Lessons Learned Building A Strong Lease
As landlords, we should always do our due diligence by protecting ourselves, our property, and our tenants with a lease. This binding document is not only your saving grace but your tenants' as well. I can think of many occasions when I've had to reference my lease in order to enforce violations of the tenant and I's agreement. As the landlord, you will save yourself time and thousands of dollars by keeping a tight lease. Keep in mind that each state has its own laws.
Early Termination Fee
"Termination of this Lease Agreement at any time other than the termination date except as required by law or pursuant to ServiceMember Civil Relief Act 50 U.S.C. app 501 et seq. shall be at Landlord's discretion and subject to negotiation and terms agreed to at the time such request for early termination is made by tenant in writing." This is what my lease said when I had a family in one of my units that wanted to leave their apartment before the end of their lease due to them
having a new child. This vague verbiage put me in a compromising position because I was not specific on how much the family had to pay in order to terminate their lease early. We settled on a fee that was not the amount I was allowed to enforce based on Virginia's state, nor was it enough to conduct a proper tenant turnover. The state of Virginia allows me to enforce 2 months worth of rent as an early termination fee amount. Look for the Landlord-Tenant Act that fits your state.
Charge Service fees
⁃ Lawn care fee
For one of my properties (triplex), I charge a small $21 a month lawn service fee. The property has a huge back and front yard. Originally it was my tenant's responsibility to cut the lawn, but they were not doing so, and it was affecting the curb appeal of the property. When it was time to implement a new lease, I added a lawn care service to cover the price of having my landscaper cutting from April through October. he charges me $40 to cut the grass once a month. $40 over a span of six months is a total of $240. the $21 I charge my tenants total for this particular property is a total of $252 on a 12-month lease. This saves me from eating into my cash flow, and the tenants pay a small fee ($7 each) a month for convenience.
⁃ Water service fee
As a landlord, based on the kind of property you bought, you may find yourself taking a utility bill into consideration of your cash flow. For me, with all five of my units, I pay the water bill. Well, I did pay out of pocket until I structured my tenant's lease with a flat rate water bill. I averaged out the monthly cost of the water and charged a service fee. For example, both units are a 2 bedroom 1 bath for my duplex averaging are $140 a month in water usage. I included a $70 a month water service fee in their lease so that the utility bill does not eat up my cash flow. People are usually a bit more mindful of how much water they use when paying for it. It is in you and your tenants' best interest to look into products that will lower your utility bills. This saves you money and your tenants' money. The more money you save them, the more likely they will pay their rent even when times get a little tough.
Stagger Lease-End dates
Timing is essential to structuring leases. A best practice is to have your tenant's leases end during the busiest times of the year people move. This allows you to turnover from tenant to tenant with minimum vacancy timeframes. People like to move in during income tax months as well. It's a lot easier to come up with the application fee, first month's rent, and security deposit when you just got a couple of thousand dollars from the IRS. According to Moving Labor , 80% of all United States moves occur between April and September. Increase your chances of turning over the unit quickly by arranging your tenants' leases to end between April and September.
A strong lease is not meant to ensure you obtain as much money from a tenant as possible. It is used to protect and enforce. If you have to throw in a bunch of fees to break even in cash flow on a property, then that real estate investment is not for you. Compare your lease with the leases you had in the past when you were a renter. See what safeguards and policies your landlord had. You can learn a lot about the people and businesses who have been.