Multi-year leases are becoming more popular, but does that mean they’re better? Today’s article discusses the pros and cons of a multi-year lease so you can decide which is good or bad for your investment property.
What is a Lease?
A lease is an agreement between the landlord or the property manager and the tenant, stating the terms of the tenancy. One of the most important aspects of a lease is its duration.
There are annual leases and multi-year leases. In Massachusetts, we typically have annual or 12-month leases.
But we want to make sure that our leases will always end anywhere between June, July, August, or September. So sometimes, if you’re starting in the middle of the year, you might do a longer or a shorter-term lease to get it on that cycle.
What Makes Multi-Year Leases Good
There are a lot of landlords out there that love two or three-year leases because this allows them the stability to know that they have tenants for the long term.
They don’t have to worry about their renewals and worry about whether their property is going to go vacant. So if tenants have been good residents, we might offer them a multi-year lease.
Having a year-by-year lease allows us to reevaluate, usually at the beginning of the year, what your expenses were like for the previous year. From there, we determine if your expenses went up one or two percent, plus the inflation.
We might go up four or five percent to help you offset that and make you at least the same amount of money. Profits are important; as a landlord, you own property because it’s an investment you want to provide you with returns.
Generally, that’s a good idea to have security and stable profits, but let me tell you about the cons of having a long-term lease and why personally, I don’t do them as a property manager.
What Makes Multi-Year Leases Bad
When you have a tenant in there that might have a two or three-year lease, they start misbehaving. If they are bad tenants, it will be much harder for you to evict them, and you have to deal with them for the lease duration.
The second most important thing is the financial aspect. Many times, landlords do a two-year or three-year lease and keep rent at the same rate. Tenants love that; however, you have to remember that your expenses typically go up.
Your water, taxes, insurance—none of these ever go down for you. In addition, you always have to account for 3% of the inflation rate. All this will slowly eat your profits if you keep rents exactly the same.
The third aspect that makes multi-year leases bad is the fact that you can’t change the lease terms once the agreement is signed.
Sometimes, circumstance change in the lives of landlords as well as tenants. They might get a pet, or maybe you feel something different about a certain rule or regulation with a neighbor.
So you would want to change those lease terms, but a multi-year lease will not let you do that. With an annual lease at least, you can renew the terms with changes and improvements to better help and protect you.
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Whether or not managing properties is new to you, you might have heard about leases (fixed term) and tenancy at will (month-to-month).
Learn the differences between these two forms of rental agreements, so you always know what’s best for your tenants and investment property.
Lease vs. Tenant-at-will
A lease is an agreement outlining the conditions of tenancy between a landlord and a tenant. stipulating the terms of tenancy.
This type of agreement usually lasts for a specific period. A typical lease is one-year with 12 monthly payments.
Tenancies at will are month-to-month agreements with no set length of time, as long as the tenant pays the rent.
The tenant can stay for 30 days and only has to give 30 days’ notice to leave. That notice to leave the property can also come from the landlord.
If the lease expires and the tenant does not leave but continues to pay the rent, it would automatically become a tenancy at will.
This is not an ideal situation for most landlords since there is no security of consistent income from the rent payments. But it happens.
The Pros and Cons of Leases and Tenancy at Will
It is typical and safe to do lease agreements. Leases mean a consistent amount of money coming in for a more extended period.
However, a tenancy at will has its merits in certain circumstances, such as:
1. When the property is newly acquired
If you acquire a new property and don’t know what the current tenants are like, it might be good to keep them at tenant at will for a while.
That way, it will be easier to issue a 30-day notice should you find them not the kind of tenant you want.
2. When you want to increase rent
Technically, increase your rent every single month if you give that notice. It’s very unlikely you get to do it with no complaints, but you do have the flexibility to increase rent without having to wait for several months.
3. When you want to renovate or sell
You might want a renovation or need to sell the property asap. With this, a tenant at will comes in handy because you can get a tenant out easier and faster rather than having them for a longer time if they are on a lease.
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Leaks and water damage can happen anywhere or be completely hidden from plain sight. Here are the ways to spot hidden leaks so you can start to fix and prevent further need for repairs.
Why are leaks so common?
Everything ages with time. In a home, this includes roofs, gutters, downspouts, toilets, and faucets. When these get old, they eventually start to malfunction and cause problems.
In many multifamily homes or condos, plumbing problems are also common.
Most leaks aren’t visible and aren’t easy to notice right away. That’s why they’ve been known to create damage in your home that isn’t easily noticeable at first.
How to Spot Leaks
When leaks are discovered, homeowners need to seek professional help quickly to prevent further damage.
