First renewal, Tenant ask for multi-year lease
Member since 2021 · 79 posts · 25 votes
First renewal, Tenant ask for multi-year lease
Most Popular Reply
@Ricardo R. Yes, your points are exactly right. Unfortunately, there is no real "security" in 1 month, 1 year, 2 year lease, etc. The best security is choosing excellent tenants that ideally want to stay for long term (meaning several years). I have had tenants for 4+ years on M2M. They can leave anytime but don't. On a M2M, it's much easier to get out a bad tenant. I think the OP feels that getting a M2M tenant will cause turnover every few months, which is rarely the case.
41 Replies
- 3yCharles HolderPro MemberLender · San Antonio, TX · Member since 2019 · 141 posts · 27 votes
@Agustin Conti
I charge like 500$ normally as a realtor to screen and personally vet, you can do this yourself, hope you're a good judge of character though.
I didn't bother reading the whole post, sorry I'm drinking.
Multi year leases are great, I give a slight discount if they pick a longer lease, turnover is the killer of cash flow.
The only scenario I regretted was when I went to refi. The numbers mattered more, I ended up not cashing out and did a heloc on a different property.
If your plan is consistent, extended leases are great. Especially if you have an ideal tenant.
I would imagine your realtor can provide you with an extension form which probably is just a few pages that detail what is changing (rent, term, etc.). I don't think long term leases mean much. The fact of the matter is if someone wants to leave they will leave and if they don't want to pay you they won't pay you. We do a 1 year initial lease then we let it roll into month to month. If the tenant has a great history and is the one pushing the issue for their own security then we will re-up for 1 year. It hasn't been a problem that I am aware of. If the tenant has had some flaky moments, we just let it stay month to month.
- Member since 2021 · 79 posts · 25 votes3yThanks for your input, I am surprised to see that your comment is the only one in favor of extended leases in particular scenarios.
Quote from @Charles Holder:
@Agustin Conti
I charge like 500$ normally as a realtor to screen and personally vet, you can do this yourself, hope you're a good judge of character though.
I didn't bother reading the whole post, sorry I'm drinking.
Multi year leases are great, I give a slight discount if they pick a longer lease, turnover is the killer of cash flow.
The only scenario I regretted was when I went to refi. The numbers mattered more, I ended up not cashing out and did a heloc on a different property.
If your plan is consistent, extended leases are great. Especially if you have an ideal tenant.
- Member since 2021 · 79 posts · 25 votes3yYes, My realtor, who happens to be a friend will help me renew/amend the lease at no charge. My tenant and family are very good and he is asking for a multi year lease, I won't honor but I won't go to month to month, I am putting myself in his shoes, and I would not like that from a landlord if I was renting. Regards.
Quote from @Daren H.:
I would imagine your realtor can provide you with an extension form which probably is just a few pages that detail what is changing (rent, term, etc.). I don't think long term leases mean much. The fact of the matter is if someone wants to leave they will leave and if they don't want to pay you they won't pay you. We do a 1 year initial lease then we let it roll into month to month. If the tenant has a great history and is the one pushing the issue for their own security then we will re-up for 1 year. It hasn't been a problem that I am aware of. If the tenant has had some flaky moments, we just let it stay month to month.
- 3yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Ned J.@Ray Hage @Steve Milford I think this is a case where you just have to let the OP do this own thing for him to realize what he doesn't know. The post starts out with the OP stating this is his first renewal and OP is seeking advice... then... OP gets advice from more seasoned investors and PM's that do this day-in and day-out for a living... then... OP makes his case why his method 'is best' but which doesn't make sense... even though it's OPs first time. The fact is the OP doesn't understand that he is (will be) required to mitigate losses to the Tenant regarding any SD he has in hand... so while he is thinking that a longer lease of 2 years will give me 'security' he doesn't understand that if the Tenant moves out on month 1 in a 24 month lease, he is not guaranteed to keep the 2mo SD because he is required to 'mitigate' loss and re-rent in a timely manner. He also seems to be under the impression that a month-to-month lease takes more work than a term lease (1yr or 2yr) where in actuality its the other way around.
Again, I hate to say this but... this seems to be a case where you just give someone enough rope and then just let them figure it out in the real world and hope for the best.
@Ricardo R. Yes, your points are exactly right. Unfortunately, there is no real "security" in 1 month, 1 year, 2 year lease, etc. The best security is choosing excellent tenants that ideally want to stay for long term (meaning several years). I have had tenants for 4+ years on M2M. They can leave anytime but don't. On a M2M, it's much easier to get out a bad tenant. I think the OP feels that getting a M2M tenant will cause turnover every few months, which is rarely the case.
- Member since 2021 · 79 posts · 25 votes3y
Ricardo and Ray, thanks so much for your invaluable insight. I never said that month to month is more work, only less "peace of mind or thinking". I discarded the consideration of a multi year lease for the many reasons stated above by you guys and many others, however I have decided to do a 1 year lease for many reasons. PM's do this day in day out? I don't know what you mean, but I don't do this for a living. thanks for the post
- Lender · Vancouver, WA · Member since 2015 · 482 posts · 316 votes3y
The #1 problem and answer with rentals has to do with tenant screening. If you screen less or are in a rush, on average you will have more turnover and more cost. In the future you don't need a Realtor to screen. Sign up for Apartments.com to advertise and collect applications, the platform will also be a payment portal for you, costs you nothing; the tenant pays the application and background fees. There are other platforms too. Read the tenant-landlord code in your area to know your responsibilities. Since you already have a good tenant, that part is done. There may also be a landlord association in your area that offers best forms. A lease builds security for the tenant of no price increases, until they trust you to be fair. If you want a lease, my reco is you add a section that states, "at the end of this lease, tenancy will then be month-to-month. All other terms of this contract remain the same." Or some version of that. The rent increases and other components of the contract are individual components. Then raise rent once a year, every two years whatever. The point of month-to-month, its so easy to get out of, but few do. Tenants think, "if I have to move, I can 'next month'," but that happens far and few because it's a pain. But with a lease, tenants think, "I don't necessarily trust my landlord and I don't necessarily want to commit to another year here, so I am moving." And they do. But if a life event happens, and they HAVE to move, they will - lease or no lease. I was a renter for many years, I moved when leases ended. I have a tenant going on 5 years MTM, and I raise rent every year. I am fair, I don't price gouge, and they know it.
- Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes3y
I would consider writing the lease agreement with a lease escalation clause that increases yearly with the projected market rent growth. It is a great way to keep increasing the rates while retaining a high-quality tenant.
A lot of newer LL have this illusion of what it means to have a tenant on a lease. Yes on paper it means they have committed to paying you the entire term of the lease. But the reality is if they bail early, actually getting that $$$ is a completely different reality. Except for the SD, you wont see any more $$ in 99% of the cases of a broken lease. That's reality...
Leases protect you in regard to rules.... what can/cant be done, procedures, responsibilities etc etc..... but as far the $$,l if the tenant breaks them..... good luck seeing the $$
Leases protect tenants WAY more than LL when it comes to the $$ part
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes3y
@Agustin Conti do not do more than a 1 year lease.
Quote from @Ray Hage:
As a couple people have stated, there is no benefit to a multi-year lease. Frankly, there is not much benefit to a one year lease either. I have 9 tenants and all are on a month to month lease except one because I have to do it through a HOA. I have some of these tenants for more than 4 years and I assure all of them very bluntly "You are welcome to stay as long as you want. Just pay rent and don't create problems."
With regards to rent increases, I let them know 2 months ahead of time that I will be increasing the rent through a text message and then about 5 weeks before, have them sign to the rent increase and maintain all the existing terms. Over 8 years, I have had maybe 2-3 tenants move out over a rent increase. Regarding how much to raise the rent, that can vary on a lot of different factors
Do you usually start new tenants on a 1 year lease and then automatically go month-to-month or do you start out right at M2M?
I fear advertising/starting with M2M because it may attract people looking to stay only short-term in the first place. When advertising as 1 year lease, I figure you at least attract people wanting long-term (I know they can still leave). I'm relatively new though so I'm curious about your thoughts.Hi Ray, my current 1 year lease has an early termination fee equivalent to 2 months of rent in addition to the signed one year "commitment", what is more "beneficial" to you as landlord on a month to month basis? if you don't have this "coverage"
I know this wasn't addressed to me, but I have a similar clause and I'm reconsidering it's value. I rarely see it discussed which makes me wonder how effective it is.
I've had one person leave early since I've added this clause. She asked if I would waive the fee if she found the new tenant, yet I still ended up doing all the work to find the new tenant - maybe that's just a mistake in how I handled it, I'm unsure. However, the law here (and in most states) is that a landlord has the duty to mitigate damages. If I tried to push the early termination fee, I figure they would be more likely to sue because of the amount of $$ and I'm not sure how the judgment would land. Take this with a grain of salt because I'm relatively new as well, perhaps others will share their experiences.
I always do a 1 year lease to start before going month be month to deter people that only need a 6 month or less lease to begin with. Turnover cost is too high for short term tenants. I do run the risk of getting a truly awful tenant that I want out immediately, but I screen very carefully and so far have only had 1 tenant that I would have preferred to leave sooner than a year. They knew lease wasnt going to be extended and moved out at the 11 month mark, paying though to the end of the year though.
- THat's a good question. I will usually advertise as a 1 year lease but if it is clear they are very interested, I will start as M2M. I let them know up front they are welcome to live there as long as rent is on time and no problems. I never really had a tenant leave within a couple months of moving in but I am in a high demand area. I don't know if I would do this in a place with weaker demand or oversupply.
Quote from @NA Steere:
Quote from @Ray Hage:
As a couple people have stated, there is no benefit to a multi-year lease. Frankly, there is not much benefit to a one year lease either. I have 9 tenants and all are on a month to month lease except one because I have to do it through a HOA. I have some of these tenants for more than 4 years and I assure all of them very bluntly "You are welcome to stay as long as you want. Just pay rent and don't create problems."
With regards to rent increases, I let them know 2 months ahead of time that I will be increasing the rent through a text message and then about 5 weeks before, have them sign to the rent increase and maintain all the existing terms. Over 8 years, I have had maybe 2-3 tenants move out over a rent increase. Regarding how much to raise the rent, that can vary on a lot of different factors
Do you usually start new tenants on a 1 year lease and then automatically go month-to-month or do you start out right at M2M?
I fear advertising/starting with M2M because it may attract people looking to stay only short-term in the first place. When advertising as 1 year lease, I figure you at least attract people wanting long-term (I know they can still leave). I'm relatively new though so I'm curious about your thoughts. - 3yMelanie ThomasBusiness MemberReal Estate Broker · San Antonio · Member since 2022 · 1k+ posts · 491 votesIt appears that the tenants value the assurance of continuity without needing to relocate. If they have a track record of punctual payments and responsible property upkeep, it might be a worthwhile consideration.Conduct a renewal inspection to verify the absence of significant damage, and outline in the renewed agreement that rent adjustments will apply after the initial year such as rent increase. You don't want to miss out on increased rent. Personally, I generally opt for 12-month leases, although many property owners I work with prefer longer terms. The decision often hinges on the tenants' behavior and potential conflicts with the HOA, neighbors, and so on. Ultimately, it's a matter of personal preference. Good luck & happy investing!
RentWerx Property Management4.73215 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.