There are many intricate facets to real estate investing, from learning how to find homes that will accomplish your goals to finding a support team to help you on your journey. One of the most important things for rental property investors is growing your knowledge about a residential lease agreement.
Lease agreements can only protect your investments if they are comprehensive and customized to each property. The terms you decide to include into your leases can make or break your overall business by either leaving your property without critical protections or covering your investment with a legal document that helps you enforce the rules and collect the rent.
Leases can be considered a form of insurance that protects your rental properties and income. By protecting their assets, real estate investors maximize their returns. In this article, we break down the terms every property investor needs to understand and consider when creating a rental agreement to support long-term real estate investment success.
What Are the Terms in a Rental Agreement?
Any residential lease agreement is a binding contract between the tenant and the owner. The critical details within a rental contract include legal clauses, lease start and end dates, the monthly rental rate, rules, and other types of information that apply to the tenancy. If your lease agreement is well structured, it will help to minimize any issues you may have with your tenant. It can also protect you should something happen, and you find yourself in a courtroom to pursue a legal eviction.
As we mentioned, a residential lease agreement is your greatest tool in protecting your properties. While customization is critical for each investment, all rental agreements should include specific terms to comply with landlord-tenant laws and help you and your renters understand the documents.
Real estate professionals recommend working with a real estate attorney to prepare a lease agreement template as a good starting point for each new lease. They can also help you review a new lease to avoid any mistakes before new renters sign and move into a rental property.
What Are Some of the Common Terms in a Lease Agreement?
In a well-written lease, both parties—the tenant and the investors—should understand and operate according to all terms in the agreement. Whether you’re dealing with a first-time renter or someone who has lived in multiple rental homes, using a lease that follows common protocols and covers all critical elements of the landlord and tenant relationship makes it easier for everyone to understand the rules and uphold their responsibilities. By having clear, concise terms, tenants know what to expect and what they can or can’t do during their tenancy.
When creating your lease, work with your real estate investing team to make sure it includes these standard terms or policies.
One of the most common clauses renters will see in a rental lease agreement is about the occupancy restrictions for the property. Investors should include this policy to control exactly who is living on the property. For example, if one of your tenants decides to add an unauthorized roommate mid-lease, they should follow a straightforward process to add a tenant rather than violate the occupancy rules for the rental unit.
In some markets, local ordinances govern the number of people living in a home based on the square footage or the number of bedrooms. Make sure your policies follow occupancy regulations to protect yourself from potential lawsuits and liabilities. With clear rules in place, real estate investors have the support they need to evict tenants who add people to the residence without permission.
Subletting Rules and Policies
Property owners should also consider adding subletting rules into their lease agreement. Subletting is the term used when a renter decides to rent out the unit they are staying in for a portion or duration of their lease. Whether you choose to allow subletting or not, you should have some specifications around the topic in your lease.
Many rental property investors choose not to allow tenants to sublet the rental unit. However, if you allow it, make sure the rental agreement defines how a renter should request permission, the process for screening a subletting resident, and the responsibilities for paying rent and following the rules for the care of the property when subleasing. To have complete control over your property and avoid dealing with a bad resident that you didn’t approve for the property, consider a strict subletting clause in your residential lease agreement.
Behavior and House Rules
If you’ve had problems with tenants in the past, a new lease is an opportunity to update the document and avoid repeating those issues with your next renters. For example, you can choose to add clauses about noise complaints, smoking, or the use of nails in the walls. While these may not prevent bad behavior from tenants, they will certainly protect you and your assets when enforcing these policies.
Make sure your rental agreement includes wording about the penalties when renters conduct illegal activities in your property. This can help deter renters from behavior that can create a liability for you while giving you the documentation you need to evict a resident if they break the rules.
Perhaps the most common rental terms include policies about pets in the rental unit. Whether you offer pet-friendly rentals or not, investors should have the rules on pets very clearly stated in the rental agreement. If you don’t want any pets in your property, make that clear during the tenant screening and leasing process, and include them in the lease.
Even if you do allow pets, make sure you specify what kinds and sizes you allow and how tenants can request to have a pet in their properties.
Rent, Fees, and Deposits
Anything regarding money and your properties should be clearly documented in a standard lease agreement. The monthly rent amount, when it’s due, and how to pay it should be noted prominently toward the start of the document. Property owners should also include the security deposit amount, how the deposit can be used if a renter causes property damage, and how the deposit will be returned at the end of the lease.
If there are other fees you wish to include, such as a pet fee or parking fee, be sure to have those clearly stated in the lease as well.
The Address and Signatures
Your lease should include the address of the residential property with a description of the home and surrounding property. After reviewing the lease with your renters, make sure all tenants listed on the agreement sign it! You should also sign the lease to launch a fully legal document that can be enforced.
Grow In Your Real Estate Investment Portfolio With Privy
If you don’t know where to start when crafting a lease, talk to an attorney or a property manager about setting up a lease agreement template. Every property you purchase as a rental unit should have a customized lease. If you’re looking for your next investment property, it’s easier to find excellent deals in your preferred markets with the Privy Advantage! We help investors find ideal properties at price points that make them excellent rental properties for long-term real estate investment success. Reach out soon to learn more about how Privy can help you build your real estate portfolio!
Get more insights into comprehensive lease agreements in our free ebook, “The Ultimate Guide to Lease Agreements."