This post is provided by Elizabeth Colegrove, who writes a real estate investing blog called The Reluctant Landlord. Elizabeth owns 7 rental properties in different areas of the country since she is part of a military family that moves a lot. Elizabeth self-manages her properties and is an expert at writing leases to provide protection for landlords.
Early on in my investment career I made the decision to self manage. Over the years as our distance from our rental has grown along with the number of leases; so have our policies and procedures. Now as the owner of 7 houses, 3 of which are located on the other side of the country from me, I quickly learned that great tools and pillars were going to be my key to successfully self manage. One of the strongest pillars for that success has been my lease management.
I have learned the hard way that our tenants will be amazing tenants until their goals and hopes do not match up with your own. For example, I had an amazing young couple who were so enthusiastic. They talked about all the things they wanted to do to turn the house into their home. They wanted to put grass in the backyard and do improvements at their own expense. They were literally the perfect tenants until 5 weeks into the lease. They realized they didn’t want to live together and now they wanted to move out.
This is when the lease is important, for when they become the ultimate problem children and in some cases even become bullies. Their goal is to do everything in their power to get out of the lease, and this financial burden. Your goal is to make sure that their problems do not become your financial nightmare.
The key to success with rental properties is to treat them like a business
Owning rental properties is a business. The key to success is to make money. In order to not just survive as a landlord you MUST flourish. I have had many days where I want to pull my hair out after dealing with my tenants. The reason I keep going is because I make money and I see the FINANCIAL benefits. Do not feel bad about having a long and detailed lease. Do not feel bad about leaving emotion out of the equation and treating this like a business. That is exactly what you MUST do to be successful.
Make sure everything you want the tenants to do is in the lease when they sign!
Once the lease is written, if it’s not in the lease and it’s not in the law, you can’t enforce it. The only way you can add something is if both parties agree to it. So make sure your lease is complete and thorough before you have a tenant sign. I had a tenant tell me that she had 2 lawyers and a real estate agent look at my lease. She even gave me the compliment, “My real estate agent said you have a great lease”. She then went on and said she and her family would be moving out but because I didn’t explicitly state that she had to LIVE in the house, she could pay rent on an empty house and not have to pay the break lease fee. So now I have this very expensive house sitting empty which is a huge liability in case a pipe busted, vandals, etc. I couldn’t go and clarify language that stated this was intended as a personal residence on the lease after the fact. For me that seemed like a good assumption. I learned from that mistake and now I have no vacancy agreement. It also reiterated my belief that being specific and encompassing is important.
Be explicit and intentional when writing a great lease
The above story wasn’t my first problem child and it won’t be my last. The lesson I learned early on, especially in this case, being explicit and intentional was my key to success. That while you could open yourself up to splitting hairs, more often than not the opposite was true. Covering these situations meant hairs couldn’t be split. Over the years my addenda have grown as situations have called for it. Many more situations have been prevented because of them. Here are the 37 Addenda that I currently have in my lease:
37 Addendums that I add to my lease
- Appliances included with the Rental
- Month to Month
- Direct Deposit
- Late Fees
- Pet Fees
- Assignment and Subletting
- No Smoking
- Entry By Landlord
- Extended Absence By Tenant
- Termination on Sale of Premises
- Lease Termination Provision for Military Personnel
- Tenant Assumes Responsibility for Maintenance
- Battery Operated Device(s)
- Steam Cleaning Carpets
- Professional Cleaning
- Keys, Garages/Gates
- Renter’s Insurance
- Break Lease Option (Buy Out)
- Pest Control
- Home Businesses
- Attic Storage
- Renting Site Unseen
- Appliance Maintenance
- Duct Cleaning
- Changing Locks
- Play Structures, Trampoline, Pools and Other Large Outdoor Equipment
- As-Is Appliances
Include fines and consequences in your lease if your tenants break the lease
Another thing I learned the hard way is if you lease is violated and there is nothing in your lease regarding fines the only thing you can do is kick them out or evict them. So basically you have these great rules but no skin for the tenant or teeth to do something if they break it. That is why I have learned to put fees in the lease. So now if they break it I have something other than “kicking them out”. For example, my lease requires my tenant to maintain the lawn. Before the fees there was nothing I could do other than kicking them out. Now I have a $100 fee. Therefore I can charge the $100 fee as a penalty to encourage the lawn to be maintained. This is much more reasonable and practical than using the big guns when something smaller will work.