Here are some ways to get started on spotting hidden water leaks:
Look for the leak source
If you don’t know where it’s coming from, you won’t be solving the main problem. You can check these areas first, where leaks are more than likely to occur:
kitchen
bathroom
roof
attic
chimney
Sometimes, though, it doesn’t have to be a room in the home. So you should also double-check window frames, ledges, or gutters because these may be clogged out.
Look out for the plumbing
Kitchens and baths in buildings are usually above each other. The most common leaks also come from toilets, bathroom tubs, or shower drains.
So for a leak in one unit, many times, we have to open up the ceiling of the unit below it to take a look and test the leaks.
When testing the plumbing on buildings, you have to do so one at a time. You don’t want to test them simultaneously because sometimes they funnel into one drain, and you won’t be able to figure out the source of the issue.
Also, remember that stack pipes can be a harder issue because you have to open up walls vertically in order to access and see that.
Invest in equipment
If you have a leak in your house, you must find the source before calling a plumber or starting to tear things apart. A video camera is a great tool that helps you do that.
With a video camera, I can find where the leak comes from without taking apart too much stuff. It only requires me to poke a little hole through a wall so I can locate the leak source even within the walls but not create too much wall damage.
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There are different types of leaks that can occur. But because I have been managing properties for over twenty years, solving leaks is something I do on a daily occurrence.
If you would like to know how to efficiently and cost-effectively spot and solve property issues such as hidden water leaks, join the Landlord Tutor community and sign up here.
With just a little paintwork, tenants are more than ready to paint the walls and turn their space into what they can call their own. But any renovation or maintenance project should be taken care of by the landlord.
As your Landlord Tutor, here are some thoughts I would like to share on why tenants shouldn’t be allowed to paint the walls of a rental property.
Paint jobs are the landlord’s responsibility
Paint jobs fall under maintenance. The costs required in keeping the property’s curb appeal are the responsibility of the landlord, just like with any other maintenance work.
That is why we specify that tenants should request any paint job on the property in all our leases. The request must be in writing and include the paint color they want. The color must not be anything wild but something neutral as well.
Using the same paint has its benefits
Generally, I use a standard color for all my properties: Revere Pewter by Benjamin Moore. It is a lovely neutral color for any room on your property.
Over the years, I have found that using the same paint has the following benefits:
We can do touch-ups quickly
We no longer have to try matching colors
We save time and money on paint jobs
Because the paint we use is neutral, most tenants like it. But if a tenant asks for different paint color, the lease specifies that they have to paint it back to the standard color before they move out of the unit.
Walls must be painted back to the standard color
Regardless, we will ask tenants to repaint the walls in our standard colors. In addition, we make sure they know that they are liable for the cost of fixing any damage if the paint job is done incorrectly.
In preparation for our move-out inspections, we provide tenants with an established list of pricing. That way, they know how much work they will be responsible for before they move out. The pricing covers costs for painting a room, a wall, a ceiling, and any form of baseboards in the room.
We also emphasize that we will charge them if they do not paint the walls back to the standard color by a specific date.
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As a landlord and property manager, I have managed over 800+ properties and dealt with countless tenants who wanted to DIY paint jobs on their units.
If you or anyone else you know is looking for guidance on landlord responsibilities, such as dealing with tenants who shouldn’t paint the walls of your property, join the Landlord Tutor community and sign up here.
One of the most common questions asked by landlords is if tenants can withhold rent. The answer is yes. In fact, withholding rent is a legal option for tenants in many states.
As with any landlord-tenant laws, landlords must be familiar with rent withholding and why tenants do it.
In this article, I give you a rundown of how to deal with tenants withholding rent.
Why Tenants Withhold Rent
Rent withholding is a common negotiation tactic used by tenants. Doing so prompts landlords to act on the tenants’ issues about the property, such as paying for the costs of repairs or deducting the amount from the rent.
In short, rent withholding means refusing to pay rent until the landlord corrects the issue.
State laws on withholding rent are generally tenant-friendly, but tenants cannot just opt to withhold rent whenever they want.
The grounds must be reasonable, and they have to comply with three basic things for it to be a valid withholding: the notice requirement, the grace period, and the manner of withholding.
A Landlord’s Guide to Rent Withholding
Any landlord should take rent withholding seriously. Not only does this ensure you take care of your tenants, but it also certifies that you abide by the state laws.
You shouldn’t take violations or liabilities lightly, as some can be reasons for you to get sued or have to pay up to triple in damages.
You should also consult a professional who is well-versed in the grounds and processes involved with withholding rent, such as a property manager who has been in the business with a considerable amount of experience.
