What to Ask Yourself Before Signing a Multi-Year Lease
December 21, 2017
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Although twelve month lease agreements are the gold standard for property management, there are tenants out there who, for a variety of reasons, are interested in multiple-year contracts. As a landlord, there’s reasons to be interested as well. Perhaps most attractive is the fact that you’ll be guaranteed revenue for the period of the contract, and you won’t have to worry about vacancies draining your savings. Additionally, you won’t have to worry about moving old tenants out and new ones in (which, as we’ve talked about before, can be a difficult process), and you won’t have to invest time or money into advertising your property. However, these benefits don’t mean you should jump on any opportunity for a multi-year lease. There are some important questions you should ask yourself before deciding to go beyond the standard one-year contract.
Additional Reading: Electronic Signatures are more Secure
Is it a new tenant, or an existing one?
Your relationship and rapport with a tenant is of the utmost importance when determining the length of a contract. A reliable tenant who you’ve built a good relationship with and who has already lived in your property without any issues is a better candidate for a three-year lease than one you don’t know. A multi-year lease requires no small amount of trust between landlord and tenant; even if the prospect of signing someone to a lease for multiple years is an attractive one, you must consider whether the particular tenant is the right one. Although you likely have a screening process in place for prospective tenants, you should prepare a more rigorous one if you want to sign someone new for a period longer than a year.
Do you foresee rent increases for the property in the near future?
This is the most important question you should be asking yourself. For many, if not most, areas, increases in rent or property values are only a matter of time. If your property is experiencing changes in market value, or if you notice neighboring properties increasing their rent, sticking to the conventional single-year lease is the way to go. Otherwise, you’ll be shooting yourself in the foot when a year into the lease your property is below market value. Don’t let the convenience of a multiple-year contract deprive you of thousands of dollars in would-be rent down the road. According to the Pew Research Center, the number of renters in America has increased over 5% since 2006, and rental prices have risen over the same period. Don’t be the only landlord in your neighborhood operating below market value.
Can the unit go multiple years without serious renovations?
Whether it’s a few days or couple weeks, the period of vacancy between tenants is often the only opportunity for a landlord to address any issues with a property, whether it be cleaning carpets or replacing faulty appliances. If you’re concerned with the state of the property but still want to keep your options open, work into the lease agreement your right to provide renovations, if needed, during an allotted time frame, perhaps just a couple days, after the first years of the lease. Otherwise, your property might suffer from several years of neglect, and you’ll find yourself with a mountain of repair work when the tenants are finally moved out.
Multiple-year contracts can be enticing for their stability, but without careful consideration, they can create more problems than they save. And in the worst scenario, you’ll be left with the biggest headache of all – missed revenue. So before you sign any multi-year lease, be sure you understand your market, your tenant, and the lease document itself.
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