Minneapolis, MN · Member since 2015 · 13 posts · 3 votes
I am looking for some advice from the experienced landlords out there. I am in process of filling my new SFH and have a tenant that is interested in a 3-year lease or longer. I have yet to do the full background checks on criminal/eviction/credit but proposed tenant seems confident that there are no issues.
Other than a cap to my ability to raise rents during the lease-term, are there any downsides that I am not considering? Showing the property tonight so would really like to get your feedback and advice asap. Thanks!
I hate long leases. Longer than a month. A long lease ties your hands much more than the tenant. If you have a troublesome tenant that's not easily evictable, you're stuck. Its easy to evict for non-payment of rent. Unauthorized pet? (It's a friends, and just visiting. Extra residents? (just visitors.) Cars parked in yard? Lots of things that will cause you trouble. With a month to month, you can simply terminate the lease.
Now, you'll say "but the tenant can do the same". Yep, they can. Guess what? If they want to leave six months into that three year lease, they will. What will you do? Take them to small claims court and get an noncollectable judgment? Keep their security deposit? I'd much rather have them give me notice and leave after being there six months than to just disappear.
Just include a rent increase clause in the lease. Each year bump it up $50 or so depending on what your base rent is year one. What are your concerns with the three year lease other than missing out on rent increases? Do you plan to sell the property? If so, tell them you want a clause that states if you decide to sell the house you can break the lease but that would be the only reason other than if you had to evict them obviously. Why not do the deal and stabilize the asset for a few years. One less thing to worry about. Make sure they cover all expenses with the property including all utilities, snow removal, landscaping, maintenance, etc...
I would be careful with that. A long lease duration mainly protects the tenant. Besides perfectly legal reasons to break the lease, a tenant with itchy feet@Mike Pedersonwill just let you stand in the dark. And getting future rent payments through the court system can easily turn out to be a bad economic choice. On the other hand, if the tenant turns problematic, you will have a hard time getting the tenant out. Eviction for a lack of rent payments is a cake walk compared to eviction for any other lease violations.
I would love a long lease with good tenants. I even gave them 25$ discount on the monthly amount if they are willing to sign a 2 years lease instead of 1 and send them gift card on thanksgiving!
I hate long leases. Longer than a month. A long lease ties your hands much more than the tenant. If you have a troublesome tenant that's not easily evictable, you're stuck. Its easy to evict for non-payment of rent. Unauthorized pet? (It's a friends, and just visiting. Extra residents? (just visitors.) Cars parked in yard? Lots of things that will cause you trouble. With a month to month, you can simply terminate the lease.
Now, you'll say "but the tenant can do the same". Yep, they can. Guess what? If they want to leave six months into that three year lease, they will. What will you do? Take them to small claims court and get an noncollectable judgment? Keep their security deposit? I'd much rather have them give me notice and leave after being there six months than to just disappear.
I'm not a fan of initial leases longer than one year. I recommend a 6 month or 1 year lease initially to test your relationship with the tenant. If things work out, you can renew the lease for another 2 years. I did this with a tenant and it worked out well. During the initial lease, I found out the tenant likes to pay the rent at the last minute (literally) and always forgets the web link for payment (even though it's in his lease). So, at renewal time, I increased the rent to compensate me for the extra hassle. He's happy. I'm happy.
Would anyone consider putting a clause in lease that would automatically extend the lease for a second year if there were no late payments during the first 12 months?
Do you consider your state and jurisdiction landlord friendly or tenant friendly? The more tenant friendly it is the less likely I'm going to do a lease (period) let alone a 3 year lease. Keep in mind in tenant friendly jurisdictions, the tenant will not be bound by the lease but the landlord will be to a much greater extent.
wow, opinions on all fronts. Someone only wants month to month and others would love 3 years. I have only done 1 or 2 year leases. Never done a 3, never been asked. However on a couple of 2 year leases I have built in increases. For example, year 1 - $895/month, year 2 - $910/month. It may be only $15 instead of the $30 or $40 I might could get otherwise, but as long as your property is profitable, who cares. In my personal opinion, unless you're in $300/month really low income type properties, your tenant is much less like to break a lease than to stay with it. I've got 9 properties and had ~20 leases. Only once has it been broken and we were still able to collect on the rent plus late fee (I'm sure that's lucky). But either way, leases have worked very well for us. I'd be willing to be NO ONE will post and say I've done 50 leases and had 28 of them broken for example.
