Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
I know some of you are only doing month to month leases for flexibility and control. But what do you do if you have a really good prospective tenant who "needs" a longer term? Perhaps they just left their last rental early because it was sold or foreclosed on. Do you make exceptions to your month to month leases?
I normally try to lock in good tenants as long as possible, and in exchange for an extended term (2 years+), offer them to lock in their rent for that period. The extra 3-7% that I miss out on is made up by not having the turnover, which is very expensive.
I also try to get them to sign 1 year leases as a bare minimum. If they're not stable enough to stay for 1 year, they're not stable enough for me.
Finally, I have gotten all my rentals now to where they expire in late June or July. July/August is the best time to find tenants. You'll have the largest pool to choose from.
I recently signed a 3 year lease with my tenant. Little old lady who is retired. She was already in the property for a year, so if she stays the full length, she'll have been in place for 4 years.
I may be losing a small amount of rent increases, but I'll more than make up for it with appreciation, steady cash flow and principal reduction.
Hey Steve, what is the longest lease you had a tenant sign with you in order to avoid higher rents?
Unlike some other posters here, I don't like to go past 12 months for lease duration. Because there are some expenses that I don't control - property taxes, certain utility rates (I pay the lienable utilities in most cases), insurance rates; when those go up, I prefer being able to raise the rent. I might go past 12 months, for example, when a lease is starting just a bit before the hot rental season (say a Feb move in, I might go 14 or 15 months then).
Signing a long term residential lease locks in your rents at whatever numbers you set up front ...
Brian Hoyt, if somebody does not voluntarily surrender possession to you at the end of a lease (regardless of duration), you have to gain possession somehow; legally, the eviction process is intended to accomplish that.
I recently signed a 3 year lease with my tenant. Little old lady who is retired. She was already in the property for a year, so if she stays the full length, she'll have been in place for 4 years.
I may be losing a small amount of rent increases, but I'll more than make up for it with appreciation, steady cash flow and principal reduction.
Even more significantly, turnover costs (money and time)associated with rent hikes are avoided as well as the unkown future tenant risk. A bird in hand is worth more than two in the bush.
I'm still new to investing and have yet to acquire any property, but in the mean time I'm just trying to do my homework. I know this is an older topic, but my question kind of relates to the subject matter. I want to start investing with OO multi-units for a few years then move from there.
On the note of 'good vs. bad' tenants, has anybody ever heard of starting with a month-to-month then after, say, 6 months to decide if the tenant is worth it to then offer them a 12 month lease? I ask because like I said, I will be OO, does anybody think this idea is worth trying for a new landlord/neighbor?
I probably won't buy anything too soon, but maybe in the next year or so. I mostly just slink around BP for tips and knowledge so I can have some good stuff to work with when I have the capital to jump in and get my hands dirty with real investing.
I almost always do 1 year lease, but have done 2 and 3 year also. Once time a good prospect wanted a month to month lease. I agreed and wrote the lease to say that "either" party could cancel the lease with 30 days written notice without any reason.
The tenant was a little surprised by the language. But I said isn't that what you wanted? He said that he didn't expect it to be for both parties. I said it seems fair to me... good for goose, good for gander.
He signed the lease and ended up staying 4 years.
I have another tenant who signed a 1 year lease in 1984, still there essentially month to month.
I do month to month leases and have ever since I once had a bad tenant.
However, I'm starting to see the other side of it.
Turnover can be really high with month to month.
One tenant I had offered a 1-2 year lease when they moved in. About 7 months later, they bought a house and moved out.
I've also done literally one month rentals for visiting medical interns. Those are pretty easy. Short-term people rarely complain too much since they leave soon anyway. Those are a lot of work screening people and finding new ones.
I wouldn't want a more than one year lease with anyone.
I still like that I can tell someone "don't like it? Ok, 30 days, you're out" to any tenant now. That's always reassuring-- but, of course, they can choose to be out within a month then I'm stuck finding someone else.
I only rent 12 month lease for 1st time renters moving into my units. Right now I am moving into only voucher tenants and they require 12 months at first then month to month. I recently told a sec 8 tenant that I was not renewing their lease because they were complainers, naggers, nasty people and they used the term "sue" too many times for my comfort. At least I got a years worth of payments. It will suck to have a vacancy after school starts considering it took about 3 months for me to find tenants last year for this building. If I was not comfortable with giving someone a 12 month lease then I will not rent to them.
