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.
The question most often asked by new landlords who are self-managing their rental home is where they should get the correct wording for their Rental Agreement. Another very common question is what legal wording should their Rental Agreement have.
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.
The most popular choice of property owners is the 1 year Rental Agreement. Other popular choices are 6 month and 9 month fixed terms. Such a lease binds the renter and you for a set period of time. After this initial period expires, most leases default to a month to month agreement.
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.
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.
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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