Writing my First Lease

9 Replies

Hi everyone!

I’m excited to say I’m closing on my first deal (a house hacked duplex in Concord, NH) after four years of studying books, podcasts, and forums through this awesome website! So thanks to everybody who takes the time to contribute and share their experiences, it’s very helpful.

I’m writing my lease for the upstairs tenants, and was hoping for some insight. Currently, the tenants are paying about $200/mo below market value and on top of that get access to a detached garage and 2 additional off street parking spaces. I will be parking on the street. Would it be reasonable for me to increase their rent right off the bat $50-$100 and/or ask them to be responsible for snow removal (they currently don’t have to maintain the driveway)? I’m looking to be as fair as possible so please let me know if I’m out of line. It’s a year to year lease so it would be nice to lock in better terms right away. Thanks again to everyone for reading!

-also the tenants have been very compliant so far and really want to stay, so they seem pretty reasonable

@Paul Lovely - yes, that is fair. You don't want to raise it right up to market because that may scare the tenant and if they've been good ones, you want to keep them. However, they appear to be getting a super deal. I'd approach them by letting them know market and that you're only going partway. That way it's clear they're still getting a sweet deal. Good luck!

Would the goal be to increase it another $100 the next year? Because tenants don't respond too well to that either. 

Consider telling them market rents are actually $200 more a month from what they are paying but you will cut them a deal for $150 due to being so great during the transition. Or something like that. You are decreasing your income by renting lower than market rent. But for good tenants that pay on time, I would be willing to cut $50 to not have to evict or find new tenants.

@Paul Lovely
I would start to improve the property before raising the rent. This can be very minor repairs but just to show that you are not absentee and actually adding value to their home. They seem to be getting a number of benefits that you might not be able to charge for; driveway, garage etc. Having tenants take care of snow maintenance or any maintenance could be an issue; they might not do it and then what do you do? It is easier for you to do this or pay and once they leave, rent the garages to someone off site (easier to get higher rent for garages from off-site  people), and include one spot per apartment; just in case you move out, you do not want issues with the person that moves into your apartment not having parking. Maybe raise the rent a few percent over the market's normally rent increase. For example, if normal rent increases 3% in your area, raise 8% until you hit the market.

Congrats Paul, that's great!  Yes, it's reasonable to raise the rent and require them to perform snow removal for their benefit.  Sometimes it isn't easy for everyone to do the manual labor involved with snow removal, so make sure to have a backup plan, such as charging a snow removal fee, if they don't want to take it over.  Other tenants prefer taking care of snow removal to avoid extra fees, so it all depends.

Also, I wouldn't advise writing your own lease.  There are plenty of hazards in doing so, even if you just amend an already written lease.  Make sure to get help where you need it, and a lease is not something to skimp on.

Yes definitely fair as long as you can afford a potential they can see if they don’t agree. If not, wait until everything else is 100% leased up and then do the increase.

Has the lease expired or due for renewal?  In Manchester it’s the landlords responsibility to remove snow. We aren’t allowed to assign that to the tenants so you might want to check with the city on that. Personally if the units are in market conditions or above my rents match what the market will bear. Remember this is a business and you are a share holder in your business would you be happy to know your CEO was leaving money on the table and charging below market rates because he wanted to be the nice guy or would that upset you and you would want your CEO to maximize profits?  That should help you decide what you need to do. 

Rent is $200 below market AND they get the "free" benefit of using the garage and additional parking.

The right answer is to bump them to market rent. Give them 30 days notice of your intent to increase it, let them know the "free" value of the garage, and they can either accept it or move on. It's not mean-spirited to use fair-market value.

If they can't afford it, find a new tenant that can. As long as you're honest, I don't see why this is difficult.

If you know they have been good tenants I think it is reasonable to offer them a slight discount under current market rates. But I would maintain control over the snow removal unless you build in sold controls into the lease. I know in our area towns can issue tickets if the sidewalks aren't clear which would be the owner's responsibility, it doesn't matter if the tenant was supposed to do it. Also, definitely have a lawyer look at your first lease or get a template from a local attorney - it may cost more up front, but it's worth it.

Thank you everyone for the replies! I will definitely be doing a rent increase. 

@J Tessier well put with the CEO comparison. I'll double check the snow laws for Concord, but I'm pretty sure I'll just do snow removal myself.

@Matthew Dennehy Thanks for the suggestion to get the lease looked at. I'm amending the current lease but I will definitely have it looked over.

@Charles Carillo I am planning on doing some upgrades when I close, so I'll be sure to use this to at least partially justify the increased rents in tandem with explaining the great deal they're currently getting- great point! Thanks for the insight on the snow removal as well.

@Nathan G. Thanks for the reply. I'm doing my best to avoid nice-guy syndrome, and I will definitely be raising rents. I shouldn't have a problem finding a new tenant if they are unwilling to budge. Given the extremely low vacancy rates we're seeing and the rental comps, I think they'd be hard pressed to find a better deal. Thanks again!