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Best lease breaking strategies
Hey everyone, I have a tenant looking to break a lease agreement going into a tough rental season. The rent is $4200/month, and the lease has them on the hook for a 50% lease break fee & paying until I find a replacement. In the past, I've offered early lease terminations, which require 60-day notice + 1.5 months of rent. So, in my case, it would be 6500 in rent and plenty of notice. The only issue is more time goes closer to X-mas, which makes it progressively harder to find tenants for a 3/2 premium rental. Are there any best practices or ideas you would recommend based on your experience? Looking forward to your feedback.
FYI, I'm in Bend, Oregon, not Portland, which has a thinner tenant pool, especially in the shoulder seasons.
Quote from @Daniel Netzer:
This is why we charge early termination fees. The Tenant breaks their lease in the fall months, making it difficult for you to find a replacement tenant in the winter.
My process is to charge the early termination fee and require the departing tenant to allow marketing and showing during their final 30 days. This gives me extra time to find a replacement.
I also recommend you consider renting for a shorter period and a reduced rate. One month vacant will cost you $4,200 plus utilities. Drop the price $500 and rent it for six months and you'll only lose $3,000. Make it clear in the marketing that price will go back up in the spring. It's better to lose a little and keep it occupied than it is to sit on an empty house that can freeze up in winter or lose months of rent.
Quote from @Nathan Gesner:How big is your early termination fee? My lease currently states 50% rent replacement fee + they are still on the hook until I find a renter. I used to allow tenants to break their lease with 60-day notice & 1.5 months of rent.
Quote from @Daniel Netzer:
This is why we charge early termination fees. The Tenant breaks their lease in the fall months, making it difficult for you to find a replacement tenant in the winter.
My process is to charge the early termination fee and require the departing tenant to allow marketing and showing during their final 30 days. This gives me extra time to find a replacement.
I also recommend you consider renting for a shorter period and a reduced rate. One month vacant will cost you $4,200 plus utilities. Drop the price $500 and rent it for six months and you'll only lose $3,000. Make it clear in the marketing that price will go back up in the spring. It's better to lose a little and keep it occupied than it is to sit on an empty house that can freeze up in winter or lose months of rent.
Quote from @Daniel Netzer:
I require them to give 30 days notice and pay a termination fee equal to one month of rent. They have to pay the fee when they give notice, otherwise I don't accept their request.
This gives me 60 days to find a new tenant before I start losing anything (30 days notice plus the extra month of rent). My agreement also requires the current tenant to allow me to market and show the rental with 24 hours notice. In almost every case, I find a new tenant to take over in less than 60 days so it puts more money in my pocket. 80% of the time I find a new tenant within a week of the old tenant vacating, which gives me an extra 2-3 weeks of rent income. Win-win!
Good stuff! I feel like I will be in the same boat, just scared about finding a compromised/less long-term tenant in a smaller rental market.
I agree with @Nathan Gesner! I would recommend still doing everything you can to get it rented sooner rather than later and be okay with dropping the rent amount to be more attractive. Usually, you can start maybe mid-way through what you think it is worth and then do a larger price reduction of $100-150/month after the first week and then do smaller rent drops from there. Even offering one month's free rent has been something we have had to do up here in Portland. Another route if you want to wait it out until more favorable times (spring/summer) is to convert it into a STR or Midterm rental. Highly recommend furnishedfinders.com if you are going the midterm route. That is a lot more work though and might not be worth it.