There is one way to ensure that chaos will rule your rental kingdom. If you don’t execute a contract with your tenants, you will have no rules to guide your relationship. Your tenant will know from the start that they can take advantage of every issue that comes up, and they will. I have heard horror stories and many start like this. “I can’t pay my rent because the AC is acting up. I know my rights!” or “I know we are late again but my Husband is sick, we will catch up as soon as he is on his feet again.” You have to treat your rentals like a business or you will not be in business very long. Does your local department store let you walk out of the front door with a promise to pay later? No. And neither should you. We will discuss in detail below.
Who – Many consumers in today’s society are choosing to rent instead of purchasing a home. They want to limit the items that tie them down both financially and physically. By virtue of renting for a long period of time many of these renters understand the rules and regulations that govern rental properties as well as some attorneys. This is not a negative in my opinion. I have high standards and expect the renters do as well. So if a potential tenant reviews the contract carefully I know they are clear of our expectations and what will happen if they fail to meet them.
What – Work with your attorney to draft a rental agreement specific to your state. I have found over time the more specific the agreement the better. Instead of using the same exact rental agreement for each house I have added an addendum for each property. Not every property is the same, some have detached garages, fireplaces, or even ceiling fan remotes. We account for these and their use carefully and note them on the addendum prior to renting. The attorney has all the general bases covered in the leasing agreement, the addendum covers the specifics and how they are handled. Moving out and lost the remote? The addendum states that this is a $75 charge. Since the inception of this particular addendum the remote are rarely lost.
When – Immediately. ASAP. Now. When what? With any issue that comes up, act as soon as possible. If the dishwasher breaks down, fix it ASAP. If there is a squeaking door, fix it ASAP. There is no excuse for you to put off your responsibilities.
Now, turn the tables. Tenant does not pay rent on time. Should they fix this NOW or LATER? See the connection? If you take care of your responsibilities in a timely manner the tenant will know they are expected to do the same. Now when tenants fail to pay their rent they KNOW they will receive our states required 5-day notice on their door. A late fee, and the eviction process has started. We all have to have food and shelter, right? Don’t feel bad about evicting someone that does not take this seriously. I understand that we all have hard times, believe me, I have been there. And I have spent the last 25 years of my life making sure I don’t go back there. If the tenants don’t pay their rent, the bank will take the property from you and then kick them out. Things can get ugly quick if we do not ALL do our part… and the process starts with paying rent on time.
In Conclusion – The process discussed above seems all over the place, a bit random, over whelming!? It does not have to be. Once you have an attorney draft a strong agreement with the basics covered, you and your tenants can have a good relationship with a clear understanding of expectations.
In my opinion, these are the most important items to have included in a good, solid rental agreement:
- The parties that the agreement is between
- The term of the lease
- The termination terms or renewal of the lease
- The rent amount
- How the rent payment will be made and when
- Returned check fees and handling of late payments
- Non-payment, abandonment, and termination
- Security deposits
- Use of premises – Who will live there, use of premises as a home, not business
- Vehicles – How many and parking locations
- Condition of premises – Move in inspection with video, move out inspection with video
- Maintenance and repairs – Who to call and when, what to expect
- Landscape and yardwork – who is responsible and standards expected
- Alterations, improvements, damages
- Assignment or subletting
- Hazardous material, drugs, illegal substance
- Renters insurance
- Breach of agreement – If any provision is broken an explanation that this contract will be terminated and they will be evicted
This is not every single item your attorney will want to include. I have excluded the items such as joint and several liability; let’s keep this simple and let the attorneys add that language.
With a good solid contract in place you and your tenants can enjoy a respectful relationship for long periods of time. Without a contract you will find chaos and your days of land lording will be limited. Everyone needs to understand you are running a business, not a charity. By following consistent rules you will have happy tenants and you can continue down you path of finding wealth through real estate investing.