When real estate investors choose rental properties to build their portfolios, they need strong lease agreements to protect those properties and their income. With housing demands and rental costs on the rise, purchasing and renting out an income property can be a lucrative choice for your real estate business.
However, the key to making money from rental properties is good management! That means property owners need a lease agreement that helps tenants feel at home while providing legal documentation for owners to enforce the rules.
If you plan to rent out your property to long-term or short-term tenants, don’t forget to include these ten must-haves in your residential lease agreement.
What to Put in Your Residential Lease Agreement
Whether it’s a long-term, short-term, or month-to-month lease agreement, every real estate investor can benefit from key elements in the document to manage the property effectively. When creating your lease, work with a real estate attorney to make sure it includes critical legal clauses and phrases to comply with all landlord-tenant laws.
A lease agreement outlines the rights and responsibilities of both tenant and owner, as well as the terms and conditions of occupancy. At a minimum, real estate industry professionals recommend including the following elements in a rental contract.
All Tenant Names and the Property’s Address
Any lease agreement needs to identify the names of all property occupants and their contact information and the owner and contact information. You should also include the address of your rental property, including any relevant apartment numbers and a description of the property. These details are crucial to include in your lease to properly restrict occupancy and hold your tenants accountable to the terms outlined in the lease.
Monthly Rental Rate and Due Date
Another essential to include in any residential lease agreement is the monthly rent payment and its due date. You’ll want to state the rent payment amount explicitly, how the rent should be paid when it needs to be paid, and the potential penalties for late payments. Most lease agreements also include details about grace periods and when rent is considered late. If you don’t offer a grace period for late rental payments, be sure that’s clear in the agreement.
Start and End Dates
How long does the tenancy last? When does it start and end? Property investors should include the length of occupancy in your lease agreement, including the start date when renters can move in and when the lease ends on move-out day.
If you’re creating a month-to-month lease agreement, the agreement should outline that the agreement renews every thirty days. To end the agreement, a renter or the owner must give 30-days' notice. For a standard lease agreement, the lease term typically lasts for 12 months or longer, with an option to renew or extend the lease when it ends.
Rental property investors should specify the start date of the tenant’s occupancy and, if applicable, a prorated rent amount for the first month if the lease doesn’t begin on the first day of the month. You may also want to include additional information about lease extension notices (e.g., when a tenant must inform you they intend to renew their lease or move out). This can eliminate confusion and ensure their tenancy goes as smoothly as possible. This section should also include the process to request early termination and the penalties for residents who break the lease early without permission.
Additional Fees (Pets, Parking, and Security Deposit)
The monthly rent isn’t the only monetary detail you’ll want to include in a lease agreement. You’ll also need to outline any other applicable charges, including a security deposit, parking fees, or pet ownership fees. Some property owners also specify how these fees will be utilized and how or when a deposit might be returned after the tenancy ends.
Your Right of Entry and Tenant Privacy Details
Property owners must follow landlord-tenant laws to access an occupied property. In most cases, you’ll be required to provide a tenant with at least 24 hours' notice before accessing the property (except in the event of an emergency). This information should be in the lease, along with details about how often you’ll schedule property inspections and the timeframe when renters should plan for you to be there. For example, the lease can let tenants know that you’ll conduct onsite business with advanced notice during regular business hours rather than on weekends during the evening.
Maintenance and Repair Responsibilities
One of a real estate investor’s responsibilities is the upkeep of the unit and the surrounding property. To safeguard yourself against possible rent withholding tactics, you’ll want to clearly outline your maintenance and repair obligations in the lease and verify that they are supported by relevant regulations in your market.
Thorough leases should also outline the renter’s responsibilities for the care of the property, including cleaning the premises, alerting you to repairs that need to be made, and paying for any damage outside of normal wear and tear. Finally, be sure to include any restrictions that tenants should be aware of, including changes or repairs that tenants are prohibited from making themselves.
Occupancy limits can help landlords and tenants comply with building safety codes and ensure only named parties can live in the rental unit. Adding an occupancy clause that defines how many people can live in the property can help avoid safety issues or ordinance violations. This section can also document the rules for long-term guests and penalties for allowing extra people to move into the property without permission.
As a property owner, you can also include specific house rules for tenants in the lease. For example, if you prohibit smoking or pets in the property, make sure that’s clear in the agreement. Also, note the exceptions for service and emotional support animals and how a renter can request reasonable accommodation for these animals.
House Rules and Restrictions
A few experiences with bad tenants can lead you to define more terms in a rental agreement. For instance, you might include a clause about quiet hours or noise restrictions after dealing with too many noise complaints from neighbors or other tenants. If there are common areas or parking spots on the property, outline their use during the tenancy.
An Illegal Behavior Clause
While you can’t monitor all behavior for tenants in your rental real estate investment, it’s essential to document a clause about illegal behavior in the property. Work with your real estate attorney to make sure this section complies with landlord and tenant laws. Make sure to explicitly state expectations and outcomes for criminal activity, including your right to evict a tenant for illegal behavior.
Use Strong Lease Agreements When Building a Real Estate Portfolio
When building your real estate portfolio with rental properties, make sure your residential lease agreement includes these essential terms! Without them, renters could take advantage of legal loopholes and potentially create costly issues for you as an investor.
With excellent investments generating income, it’s important to protect those properties with a strong rental agreement. Privy helps real estate investors choose the best properties and real estate deals to maximize returns. Reach out to learn more about how our software solution helps investors spend less time and money searching for new properties while experiencing better deals and income!
Ready to put your lease together? Use our free resource for guidance! Download “The Ultimate Guide to Lease Agreements."