I don't want a lease for a term of more than 12 months, except for possibly an initial lease where I try to get the lease to end in April, May, June or July. I offer good tenants renewals of their lease for an additional 12 months; or they can elect to be month to month at a much higher rent. Going longer term can force the landlord to guess at appropriate increases; how much do the following increase: property taxes, insurance, landlord paid utilities, rental licenses and inspections.
But I would want to know this tenant's answer to the "why" question. It might be possible to make them comfortable with a 12 month lease once you understand why they think they need that longer term.
And if it's because they don't like rent increases - well, I don't like increases to any expenses I have to pay, but those expenses tend to go up regardless of my dislike of the increase. And no landlord can afford to absorb every increase to those expenses without raising rent. If they want rent to be stable, they should move somewhere that has rent control :)
Like @Jon Holdman said, I'd be worried about you being locked in and them not. I would consider a long term lease if there was a large penalty for moving out. I see very few tenants stay that long and you'll be left with an empty house the same as if they signed a 2-year, 1-year, etc. as soon as that better job/relocation comes around.
I would only offer a year lease especially for a new tenant. I have offer a couple months longer to get the lease to end in april or may if they sign up in the winter months. One hing hat has not been mentioned is that a 3 year lease triggers he "due on sale" clause of mortgages. Thus the bank could call the loan due in full. Unlikely unless you go and finance something and give bank your lease and they know about it and call it. However However would use that information to at most offer them a 2 year lease with a light rental bump for year 2.
I see you are in Minnesota but In Washington state, a lease that is longer than 12 months needs to be notarized. The state's landlord-tenant act provides protections that allow the lease to be terminated regardless of term if it's for the sale of a property or if you need to move a family member into the rental. I assure my tenants that want a long term lease that it will be renewed for another 12 year term annually, therefore if they honor the terms of the lease, they can stay as long as they want. You should also be advised that in Washington State, if we are speaking of a condominium unit, you never want the lease to turn to month to month, then the eviction laws change, making it more difficult to evict a tenant on a month to month lease. I don't see any reason to avoid a long term lease so long as it doesn't lock you into the same rental rate for three years. You may choose to keep the rent the same but my rule of thumb as a landlord is to keep my options open while not risking the loss of a good tenant. I had a tenant who wanted the same thing, she has been with me for three years now with one rental increase and we just renew the lease every year. No big deal.
I would go with a one year. You can put a clause in your lease that states that IF both parties wish to renew the rental amount will be increased by x. I am with others that say if you have a terrible tenant and you give them 2 years, 3 years....you are stuck! And as another poster stated, there are those that would argue for the benefits of a month to month. I have yearly leases on 7 properties and one on a month to month. I just raised the rent on the month to month by $90 because I was falling severely behind on my rates. Everything has cons and benefits and you need to decide what you prefer. Good luck.
I would only offer a year lease especially for a new tenant. I have offer a couple months longer to get the lease to end in april or may if they sign up in the winter months. One hing hat has not been mentioned is that a 3 year lease triggers he "due on sale" clause of mortgages. Thus the bank could call the loan due in full. Unlikely unless you go and finance something and give bank your lease and they know about it and call it. However However would use that information to at most offer them a 2 year lease with a light rental bump for year 2.
The notes and DOTs I've seen specify leases of 3 years or less as Garn St. Germain exempts leases 3 years or less. Have you seen some that specify 2 years or less?
K. Marie Poe - I think it is triggered by a lease more than 3 years so a 3 year lease would most likely be fine but it is to close for comfort and I don't see a lot of benefits for a long ermine lease like that.
