I have a student rental that is currently rented out until 7/15/2017 and I'm already fielding quite a bit of interest for people who want to sign a lease for the 2017-2018.
I'm a new landlord so I'm curious how others have handled situations like this. Do you ask for a non-refundable deposit right now to reserve the home for next school year?
Or do you just have them sign the lease for 2017-2018 and get their deposit as normal. If they break the lease, then I would assume I could keep their deposit, right?
Thanks for your help!
Each state has laws regarding real estate and how various aspects can be handled. You'll need to consult the real estate laws of your state to determine what's allowed.
In our state, if it's labeled a DEPOSIT it's fully refundable if certain terms are met. If it's non-refundable it's called a FEE. I agree with Karen, you need to know the laws that pertain to your state, especially the landlord-tenant laws. There's a difference between a "holding deposit" and a "security deposit" and how they are handled.
What's typical for your area? Find out the norm for student rentals and learn as much as you can about that niche market. Check with other landlords and look for best practices.
Has your current tenant advised you that they are not renewing their lease? If the this is not the case why don't you wait 90 days prior to their expiration and offer a renewal. If they are good tenants you may prefer to keep them instead of having to go thru new screening of prospects. In the event you already know they will not be renewing you may start screening applicants for next year and once you find a applicant that meets your criteria request a non refundable holding fee for the unit. Advise them if they cancel you will not refund these monies as you held the unit for them and therefore missed the opportunity to offer it to someone else. This is what has worked for me as people do not like to loose their money and you have preleased your unit way in advance. I also apply this holding fee to their 1 month deposit. Before you do anything check your Landlord Tenant laws in Michigan.
If local laws allow: Have the prospective tenant sign a paper that the money given is a apartment holding fee and will be forfeited if they choose not to rent with you. If the prospective tenant rents the unit as agreed and a lease is signed, it will be credited toward their move in deposit.
Use caution when calling money a deposit. That infers that it is refundable.
@Nate Chucta if you know you are not going to renew the current tenant and you are that far out I would look into a "binder agreement". This would not be a lease but an agreement to hold that unit for the interested person. They would give you money (called consideration) and you would agree to provide that property on XX date. If you can't give them the property you return all of their consideration. If they do not sign a lease by XX date, you keep the consideration. If they do sign the lease, the consideration transfers over to help cover the security deposit etc.
I do not like leasing a property that is already spoken for and use this method. It's worked great for me in the past. And I completely agree with @Marcia Maynard ... a deposit can be returned, a fee cannot. I get anal about that one ;)
I do know that the current tenants will not be renewing the correct lease as they are all seniors and will be moving out of town in June 2017. If they had intentions of resigning, then I would have already established that in the current lease.
I love the idea of a "binder agreement" and that is what I really had in mind - I just need to be careful about terminology (fee vs. deposit).
I have plans to meet with a local lawyer prior to establishing an agreement as described above, but just wanted to see what others have done prior to having to pay for his/hers time. :)
Join the Largest Real Estate Investing Community
Basic membership is free, forever.