How To Protect Real Estate Investments With a Lease Agreement

Effective lease agreements must contain critical clauses and information to protect rental properties properly. However, knowing everything your residential lease agreement should include can take some research and expert insights. 

Not having an airtight rental document leaves investors vulnerable to bad tenant behavior that they can’t enforce, including collecting past-due rent or holding renters accountable for taking better care of your rental property. In many cases, using a free lease agreement template can leave you without the protection you need to enforce the rules! 

Working with an attorney or a property manager can be helpful when creating a custom lease. They can walk you through the essential terms that most leases need to comply with the law. It’s also essential to choose the right type of lease for your properties and how you plan to operate rentals to meet cash flow and income goals.

What should real estate investors include in most leases? Whether you start with a lease agreement template or from scratch, you’ll need the right verbiage to comply with landlord-tenant laws in the markets where you invest.

What are some of the best expert tips for creating strong lease agreements that won’t let you or your properties down? We’ve already mentioned that a template can leave you without the protection you need. In addition to that tip, rental property investors should:

• Prioritize customization that applies to each specific property and market
• Know local and state laws that apply to rental properties and rental agreements
• Be clear about the rules and consequences for violations
• Review leases and make periodic updates as laws or regulations change

Finalizing a rental document that falls short of legal requirements or isn’t thorough enough can leave you without the ability to uphold the rules or remove a tenant if things go wrong. In addition, when owning multiple properties, investors must take time to customize each agreement to avoid misunderstandings and conflicts with residents.

So, what are the details every lease should include? Again, customization and working with a property management company can help you get everything you need in each lease for every property. In general, strong residential leases include:

• The names of all tenants
• The property’s addresses and description
• The monthly rent amount, when it’s due, and how to pay it
• House rules and restrictions
• The lease start and end dates
• Maintenance responsibilities (including how to report a maintenance request)
• How to get in touch with you or your property manager

Whether you allow pets or not, it’s also smart to include a clause about your pet policies. This can include the types of pets you allow and any fees for owners when bringing a pet into the home. A thorough lease also provides information for residents about how to request an emotional support animal and how you handle those accommodations.

What’s the best type of lease to consider for your rental properties? You might be most familiar with a long-term agreement that can last from 12-18 months and ensure a lengthier tenancy (and consistent monthly income). However, many rental property investors also consider a month-to-month lease agreement in some cases. 

How Does a Month-to-Month Lease Work?

When a renter signs a long-term lease, they commit to a fixed-term tenancy in your property. This means they are locked into a rental rate due each month throughout the term of the lease, whether it’s twelve months or longer. However, with a monthly arrangement, the lease “renews” every 30 days without notice from the tenant or property owner that they want to cancel. 

Consider the Pros and Cons

So what should property owners keep in mind when considering a monthly lease vs. a long-term agreement? While many real estate investors enjoy the flexibility of this option, it can be challenging to generate consistent rental income every month to reach cash flow and return on investment goals. However, not being tied to a bad renter with months left on their tenancy agreement and the ability to raise the rent more often can be benefits worth considering when crafting your next lease. Removing a tenant from a long-term lease commitment involves the legal eviction process to avoid a lawsuit or breaking the agreement. 

Tenants also weigh the pros and cons of monthly terms vs. locking in a long-term living situation when considering rental properties. When considering how you want to lease rental properties in multiple markets, think through renter needs and how they can best fit your real estate investing strategies through buy-and-hold rentals.

Should a real estate investor consider short-term lease agreements? The answer can depend on the type of residential real estate you buy and how you plan to rent it out to generate returns. 

Short-term agreements are common for vacation rentals or when providing housing for students. In these situations, renters don’t typically stay for an entire year and may not be willing to sign on for a long-term lease of twelve months or more. Students often rent homes for a semester at a time. While property owners must carefully consider these rental situations, the right short-term lease can make it possible to generate consistent real estate investment income from student housing opportunities.

For vacation rentals like Airbnbs or properties you operate with a property manager in tourist markets, a short-term rental lease agreement protects your properties from multiple guests or renters throughout the year. Whether guests spend three or six months in your property, these agreements should have clear starting and ending dates, plus rules for short-term tenancies for a residential property. 

If you’re not sure which type of agreement is best for your properties, make sure you consider the market and your goals and work with trusted advisors to set up the best protection!

After you’ve created a lease, make sure you read it through and understand every element! Strong leases don’t have to be lengthy, but they must be comprehensive to offer the best protection. To enforce it properly, investors should make sure they understand every term and clause. Your attorney or a property manager can help you walk through the document and answer questions about specifics. 

Sometimes tenants can form different understandings of their responsibilities (or yours) when signing a new lease! In addition to understanding every lease as the property’s owner, it’s essential to review these documents with your tenants and make sure they are clear about every aspect. Most successful rental property investors will tell you that taking time to go through the lease and confirm details, names, dates, rent amounts, and rules is time well spent to avoid problems during the tenancy. 

To finalize every lease, collect signatures from every tenant listed in the document and sign it yourself. These signatures make the document legally binding to protect your investment property!

Before you need a lease agreement, you need the best properties to protect as rental investments! If rental properties are part of your real estate investing strategies, Privy is the tool you need to find properties in markets throughout the country. We deliver the best deals with investor insights to make it easier for investors to build rental property portfolios and generate consistent income to meet long-term goals. With the best properties delivered to your inbox and strong lease agreements, you have the right resources to build real estate investment success!