You have your rental home fixed up, cleaned, and it is ready to rent. Before you start marketing your rental home, you need to have your rental agreement ready to go. The Rental Agreement is the biggest contributing factor in whether you are profitable in this business so take care in preparing yours.
Perhaps the most common question I get is, “I want to rent my home but I don’t know what kind of contract I should have a tenant sign.” Another common question I get is, “I want to rent out my house but what wording should be on my rental agreement or lease agreement?”
The Rental Agreement is the legal contract you and your renter have. It specifically states how the renter must treat your property while renting it. It also states what you are going to charge the tenant each month for rent. But it really is more than this. It is includes all terms and conditions and rules of conduct between you and your renter. Perhaps one of the most important aspects of your Rental Agreement is if you are going to rent for a fixed period of time or are you going to just go month to month.
A lease is a fixed-term contract that obligates you and the tenant for a determined period of time. The most common lease periods are for 6 months, 9 months, and 1 year. Most leases are written to automatically convert to a month-to-month rental agreement after the expiration of the initial term.
A lease is good for tenants because it freezes the rent in place for the term of the lease, and it’s good for you because you can count on having a tenant for a set period of time.
Sometimes a property owner will offer a lower monthly rent on a 1 year lease ($25 – $50 a month less) because a tenant on a 1 year lease is not as high a risk of early turnover than tenants on a monthly lease. That is one of the biggest problems owners face is spending money to clean and turn a unit only to have a tenant skip on them after a few months.
Just keep in mind that with a 1 year lease, or any fixed term lease, you must not raise the rent or change other conditions in the lease until the lease expires. You also can not kick the renter out until the lease expires unless the renter refuses to pay the rent or breaks some other condition in the lease agreement that he signed.
Keep in mind that even though the lease agreement binds both you and the tenant to the stated conditions, landlord tenant laws in almost every state favor tenants. A tenant can walk away from a lease and in most states, the owner has the responsibility of minimizing potential damages. In most states if a tenant walks away from a lease, the owner must make a reasonable effort to re-rent the unit and may only charge for the rent incurred until the new tenant begins paying rent.
I hope this article gives you a better idea of what to include in your Lease Agreement. Should you require additional help with your rental property and your rental is located in Fresno or Madera California, see Fresno property management, and Madera property management