What is a voucher tenant Tracey? I haven't heard that term before. Thanks in advance.
Notice the number of landlords who desire to "lock in" the tenant. This is a terrible way to treat a tenant. Worse are the landlords who specifically say they want to trap tenants in order to discourage tenants from buying. Good landlords do not need to lock in tenants. A happy tenant will stay. If you aim for money, you'll get some. If you aim for customer service and satisfaction, more money will follow. The time-tested Golden Rule really works.
I've been renting for a very long time. Most of my tenants have 1 yr leases, some have up to 3 yr leases. It not a trick, a trap, or a lock in. I just rented a property recently on a 1 yr lease and the tenants requested a longer 3 yr lease. They came from a nearby rental where they rented for 7 yr and had to move because the owner sold the property. They wanted the security of not having to move in 1 yr, because the experience of moving now revived in their mind how much work moving a whole house is. I also renewed several other lease in the last month where other tenants requested 3 yr leases. one has rented the same place from me for over 20 years and the other over 15 years. (I have another 30 yr tenant who signed a new 3 yr lease!) (I have been doing this a long time!)
In my leases there is no rent escalation, so one reason the tenants like the longer terms is that the rent is frozen for 1 to 3 years. Its a sacrifice on my part, because costs DO go up every year, taxes, insurance, maintenance etc. when gasoline prices rose, several of my vendors added a gasoline surcharge to their repair bills.
In Bigger Pockets Podcast #82, I talked about renting a house to a new tenant at a 25% discount off market rent in exchange for the tenant paying all utilities, and all minor maintenance, they also cleaned and painted the house and did some planting. Many tenants, not all of course, like the stability of knowing that they don't have to move all the time, and that rent remains the same.
I have rented month to month. One time a new tenant requested it and I wrote up the lease as month to month. The lease said that either party could terminate this lease with 30 days written notice to the other party without any reason. Essentially the tenant could be evicted with 30 days notice for no reason. They were taken aback by this. Somehow they thought that a month to month only gave them the right to leave, not the owner to terminate!
State laws may apply in this case but here either a written month to month lease or an unwritten lease is applied as a month to month lease and can be terminated for no reason with 30 days notice.
One factor that would apply here in PA, but not in CA, where you are besides different state laws and customs, is the weather. Here the cold, snowy, ice winter weather with darkness at 5 PM, and holidays makes it difficult to rent places Nov. to Feb. As a result we don't write leases with expiration dates in those months. Typically expirations are Apr to July, and families with school children always wont to be settled in before school starts, which here is next Tuesday.
Nothing you said actually countered my point. Most landlords do not escalate rent even on month-to-month leases when they have a long-term tenant. There are tenants in my community paying half of market rent because they have been on a MTM for 15-20 years.
The weather really has nothing to do with anything if your tenant has been laid off in the winter and can't pay rent any more, or if your tenant is a bad tenant and you need a trouble-free eviction. Both bad landlords and bad tenants love long-term leases precisely because of the lock-in feature.
The fact that one of your tenants did not understand how a MTM works is irrelevant. Landlords do not give notice to good tenants on a MTM anyway. I say this as someone who has spent many years as a tenant in 3 countries. The last time I was a tenant, I stayed 4 years on an MTM until I moved to another community.
The time it takes to turn a unit and find a new tenant sometimes isn't worth month-to-month. I would lock them into at least a 6 month lease with the option to go month-to-month afterwards.
I only rent 12 month lease for 1st time renters moving into my units. Right now I am moving into only voucher tenants and they require 12 months at first then month to month. I recently told a sec 8 tenant that I was not renewing their lease because they were complainers, naggers, nasty people and they used the term "sue" too many times for my comfort. At least I got a years worth of payments. It will suck to have a vacancy after school starts considering it took about 3 months for me to find tenants last year for this building. If I was not comfortable with giving someone a 12 month lease then I will not rent to them.
What is a voucher tenant Tracey? I haven't heard that term before. Thanks in advance.
"I only rent 12 month lease for 1st time renters moving into my units." See, here's the thing. What if a tenant is a first-time tenant who is renting until they buy? People should never be trapped. People generally want to keep their options open. The Golden Rule says that since I like to keep my options open, I should treat tenants the same way.
But if you have a bad tenant, you yourself might not want to be locked into even a six month lease. It might be "worth it" to be able to give a 30-day notice right away. If you have a good tenant, the risk of having turn a unit within even 6 months is extremely minimal.