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 legal conditions between the renter and the owner need to be listed in your rental agreement. The rental agreement is a legal contract between the renter and the owner. It outlines what is acceptable use of your property. The first thing you should decide is if you should rent out your house on a month-to-month lease, or for a fixed term like 6 months or 1 year.
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 1 year fixed period of time works for you because you know you will probably have a paying tenant at least for the next 12 months. A 1 year fixed period works for the tenant because they know you can not raise the rent during this 12 month period.
Owners usually charge a slightly lower monthly rental rate (usually $10 – $20 a month less) for a lease than for a month-to-month rental agreement because tenants on a lease are not as high a risk due to turnover as tenants on a month-to-month rental agreement.
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.
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