide what you want to do (i.e. - find a new tenant, increase the rent, etc). and the tenant can do the same.
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