You’ve bought your first rental property. The work is done, the contractors have been paid, and you’ve got prospective renters lined up to see their future home.
Last month, we wrote about some of the steps you can take to determine which tenants are right for your property. Today we’d like to drill down a little further, looking at how you can prepare a rental lease agreement that protects you and your investment.
By putting together a lease agreement that details payment terms, rules the tenants need to follow and the consequences of either party breaking the lease, you’ll help ensure that your first attempt at being a landlord goes smoothly. Also, if you are a landlord in Pennsylvania, you need to use a state-approved Plain Language Lease to remain in compliance with state law.
1. The basics of a rental lease agreement
Start by giving your lease a title that makes it clear that what you’re giving your tenants is, in fact, a legal document. It can be as simple as having the words “Residential Lease” at the top. List your name and address, and the tenant’s name and address.
2. What does the lease cover?
List the full address – including apartment number – of the property in question. Describe the condition of the property at the time when the lease begins.
3. How long is the lease?
Your rental lease agreement should note the start and end days for the lease as well as the specific number of days/weeks/months the lease will last. (Most leases are three to 12 months, although you have the option of doing a month-to-month or even week-to-week lease).
4. What will your tenants pay and when?
The lease agreement needs to include how much rent the tenants will pay each month and rules for how and when it should be paid.
Note the day of each month when the rent is due and where payment needs to be sent. If you plan to impose a late fee on overdue rent payments, the agreement should make that clear. For example: “If the tenant pays rent more than 5 days after the due date, an additional fee of $50 will be charged.”
The rental lease agreement should also include the amount of the security deposit, and the circumstances in which it will be returned to the renters. If they don’t leave the property in good condition, the deposit is typically not returned.
5. What are your tenants’ responsibilities?
Will your tenant have to pay the monthly gas bill? Will you cover the cost of garbage pick-up? The lease agreement should make it clear who needs to pay for what utilities.
Research the municipality’s laws governing property ownership. In some places, the landlord might have to pay for gas and water, while in other community’s these can be left to the tenant.
The lease should also outline who needs to make repairs, but in most cases, it’s the landlord’s job to ensure their property is safe and livable. At the same time, the agreement should make it clear that the tenant needs to let you know about problems with the property.
6. What can/can’t the tenant do?
The lease should lay out clear rules for living on the property. Can they keep pets? If so, what kind? Are they allowed to make changes to the property, such as painting the walls? Let the tenant know what they can and can’t do, and the penalties for violating these rules.
Finally, you may want to consult with an attorney to make sure your lease follows the law and to determine whether you used the appropriate language and provisions to keep the rental agreement legally solid.
The life of a landlord isn’t always easy. If you’re worried about crafting a lease agreement that protects your investment, DIG (The Diversified Real Estate Investors Group) can help.
DIG has spent the last 40 years coaching investors like you on every aspect of investing in rental properties. Our in-house landlording expert will be holding an all-day workshop on January 20th. Don Beck will share his 35 years of life stories in the trenches with tenants and will share his state-approved Plain Language Lease with all class attendees. Register for the workshop by checking out our calendar of events.