How long should the lease be?

Question

Hello BP,

I have a duplex that I house hack. I have a tenant and she is good and she pays on time. Her lease is up for renewal and she would like a 18 month lease. In general I am fine with this, but I am aware that she recently lost her job and has been working at a temp agency. She said she hopes she will get hired permanently but that's not certain. Should I move forward with the long term lease? Are there any clauses I should put in the list to protect myself?

Steve Vaughan · Answer

My leases always convert automatically to m-m. I don't want to force them to make a decision to leave or not every year.

I do give them a 12 month no raise guarantee when I do my small rent increases.

Because of the eviction moratorium, I am considering not even offering a lease in the beginning, so no way am I offering a longer than normal lease renewal. Give them a rent rate guarantee if that's they're concern.

In some states any agreement longer than 12 months needs to be notarized FYI.

A lease locks you in more than the tenant. They can breach no matter what. You can't.

Kyle J. · Answer

If it were me, I wouldn't do an 18-month lease based on the facts you presented (tenant who no longer has a consistent job/income).  I wouldn't renew the lease at all.  Just do month-to-month.  She can still stay as long as she wants if things continue to go well, but it'll be easier (for both of you) to part ways if they don't.

I have tenants that have been with me 8 years on month-to-month.  Works out great, and honestly it's more advantageous for the landlord since you can raise the rent or change the terms whenever you want (with proper notice).  Longer leases tend to favor the tenant, more than the landlord.

Matt Ziegler · Answer

As others have stated, month to month give you both more flexibility. We have several month to month residents that have been living with us for years. In duplexes and single family homes. Especially in today's environment of eviction restrictions, month to month makes more sense.

Steve Vaughan · Answer

Once per year usually.  I also provide a rent rate guarantee. I'm the one that doesnt like renewals.

If they are performing, they are guaranteed no rent raises from me for 12 months even without a lease.  Helps reduce their anxiety of not having the security of a lease. I have people that have been m-m for over 15 years.

L. Brown · Answer

@Steve Vaughan excellent points. I need to check in about the eviction moratorium.

Kyle J. · Answer

Like @Steve Vaughan said, a lease locks the landlord in, but it doesn't truly lock the tenant in.  In theory it does, but in reality, life happens and tenants can/do leave whenever they want as they lose jobs, get new ones, their family expands/shrinks, or they just want to move for any other number of reasons.  And what happens when they do?  In almost every state, the landlord is legally required to mitigate their losses and find a new tenant and re-rent the unit.

Debbie C. · Answer

@L. Brown

I agree with Kyle. I would not do an 18 month lease. Consider the month to month or if you want then maybe do a 6 month lease.

Your stable funds are only as good as the tenant being able to pay her rent. And if she can't pay for whatever reason, then instead of you being able to just give her a 30 day notice, you will have to evict. Long and costly process.

Good luck

Kyle J. · Answer

I re-evaluate the fair market rent every year and raise the rent accordingly. There have been a few years I did not raise the rent, and a couple times where I raised it multiple times in the same year (rent growth in my area has been very aggressive and that is one of the benefits of month-to-month).

On average though, I raise it at least a small amount ($45-$75) every year.

I try to keep the rent (even after the increase) slightly under the going rate for nearby comparable properties though so there’s no incentive/reason for them to move over a small increase. Turnover and vacancy are cashflow killers in this game. Most of my tenants have been with me for 5-8+ plus years. They rarely leave unless they have to (e.g. moving out of the county for a new job, get divorced, etc).

L. Brown · Answer

@Kyle J., @Steve Vaughan, @Travis Frenchak, @Debbie C.- Do you ever raise rent on a month-to-month lease?

L. Brown · Answer

@Travis Frenchak - thanks for sharing your thoughts. I am a newbie to this and appreciate your insight.

How long should the lease be?

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