So you want to rent your house out to anyone? Good for you. One of the first things you need to do is to educate yourself on the various rental agreements and decide on one BEFORE you market your home. The rental agreement is the backbone of profitable property management.
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 contract specifies the legal terms and conditions for the agreement between the owner and the tenant. It is a legal binding contract between owner and tenant for the possession and use of the rental property in exchange for rent money each month. Perhaps the most important decision you can make is whether to use a lease or a month-to-month rental agreement.
Common lease periods that most property owners use are for 6 months, 9 months, or 1 year with the 1 year lease being the most popular. The lease obligates you and the renter for a set period of time. After the initial lease expires, most leases are written to automatically go to a month-to-month rental agreement.
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.
With a lease, you can’t increase the rent or change other terms of the tenancy until the lease expires. Also, you can’t terminate or end the tenancy before the lease expires, unless the tenant does not pay his rent or violates another term of the lease agreement. If you end up in court, you’ll have the burden of proof. You’ll be the one who has to prove that the tenant violated a condition in the lease agreement.
Landlord tenant laws in almost every state favor tenants. This means that you can not just violate a Rental Agreement but the tenant can and often does. A tenant can walk away from a lease and there is not much you can do. Keep in mind as well that if this happens, you have to prove that you are trying to rerent your home. Also, as soon as you find a new tenant and he pays the first months rent, you must stop charging the previous tenant for violating the lease. You can not get double payment on a rental unit.
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