Lease Renewal with Another Yearr, or stay with Month-to-Month?

Question

Hi,

I rented out my mother-in-law, which is slightly higher than market value.  The lease is ending in a month, but I would really hope to keep the current renters as long as possible.  They are just great renters.

In the last month or so, we had a few issues, eg. mainline clog, utilities has gone up a lot, the furnace doesn't always work ....

I would love to ask them to renew the lease for another year, but I'm afraid that it'll initiate their searching for another place.  So far they have not mentioned about moving any time soon.

For all of those experienced landlords, should I ask them to renew a lease soon, or just let the lease to expire (and it'll automatically turn into a month-to-month lease).  Your advice is greatly appreciate it!

Newbie Landlord Tracy

Jon Holdman · Answer

You can rent your mother in law?  She's getting up there, but she's still strong.  Raised a bunch of kids, been a roofer and a truck driver.  Think there's a market?

But seriously.

Personally, I only do month to month.  A longer term lease ties your hands much more than the tenants.

But if you want long term leases, I would just offer them a new one at whatever you think is the right amount.  Realize that getting a new tenant is work and runs the risk of missing a months rent.  So, maybe you want to leave the rent the same to avoid any hiccups.  But I would not start off offering any incentive.  Most likely, its unnecessary.

Fix the furnace.   That sort of thing is the difference, IMHO, between a good landlord and a bad one.  The first time it starts acting up I would, and have, called a repair person.  In one case, I drove right over and dropped off space heaters.

I have no idea if $250 is good or bad for utilities.  It might be worth investigating if there is a problem.  That bad furnace might be a problem.  Might be something else.  Might be the tenant cranking up the heat and opening the windows.

Rob K. · Answer

I usually give them the option of signing a one-year lease at one price and a month-to-month at a higher price. Since you're happy with them and the rent you're getting, I would offer them another one-year lease at the current rent they are paying and a month-to-month for an extra $25 and let them pick. I always offer free carpet cleaning as an incentive to sign a one-year lease. Tenants appreciate it and I can't believe how cheap it is to have carpet cleaned. (I still don't know how my guy makes any $. He has $60K wrapped up in his van and equipment.)

If you let them know that you prefer one year terms on the lease, they will figure it is pretty standard as they have already signed a one year lease with you last year.

Nancy C. · Answer

I second Steve Babiak.  You most likely don't need an incentive, it's entirely possible that they forgot when their lease renews.  Asking them to sign a new one wouldn't encourage them to start looking elsewhere, as the time and expense of moving deters most people.

Your $250 incentive (or whatever amount) would be better spent on an improvement that stays and helps with their utility bills, like a programmable thermostat or something.  Check with your utility company and local and state programs as sometimes they offer great programs that benefit both of you.  I got my entire three story rental done with blown-in insulation for a total expense of $1150 for the entire building.  It requires effort dealing with the logistics, but the tenants were extremely pleased with the results and decided to renew their lease.

Scott W. · Answer

Nope. Not yet. Thank god.

Charles Baisden · Answer

Scott W. - when you say a tenant won't leave if they don't want to leave...

Have you had this problem?

Scott James · Answer

I am wondering if offering month to month as the only option might actually encourage greater loyalty and longer tenures from many renters as a result of the sense of added flexibility that this sort of contract provides. If they are thinking about leaving, they will probably be asked to sign a long term lease, which may be a commitment that they would prefer not to make if they do not have to.

What do you guys think?

Rolanda Eldridge · Answer

I like knowing upfront if tenant will renew 1 year or do month to month.  I charge additional $50-75 for a month to month.  Currently have a tenant whose been on month to month for over a year..I like providing the option but encourage one year lease..

Scott W. · Answer

whether it's a month-to-month or a year lease, if the tenant doesn't want to leave, he/she/they won't leave no matter what the contract says.

I put in an 8% increase on a month-to-month on the initial contract. I don't want to get caught with a vacancy in November & have it sit for 1-3 months (with less quality tenants & less of a tenant pool).

Opinions on this subject run rampant but that's what I do.

For renewals, what I've started doing is list several items they can pick for the house & let them pick. Obviously, it's stuff I was going to do anyways. I had a couple jump up & down when I put in a new range hood & porch light. They take good care of the place; he even pays for fertilizer & spotted grubs & paid for & took care of that. Now that's a good tenant.

Ben Yoon · Answer

How about simply asking them?

"Hey, you guys have been so great. I wanted to offer to lock in your rent so you are not affected by increases."

I wouldn't worry about lease clauses that lock you in.  Just read it, and keep what you are ok with, and delete what you don't like.  But know that some things are required by law, so having it reviewed by a qualified attorney prior to closing is always suggested.

And you can include some clauses of your own, pending legality.

Matt Devincenzo · Answer

I'll call Jon Holdman back in here so he can explain from his perspective, but I'll try also.

The idea behind the benefit of a long term lease is the elimination of turnover and vacancy which obviously improves your cashflow greatly. All your other expenses really occur no matter whether a tenant is there or not (taxes, ins, maintenance ect) so eliminating those 2 items has the greatest direct effect on your expense number.

The big disadvantage is the tenant has a legal right to stay in your property because they have a piece of paper that binds you to provide housing in exchange for their rent payment. So if they stop paying you can kick them out, BUT you have to get a judge to say that you can legally do it which means court and an eviction.

With a month to month in most if not all states you just have to give them say 30 days notice and they're out, which is generally less time than it would take for an eviction.

The biggest thing with all of this is a lease binds you to uphold your agreement and the tenant theirs, but a tenant will just move out if they really want to and not have a second thought about it, whereas you will be stuck by that lease no matter what and if you want to enforce your lease you would still need to take them to court for a judgement .

So a lease really can tie your hands when it comes to getting rid of a problem tenant, that doesn't mean it's a bad thing just different strokes for different folks, and can have a lot to do with the demographic and location you're renting to as well.

Lease Renewal with Another Yearr, or stay with Month-to-Month?

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