K. Marie Poe - I think it is triggered by a lease more than 3 years so a 3 year lease would most likely be fine but it is to close for comfort and I don't see a lot of benefits for a long ermine lease like that.
3 years or less is exempted and allowable and cannot be called. DOS on a properly executed 3 year lease should be the very least of any landlord's concern. The tenant will be problem before the bank. :)
I agree that the reason the tenant wants the three-year lease is important. Afraid of rent going up? Don't want to have to move until they finish law school?
I used month-to-month agreements when I managed, and if I got an applicant I wanted who was balking because they were afraid I'd raise the rent after they moved in, I'd write into the agreement that the rent would not be raised for 1 year - if they were still there.
I'm not a fan of initial leases longer than one year. I recommend a 6 month or 1 year lease initially to test your relationship with the tenant. If things work out, you can renew the lease for another 2 years. I did this with a tenant and it worked out well. During the initial lease, I found out the tenant likes to pay the rent at the last minute (literally) and always forgets the web link for payment (even though it's in his lease). So, at renewal time, I increased the rent to compensate me for the extra hassle. He's happy. I'm happy.
Would anyone consider putting a clause in lease that would automatically extend the lease for a second year if there were no late payments during the first 12 months?
John
I have a clause that will allow them to extend month to month after the end of the lease if they are in good standing and rent goes up $100 month after that. So when they go month to month the price goes from 1050 to 1150. It works for me and they don't have to move. I guess I left myself open if they stayed for years at the month to month rate for 1150.
We have a duplex up here in Plainville, Connecticut (B+ area) that attracts working professional tenants. When we bought the property last year we had a qualified tenant interested in renting one of the units.
They wanted a 3-year lease right off the bat and although we did not have any reservations about renting to them we decided to start them off with a year lease and then recently when their lease ended we extended them another 2-years.
If they are truly interested in the house and living in the neighborhood then they will be fine with a year lease initially which is how I would play this situation if I was in your shoes.
I won't go over a year. If you are not happy with the tenant you will be stuck with them. Provide a rent escalation clause in the lease in the event you decide to renew with them. Keep in mind, a lease is really only as good as the tenants are. I have had two tenant want to break leases. I allowed that, increased rent rates for the new tenants, and never lost one day of income. By working with them and allowing them to terminate early, we stayed on good terms, they left the property in good condition, etc. It was a win-win. Fighting with a tenant is always a last resort IMO...but that does happen.
Agree with @Rob Beland. Aside from Rent Increase (which Mike, you have already highlighted this topic), mostly it's about your situation. If you need your house back within 1yr (say, you need to sell it), then obviously you won't want a lease longer than that.
Have a question for @Jon Holdman. Saw that you prefer month-to-month. In your area, is it that difficult to evict a problematic tenant? In certain places, having a lease is not THAT big of a deal if should you need to evict a problematic tenant (I refer to a legitimately problematic tenant). This is assuming you don't have a predetermined time horizon to sell the house. Say you want to flip the house in 2 years and you need your house vacant by then, then agree with you that month-to-month is much more convenient.
We rent a large SFH (we have owned since '91) to an officer (& family) in the service & he requested a 4 year lease for the duration of his 'tour'. We simply added annual rental increases of 'no more' than 8%. So far it has been a great experience. In fact he had his engineering guys tear down & completely o/haul a pellet stove that was quoted out @ $700 just to service. I supplied the new auger. He also keeps the property & grounds in immaculate condition.
This same home was once rented for 5-6 years to a local mfg company for their executives & they also requested a long term lease. We had annual increases written in. That company maintained the home at their expense & surprised us by upgrading kitchen flooring, all master bath fixtures & appliances. They also had the removable screens for the large porch rebuilt by their maintenance department. When they moved their operation to China we inherited all the appliances, a complete Bose system & all other upgrades.
However, the majority of our properties are on month-to-month rental agreements, as dictated by the 'quality' of the respective tenants.