Part III: Property Managers Info Series: SMALL BUSINESS TIPS FOR SUCCESS IN REAL ESTATE

Want To Reach Financial Freedom Through Real Estate? These Small Business Tips Will Help You Do It.

PART THREE: You Need A Solid Lease

We discussed the mindset that's essential for lasting success in real estate in PART ONE and in PART TWO of the series, we showed you why it's important to think of your properties in business terms too. In this final installment of the Small Business Tips For Success In Real Estate Series, we talk about the lease and how this powerful document can protect you in multiple ways.

What Is A Residential Lease Agreement?

In the world of real estate, the residential lease agreement is most commonly known as the legally binding contract between a landlord and tenant that sets forth the terms of the rental agreement between the two parties. The lease can also refer to the document that describes the property to be rented, stipulates the term and details of the rental agreement, lists the duties of each party, describes any action that will be taken if the contract is violated and has any other information essential to the rental agreement. Now that you’re operating your real estate business as a business, it’s essential that you have current, signed, lease agreements in place for all your properties and tenants.

Why Is A Lease Important?

The residential lease agreement is your first line of defense against disagreements, misunderstandings and generally frustrating situations involving tenants. It can be a powerful tool that protects both the landlord and the tenant(s) while a property is being rented. If there is a disagreement about when the rent is due, you can just refer to what the lease says about the due date. If there is a question about who can occupy the property, check to see what the lease says about authorized individuals. If you’re not sure if the landlord or the tenant is responsible for paying the water bill, you should be able to find your answer spelled out for you in the lease.

Not only can the lease help prevent disagreements and resolve any that arise, It can also help protect landlords and tenants from financial pitfalls that might come up during a rental term. The lease can list who will pay the cost for specific repairs or maintenance done to the property. It can describe what happens if a tenant needs to move out before the lease term ends. It can also list different fees a landlord may charge to compensate him for a convenience he’s providing the tenant or for excessive wear and tear on his property from a tenant's large pet, for example. As a business owner, you can decide which expenses get passed on to your customers. The lease is where all those decisions are listed.

What Are The Key Elements Of A Lease?

Leases can have different sections and clauses depending on what the property owner wishes to include in the agreement. There are five key elements that should be included in your lease so that the basics of the rental agreement are at least covered. After these five items, your lease will include any clauses, instructions, details specific to your property or your business.

1. Address / Description Of Property Being Rented

The lease agreement should list the address of the property being rented or a physical description of the property, if an address is not available.

2. Names Of All Property Occupants

All adults living in the rental property should have their names listed as occupants of the property and should sign the lease agreement indicating that they understand the agreement and abide by its rules. Any non-adult who will be living at the property should also have their names listed as occupants of the property.

No unauthorized individuals should occupy the property unless they are considered guests of the residents per terms in the lease. This helps ensure you don’t run into a situation where

your property is being used by more people than it’s designed to accommodate, causing more wear and tear on the home and possibly changing the home from its intended use.

3. Term of Residency

The lease agreement should list the dates the leasing term begins and ends. It should also define what happens after the initial lease term expires. Does the lease automatically terminate or renew? Does it convert to a month to month agreement?

4. Rental Amount and Payment Method

Be sure your tenant has no excuse not to pay you. The lease should clearly state the amount of rent that is due each month, the date the rent is due, the date rent is considered late and instructions for how the rent payment should be made.

5. All Fees

As a business owner, you can use fees to reimburse you for certain expenses or to influence certain customer behaviors. If you provide lawn care for the rental property, feel free to charge a fee to compensate you for the time and expense of providing that service. If you don’t want your tenants to pay rent in cash, charge a fee for accepting cash and make it free for tenants to pay online.

While you are at liberty to charge fees as you see fit, we can all agree that no one likes surprise fees. And as a landlord, you are only setting yourself up for disappointment if you try to charge new fees for things that come up during the rental period. You’re better off listing all the fees you intend to charge in your lease and having your tenant(s) agree to the fees up front.

Be Mindful Of The Laws

When designing your lease and deciding to include specific policies and rules, it’s important that you’re mindful of your state’s laws concerning fair housing and discrimination. It’s also important that you’re mindful not to violate any of the other landlord tenant laws your state may have on its books. One way to avoid getting yourself into legal trouble when creating a lease is to find an attorney approved lease for your state from a reputable source or to have an attorney review the lease you plan to use.

You're operating a business. It is important to have a lease in place to protect you, your property and your tenant’s interest.