Enforce the fines and consequences you include in your lease!
Your lease is your bible. The only times I have been burned lately are the times where I am “nice” and don’t follow my lease. For example, I agreed to let someone out of the lease early and did not require the break lease fee. In turn, my thanks was a messy house and a lawn with grass almost up to my knees for agreed upon shows with days notice. Those are also the times problem children develop and my ulcers start to form. I do not negotiate after the lease has been signed. Once it is signed then that’s it. Your sob story won’t work on me.
Don’t negotiate after the lease has been signed
Once the lease is signed and ratified I don’t negotiate. I don’t install new carpet, paint the house, etc. The house is “as is”. If you wanted to agree to something it is done before the lease is signed or at renewal. Once it is done then it is done. This has saved me so much headache. I found the hard way that once you start giving an inch then a mile is wanted. Eliminating all negotiations after ratification creates a black and white situation; making the situation much easier.
Be consistent with your tenants regarding their lease
As with anything, if you don’t enforce it, it has no value. Do not put anything in you lease that you will not enforce or follow through on every time. Once you don’t enforce one part of the lease you lose credibility. If you aren’t willing to enforce a fee don’t put it in the lease.
Don’t be afraid to say no to your tenants
Even the best tenants I have had have tried to push the limits. It’s human nature to push and see what they can get away with. How many of us have bragged to our buddies about what we have talked our way out of or gotten away with something? Your tenants are the same way. You cannot be afraid to say no to your tenants. This includes writing the lease. While I have had many questions about my lease addenda I have never had anyone not sign the lease or require me to remove anything. On the other hand, I stand by my lease. I am confident, I walk through the entire lease. I tell stories and I explain the lease in-depth. Answer questions, explain your lease; but be confident.
Adapt, Overcome, and When All Else Fails, Fake it Until You Make it
You are going to make mistakes when you put your lease together. You are going to find loopholes you need to close. Handling tenants has MANY ulcer inducing moments. I have learned is just to fake it. Having a lease that you believe in make things MUCH easier. There is less thinking, strategizing or trying to make sure the grey comes out right. All you have to do is stand up, use your lease, and say no. Faking it become easier when you have a sturdy item to stand on. That is why your lease is so important and why you want to put everything in your lease.
Lastly: Review Your Lease Thoroughly with your Tenants
This is not legal advice. I am nothing other than an experienced landlord who has had lots of experience with her houses. A lease won’t solve all your problems especially if you are not willing to use it. I have been told that not necessarily everything you put in a lease will stand up in court. That is very true, but my goal is to stay out of court. I have a detailed lease that I review with my tenants in-depth. I want them to agree and understand everything. I don’t want them to incur fines; I want them to keep my house in great shape and pay their rent on time. Therefore put the time in with your tenants, answer any questions and clarify before the lease is ratified. This will save so much time and energy later.
Ready to Get Started But Wish You Had a Cheat Sheet?
Are you ready to put together your own killer lease? Do you wish you had a cheat sheet or wish you could peek at an experienced landlord’s lease?.
You will LOVE my new book. “The Everything Lease Addendum: How – To For Landlords” (http://www.reluctantlandlord.net/everything-lease-addendum-landlords/) It has all my wording along with a detailed explanation for every addendum that I have in my lease. You can save hours and the tons of ulcer inducing moments that helped me create this lease. My pain is your gain
Did I miss anything? Do you put anything else in your lease?