Investor · Knoxville, TN · Member since 2015 · 31 posts · 11 votes
I received an inquiry for a 5-year lease on a renovated SFH. They are asking for a reduce price in exchange for a signed 5-year lease. 1400 a month instead of 1500 a month. I assume if I do the due diligence and make sure they have a good rental history, good credit, and clean background, then a 5-year lease is a great option. My concerns are that they might not be a good tenant and I am stuck with them for 5 years. Only real other concern is if they have a dog and what they might do to the property over 5 years.
Should I put anything in the lease that would normally not be in a 1 - 2-year lease? Year inspections?
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
10y
S they sign a 5 year lease , you reduce the rent , and they move out in 9 months , did a 5 year lease do you any good ?
Tell them you have a better Idea , If they rent the place , pay the rent in full and on time each and every month , do no damage to the house , you wont charge them rent the last 2 months of the 5 year lease .
Banker · Downers Grove, IL · Member since 2014 · 396 posts · 107 votes
10y
@Ben Sealey I would do a one year with an option to extend to another 4 if certain parameters are met. On time payments, passes all inspections, no neighboring complaints etc. Like you stated; you don't want head ache long term tenants.
Professional · Grants Pass, OR · Member since 2016 · 89 posts · 77 votes
10y
I would be leery of locking in a reduced rental rate for 5 years. Will your expenses and property taxes remain stagnant for the next 5 years? What about the appliances, will anything need to be replaced in the next 5 years? Reasonable and routine rent increases are designed to accommodate these type of expenses an owner will encounter. Long term renters are great, but I would say 5 years at a reduced price is not a great idea.
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
10y
S they sign a 5 year lease , you reduce the rent , and they move out in 9 months , did a 5 year lease do you any good ?
Tell them you have a better Idea , If they rent the place , pay the rent in full and on time each and every month , do no damage to the house , you wont charge them rent the last 2 months of the 5 year lease .
Arlington, TN · Member since 2016 · 3 posts · 0 votes
10y
The thought was to have a clause in the lease that stated if for any reason the lease is broken, the tenant would owe the full discounted amount. Example, they stay for 9 months at a $100 discounted rate, they would owe $900. But we also don't want to get stuck with a bad tenant for 5 years.
Investor · Marietta, GA · Member since 2015 · 382 posts · 258 votes
10y
A lease is put in place to protect you. There is nothing about a five-year lease that is in your favor. Costs increase. Just think about rents five years ago that were probably 25 to 30% cheaper than they are in today's market. Not only are they asking for reduced rent in today's times but reduced in five years from now. You are potentially going to be leaving an incredibly large amount of money on the table. There are plenty of specific reasons why this is a bad idea, but this seems to be the two most obvious ones.
Investor · Wilmington, DE · Member since 2015 · 19 posts · 14 votes
10y
If you do the long term lease, write it up in a way that increases the rent yearly. They can have $1400 this year, then higher in year two, more in year 3 etc. Pick a percentage increase and raise the rent by that amount each year. I have done this successfully in the past. Ironically, I have a high end sfh in a four year lease to a great family, but I didn't do what I just advised above. I locked in a single rental rate for all four years. My property taxes have ballooned in last couple of years due to referendums but I am getting the same rent. Oops.
I agree with your concerns about possibly being stuck with a not so good tenant for 5 years. I would just stick to your standard 1 year lease with no discount. They probably think that it is beneficial to you as a landlord to have a 5 year lease, but it likely raises more possible problems than benefits.
Is this a couple? What if they split up, or have a baby, or get a new job transfer, or want to change school districts, or on and on and on.....life happens. These days it seems pretty rare for people's lives to stay the same for 5 years. If their life changes in the next 5 years require them to move, YOU will be the one dealing with that problem.
I'd let them rent for 5 years, but just 1 year at a time.
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
10y
Ben Sealey I just got out of a two year lease. Now the tennant stayed and she's $250 a month below rent rates. How do you raise rent that much. I'm thinking I gotta do it a little at a time. Means even more money lost. If I raise it all the way up at once then I'm sure to have a vacancy. I'll never do it again. I wouldn't even consider a 5 yr lead. RR
Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
10y
Of course a tenant would want a five year lease, that means their rent won't go up for 5 years and if they want to leave they will leave no matter what. There's no reason to go beyond a 1 year lease. are you having trouble finding potential tenants? Tell them you'll do a year and that's it. Why would you want a five year lease as a landlord?