In the event that your tenant withholds rent, and you have to go to court, you can prove that you did everything right from your side. Here are some major points to remember.
Rent withheld must be in either court or escrow
Just because they choose to withhold their rent does not meet they get to keep the money to themselves. Some states require withheld rent payments to be made to the local court.
But in my home state of Massachusetts, the rule is to put the rent withheld in an escrow account.
If the tenant withholds 500 dollars, they have to take that rent and put it into a separate escrow account for safekeeping until their landlord corrects the issue.
When the problem is resolved, they have to pay the money from the escrow account to the landlord. Technically, they can’t withhold rent if they do not do it.
Reason to withhold must fall under habitability issues
Tenants can’t withhold rent simply because they don’t like their landlord. They also just couldn’t claim they are not happy with your property: they must specify the issue making them unhappy with it.
State laws include health and safety standards, often referred to as a “warranty of habitability.” Warranties are responsibilities usually divided between landlords and tenants and specified in the lease agreement.
These are the common warranties of habitability that a landlord must provide to guarantee that their property will be a safe, sanitary, and livable home for tenants:
I have been in the real estate industry for over 20 years, managing 800+ properties. As your Landlord Tutor, I can guide you through landlord-tenant laws and concerns.
If you or anyone else you know is looking where to learn how to deal with issues like tenants withholding rent, join the Landlord Tutor community and sign up here.
If you’re looking to hire a property manager, you may be wondering what questions to ask when hiring them. I have been a property manager for over 15 years, helping hundreds of other people manage their properties. I always suggest hiring a property manager but that doesn’t mean you need to.
Many times, if you have only one or two properties, you might be able to manage them yourself. However, there reaches a time when you either own too many or frankly, you might just not want to deal with the headaches of it. You want to enjoy the fruits of owning investment properties such as taking vacations and never have to worry about emergencies.
Here are the top nine questions to ask when hiring a property manager, which we categorized under the five major aspects of any real estate business.
On Management
1) How long have they been in business?
It’s important because if you have someone who is just doing it as a hobby or just started the business, they might not have any experience you need. They might offer the same price as other property managers who have been in the business longer.
2) What do they charge?
Is it a flat fee? Is it a percentage? Because if it is a percentage, their rate will go up as your rents go up, and if it’s a flat fee, it will stay the exact same, which they may or may not have a reason to increase your rent. Every good property manager should still increase your rent no matter what.
On Finances
3) How do they handle the financials?
Do they help you go through a budget versus actuals? Can they help you try to figure out what expenses you should be paying for and then help you analyze those every single year to determine if you were under or over that so you can proactively solve issues and problems?
On Proactiveness and Maintenance
4) What are they doing when it comes to solving problems?
How are they responding to them? How can they show you that they are being accountable or do they track their emails or they tracked their phone calls? Even when it comes to late-night maintenance, is it just an answering service? For example, in my property management company, we have emails and texts that we can show every step along the way of any emergency call.
5) How do they prevent problems?
We put emphasis on not having to solve problems but avoiding them in the first place. We are very proactive. In addition to doing things like newsletters and typical communication all throughout, we always set a time during the year to sit down and go through each person’s property.
On Communication
6) How do they contact you?
In case of emergencies or updates, how will you be notified? Will it be by email, phone, text message, or all of the above? Communication is a really important thing when it comes to any type of relationship. You want to make sure that you are very clear on how you expect to be communicated, and when.
On Rent Collection and Evictions
7) How do they collect the rent and when do they pay you?
Can they collect the rent when there are tenants that don’t have bank accounts, such as certain minorities? That might be a situation that you run into in the future depending upon where you are at.
8) What is their process for non-collection?
Do they actually go through the eviction process? Or do they just kind of talk to people and kick them out down the road? They should have a system set in place to deal with uncollected rent and abide by state laws on evictions.
9) Do they have attorneys?
Do they have a legal team to review all their paperwork and make sure it’s super airtight, or do they just use a standard form lease that they put together, maybe add into them through the years of what they have experienced?
In conclusion
The saying goes, you get what you pay for, so don’t be penny wise and pound foolish when picking a property manager. Make sure that they have a track record, and that they have experience dealing with the type of property that you have. More importantly, make sure to have a good working relationship with them.
If you don’t feel good about them, that is going to be something that you should be concerned about. At the end of the day, they are responsible for the most important and valuable asset that you have, and hiring a property manager is something that needs a high level of trust.
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Knowing what questions to ask when hiring a property manager can be difficult for new or aspiring landlords. If you or anyone else you know is looking to continue your education of being a landlord, join the Landlord Tutor community and sign up here.
