10 Tips To Creating a Lease Agreement: What Investors Need To Know

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3 Jan 10 Tips To Creating a Lease Agreement: What Investors Need To Know

When operating rental properties as a real estate investor, it's critical to understand how to create a lease agreement that protects your investments. Whether you're just getting started in real estate investing or it's time to review your current lease best practices, these ten tips can help!

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1. A Free Template Can Leave Your Properties Vulnerable

When creating a simple lease agreement for your rental property, a generic free template isn’t good enough. Free templates can be a good place to start, but realistically they won’t account for the intricacies of your specific needs as a rental property owner. Real estate investors must make sure that the lease is specific to the space and your expectations for the tenants. It’s tempting to assume something is common sense, and everyone will be on board. However, your real estate investments are vulnerable without specific documentation that applies to your local and state laws. 

2. Customization Is Crucial

As you gain experience, there may be additional clauses or sections you want to add to the lease for clarification and better protection. For example, you may not want your tenants burning candles in their apartment, or you might need to add “quiet hours” after neighbors and other tenants complain about your noisy renters late at night. Customization helps renters follow the rules and pay rent on time. It also helps investors enforce the rules when they’re broken. 

3. Include Necessary Clauses

It’s important to make sure that you have critical clauses built into the lease. For example, if you allow pets but have stipulations for them, adding a specific pet clause with the rules for size, breed, or type of pets allowed is key to a comprehensive lease. Though you want a residential lease agreement, investors must ensure that it’s thorough enough to reduce misunderstandings and violations. In many cases, leases must include specific clauses to comply with landlord-tenant laws.

4. Review and Update Your Lease Agreement Template Often

While property owners can’t change a lease mid-lease, the longer you’re a landlord, you’ll notice that regulations governing rental properties change over time. To ensure that your rental agreement stays current and complies with all laws, it’s essential to review the document and update it as needed. 

As a long-term residential property investor, you’ll also recognize that tenant and property needs change over time. When you notice these issues, update your lease agreement with new clauses or wordings that make the intent of your lease clear. For example, if you don’t include a clause about subletting and one of your tenants sublets the rental unit, you should update your standard lease agreement to include the rules about this issue. 

5. Know the Laws in Your State

Some landlord-tenant laws vary by state. Depending on the markets where you invest in rental properties, landlords must stay up to date and ensure that rental agreements comply. Again, if you start with a generic free lease template without customizing it, you risk missing critical requirements that apply to rentals in a specific state. 

For example, some counties have a minimum temperature requirement for apartments if a tenant doesn’t have control over their heating in the winter months. This is something you’ll want to address in your rental lease agreement, whether you’re stating that the tenant has control over the heat or mentioning that you will keep the heat set to the minimum or above.

6. Provide a Detailed Property Description

In addition to listing the property’s address, investors should properly describe the property you’re leasing so that your tenant knows exactly what they’re renting. In the rental contract, be specific about the unit, room, or property your tenant is renting. For example, if you’re renting out an apartment in a house that has been divided into several units, make sure the lease is clear about the unit that it applies to within the building. 

The rental or lease agreement should also note common areas or other parts of the property residents are free to use. For example, if you have a shared laundry room, hallway, entryway, or other common areas, you want to state that they’re allowed to use that area. Make sure it’s clear what is a common, shared space versus what is not shared. Also, if renters aren’t allowed in specific areas of the building or property, make that clear, too. 

If there’s a parking lot or a specific parking space included as part of the lease, document the space or parking rules in your standard lease agreement. It’s also a good idea to state a policy for guest parking locations and guidelines. 

7. Be Clear About Consequences for Lease Violations

Tenants know they’re not supposed to break the lease, but including specific consequences can help show your tenant the seriousness of certain lease violations. For instance, you may have a clause that says tenants can’t paint the walls without permission, and the stated punishment might be a fine that covers the cost of repainting the apartment. For more serious offenses, such as not paying rent for several months or severe destruction of the property, penalties can include fines and, eventually, eviction if renters don’t resolve the violation appropriately. 

8. Consult a Lawyer and a Property Manager

Before tenants sign the rental agreement, it’s helpful to have a lawyer look over the lease to make sure everything is written in proper legal language. A real estate attorney can also help ensure that your lease doesn’t violate any state or local landlord and tenant laws.

It’s also a good idea to talk with a property management company, especially if you operate rental properties in multiple markets. Property managers have excellent experience creating strong leases that comply with all local laws. A good property manager also helps real estate investors manage properties and enforce lease agreements, no matter the location of their properties. 

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9. Review the Lease With Tenants Before They Sign

It’s important that tenants fully understand the lease before they sign. If your tenant misinterprets a part of the lease or misses a section, you could experience late rental payments and broken rules that lead to income loss. Going over the rental document with your renters at signing can help you avoid problems during the lease term. Send your tenant the lease ahead of time so they can bring up any questions they may have, and make sure to mention any clauses that are unique to your rental property.

10. Require Signatures to Legalize the Document

This may seem obvious, but a lease isn’t legally binding without tenant and property owner (or property manager) signatures. So before tenants move in, get all appropriate signatures! 

Find the Best Rental Property Investments With Privy!

As a real estate investor and a rental property owner, you want to be sure that you’re providing a high-quality lease that lays out expectations for both you and your tenants. However, before you do that, you need the best rental properties in your real estate portfolio! With Privy, real estate investors receive daily insights into the latest deals in their preferred markets. We also provide investor insights so you can evaluate a property’s potential and make the best offer. Learn more about finding your next rental property with the Privy Advantage when reaching out to our team!

Get more insights into effective leases in our free resource, “The Ultimate Guide to Lease Agreements.”

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