Holding Fee?

Question

So I am acquiring my first property to buy and hold. If everything goes on schedule the unit should be rent ready in mid-December. I have been a prospective tenant that seems to be a good one. They want to lease the property starting on January 1st.

Is there a fee that I should charge them for December in order to hold the unit for them? How do I go about this?

Is there a fee that I should charge them for December in order to hold the unit for them?  How do I go about this?

Account Closed · Answer

Make sure you screen them and they qualify.

Them make them put down a non-refundable deposit, that will be applied to the move in fees.  At least $250.  Something that will make them think before changing their minds.  If you make the deposit small, then they may just find another place and never let you know.

But make sure you do a credit check on them and don't take a check.  Always accept money orders because they can always cancel a check.

Susan M. · Answer

I have held places for the right tenants, and use a "hold fee" (do not use the word "deposit" as deposits are refundable) and hold fee agreement for these situations.  My Hold Fee Agreement basically states that both parties agree that the unit will be taken off the market for this applicant in exchange for the hold fee.  If the applicant defaults, I keep the fee due to my lost ability to rent the place during the time I've held it for them.  If I default, they get their money back.

If they fulfill all rental requirements (pay me all money due, get utilities transferred, sign the lease , etc) then their hold fee converts to their security deposit.

I know many landlords that absolutely refuse to hold places for people and maybe in some markets you can get away with that, but in my market most people shop for a new place a month in advance, so if you don't hold the place at least a couple of weeks you're not going to get any tenants.  I've heard of other landlords whose policy is "until you sign a lease and pay the place is not yours".  If you can get away with that, great.  I can't.  That basically means you have a tenant paying for their current place and your place during overlapping weeks.  No one in my area would agree to that but apparently in hot markets you can get away with it.

Rob Randle · Answer

I like the idea of the holding fee, thanks for the input!

Rob Randle · Answer

Thanks for the input.  I plan to keep running it to get the largest pool of tenants possible.

Lets say everything works out perfectly and I am able to rent Jan 1st.  This obviously isn't the best time to end a lease.  I was thinking of doing a 6 month lease and once July comes around make them sign another year lease.  Another option I guess is to have them sign a longer lease at a discount.  How do you typically handle this situation?

Larry Turowski · Answer

@Rob  Randle I agree with Account Closed .  My only concern is "if everything goes on schedule."  In other words, you may not be able to deliver on Jan 1.

I've run into so many difficulties closing on properties, that I never assume I'll close on time.  You may want to express to the prospective tenants that you expect the property to be available, but sometimes things are out of your control and if for some reason it is not available on time, their deposit will be refundable.  And that you'll give them an update mid-December if for any reason it looks like it may be a problem.

Also, if this is your first rental, you may want to keep running your ad, partly just for your own education--see what kind of interest you generate--and you can tell interested parties that someone has made a deposit, but sometimes people back out.  They can be second in line.

Rhondalette W. · Answer

This is helpful information thanks!

Rob Randle · Answer

The problem with this is that I don't know when the unit will completely ready for the tenant.  This is due to the length of time for repairs and a closing date that could vary.  I like your idea of a break-lease fee.  What should a typical and reasonable break-lease fee be?

Elizabeth Colegrove · Answer

@Rob  Randle

We require 2 months notice and a 2 months break lease fee. Anything less than 2 months notice becomes a fee. The break lease fee has been a huge part of our success so I have written alot of articles on this subject on my blog.

Susan M. · Answer

I pieced my hold fee agreement together from bits and pieces I found  all over the internet, so I wouldn't be comfortable sharing it since I  have no idea about it's actual legality.  Google "holding fee  agreement".  I'm sure you'll find samples, unless someone here has one  that's actually been reviewed by an attorney.

Regarding length of lease, if they are really good qualified tenants, go for a 13 or 14 month lease. Don't offer a discount unless they balk.  It's highly likely they're not real thrilled about moving in January either so a spring lease is win/win.  If they're sketchy, go for 6 months.

Rob Randle · Answer

I believe that in my case holding it for a fee might be the best option.  Where do I find such an agreement?

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