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.
So why is a 1 year lease so popular? First it is good for you because you can usually count on having a renter in your rental home paying you rent each month for 1 year. It is good for the renter because it locks the rent in place for the term of the lease.
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.
You should know that with a 1 year lease, or any fixed term lease, you can not raise the rent or change other conditions in the lease until that lease expires. You also can not give the tenant a boot like you can on a month to month agreement until the tenant has not paid the rent or has violated some other condition in the Rental Agreement.
You should know that while the lease agreement ties both you and the renter into a contract, landlord renter laws in almost every state favor renters. A renter can walk away from a lease. A landlord can not walk away from a lease. In most states, if a renter walks away from a lease, the owner must make a reasonable effort to find a new renter. When the landlord finds a new renter, he must not charge double rent (i.e. the old renter that broke the lease plus the new renters monthly rent). As soon as the new renter moves in, you must stop charging the old renter.
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