Investor · Durham, NC · Member since 2016 · 23 posts · 27 votes
10y
I'm seriously regretting the 3 year lease I have with some overly demanding tenants. Sure, I don't have to look for new tenants but finding tenants wasn't all that hard. Usually people only want that if they are concerned about being asked to move or have had rent increases in the past. If I needed to sell the house or there was a major repair or tax increase I would have no flexibility with a 5-year lease.
Are you in a market where finding tenants is extremely difficult. If not then why would you devalue your investment by not charging market rent.
Where is the advantage for you as landlord, is a long term tenant that decides their life has changed and leaves in 6 months of a advantage to you. Do you believe a lease is in some way insurance for you. If so you are wrong. Tenants use this ploy to take advantage of gullible landlords.
A lease has no bearing on how long a tenant will stay, I personally only provide M2M leases and find by doing so much more flexibility for myself and tenants. My tenants are much more cooperative and forth coming with their plans when they know I am willing to work with them.
A long lease may benefit a tenant but is of no value what so ever to a landlord.
If your reasoning is that a long lease will some how make being a landlord easier you are wrong, all this lease will do is devalue your investment.
Rental Property Investor · Grand Haven, MI · Member since 2015 · 71 posts · 108 votes
10y
1 yr leases are generally the way to go. I have occasionally done an 18 month or 2 yr lease but do not prefer it. Everything about a five yr lease at a fixed rate is in favor of the renter. Not an ideal situation for a landlord.
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
10y
Also, Garn-St. Germain provides for a due on sale clause trigger for residential leases longer than 3 years.
I'm not an attorney, but you may run risks of a tenant showing equitable interest in long-term leases that may make them harder to evict if challenged.
If the tenant wants long-term security, look to commercial leases for renewal clauses and, like everyone's saying, keep the term shorter.
Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes
10y
If you want to lock in a 5 yr lease, then I would raise the rent to a median price over the 5 year period. Another option is to give a reduced rent price for the first year and after than the rent will go up yearly up to 10%. Each year you can pick the increase but not to exceed the 10% of current rent. I would offer them a 2 year lease term and let them go month to month or sign a new lease at that point.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Ben Sealey one question I would ask is how confident are you that $1500 per month is competitive in your market? If you feel the applicant is qualified and can move in quickly, you could reduce the monthly rate to $1450, but only offer a one year lease. Keep in mind at $1500 a month, vacancy is costing you $50 a day, so 12 extra days is $600.
Brentwood, TN · Member since 2016 · 19 posts · 10 votes
10y
1st Rule! No PETS!!! None!!! Ever!! If u can sign a 5 year lease i would do it, if that fits your own situation. But actually your rent should increase not decrease over that time. But so much depends on the market and the situation.
I did a firm rental contract on mine for 2 years, at the price i had posted in the ad. Then said we can see where we are in two years, and sign another lease for two or three years at which time if everything is A ok, I will consider a discounted rate, but I cant make any promises. This worked great for me and my renter because after 3 years they had to go month to month anyway. After that request I actuall increased rent, its exactly what large apartments do if you wont re sign a long term lease again.
So you have to ask yourself how sure of you that this is a 5 year deal! Remember , the average home OWNER only stays in a home 7 years!!! Renters are usually 12 months! So 5 years may sound great to you today, but it also hancuffs you if you want or need to sell for your own reasons, or if the rentals go up huge in the area...If they are paying, its much harder to kick them out, not legally, but just as a person, so hopefully your paperwork gives you a 30,60 day notice period of lease termination if you need it. And make sure they initial the contract next to that line in the contract! Judges will always side on the part of the tennant if it comes to that!
Leases, no matter what the terms, are just paper, if they wont lose hard core money walking out on you, then what stops them?
You also need to tell them that you report to the credit agencys just like all other apartments do! People think they can get away with much more when renting private than they do from large corporate apartments. I use a great 3 level credit check service that helps me sleep at night. Sure I have to turn lots of prople away, but you wouldnt give out your ATM pin code to a stranger, why give them keys to your house!!!
Residential Real Estate Broker · Winston Salem, NC · Member since 2011 · 345 posts · 120 votes
10y
Are tenants hard to come by where you are? I can't think of a situation where I would do a 5 yr lease. I've converted about half of my units to month to month with a 60 day notice if/when there will be a rent increase. My best tenants have been multiple years on this program and if I have a problem tenant I simply do not renew their lease.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
10y
No 5 year lease especially if they have a pet. Not for residential. They can always leave and in most states are only liable to you for vacancy (if you can get it) but if you want to get them out you have to have cause and it is not so easy. Lose-lose for you. If they want a particular end date like an 18 month or so I do accommodate.