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Turning the ‘Cons’ of Investment Properties to ‘Pros’

Turning the ‘Cons’ of Investment Properties to ‘Pros’

When it comes to your rental property, one of your top priorities should be protecting your investment. The best way to do that is to set rules for your renters.

The most known leases are in the residential sector, the commercial industrial and land leases usually captures most of the same content and then are adjusted to the product to be leased, we will refer mostly to residential leases that applies for condos, houses, multifamily or apartment buildings.

“House Rules” for renters should be outlined in the lease agreement, making them legally binding. When the applicant signs the lease agreement, they are agreeing to abide by these house rules during their lease term.

To get you started, we’ve outlined eight commonly used house rules to include in your lease agreement.

1. Timely Rent Payments and Late Fees

As a landlord, look for renters that will pay rent on time, keep the rental in good condition, and abide by the terms of the lease. 

Outline rent payments and late fees in the lease by stating the date that rent is due each month, the length of the grace period (if applicable), the last possible day to pay rent without incurring a late fee, and the cost of the late fee if rent is not paid by that date. This house rule will ensure that rent is paid on time every month.

2. Maintenance, Repairs, and Cleanliness

If you expect the property to be thoroughly cleaned and maintained throughout their lease period, state your expectations for cleanliness. Answer yourself the following question and draft the answer as part of this clause:

  • Can tenants make repairs themselves?
  • What maintenance issues should they contact you for?
  • What’s considered emergency maintenance?
  • How often will you need to enter the property for routine inspections and repairs?

It is always helpful to place a $ CAP, for example in residential leases: “tenants will be in charge of routine maintenance and repairs up to $250 per occurrence.” Usually the leases come with a bullet point what is on the shoulders of the Landlord, what is on the Tenants. In commercial, industrial and land it is more relaxed when establishing a double net or triple net lease, but still needs disclosures.

3. Renters Insurance

Always advisable and very inexpensive to both parties. Adding a mandatory renters insurance policy to your lease, as well as how much coverage you want to require.

Adding to your marketing memorandum when disclosing your asking rent price and tenants conditions such as Credit Score, Checking for Criminal and Tenancy background, to include Tenant’s or Renter’s insurance is a must.

4. Pet Policies [Residential leases]

Whether you allow pets in your rental property or not, you will need to provide a pet policy in the lease. If you don’t allow pets, clearly state the rental has a no pets policy, as well as the fee or consequence (such as lease termination) for breaking this policy.

If you do allow pets, but have certain regulations and breed restrictions, clearly state what is and what is not allowed in your pet-friendly rental as well as 100% refundable or not refundable fees, how much would be refundable? Or how long do you have as a landlord to disclose when the pet fee will be given back. This shall be disclosed in your marketing material as well.

Keep in mind that service animals are protected under the FHA, you might choose to have a set non-refundable fee disclosed in your marketing material. For example: “Pet fee $300 from which $150 are not going to be refundable.” Landlord will have 15 days after termination of lease to assess the pet’s damages and communicate the tenants’ of his/her decision to refund or not pay the pet fee based on this report.

5. Quiet Hours: Nuisance

If your rental is a multi-family property or a house with nearby neighbors, you’ll want to inform your tenants about “quiet hours” in residential leases, nuisance in commercial, industrial land leases. This ensures that your tenants will be respectful of their neighbors and avoid making abundant noise (the most common one) either early in the morning or late at night.

Nuisance covers bothering someone with constant machine noises, lights, fumes or smells, plants or pets trespassing and the like. Violations of this policy or “house rule” requires you to define consequences as to retention of the deposit (liquidated damages) for breaking the rule, termination of lease, etc.

6. Lease Renewals and Notice Periods

It’s standard practice to require proper  notice from tenants for lease renewals and move-outs. Since COVID 19 Notices can be sent via email, besides regular door-posting, it all depends on the city/county of the State you have the rental property: notices can be given either 30 or 60-120 days prior to the lease-end date.

The notice period is up to you, but we recommend a 60 to 120 day notice period for long-term leases like in case of retail, warehouses, etc. and a 30-day notice period for short-term leases in case of residential or leases subject to 1 year or less, or month-to-month leases.

7. Damage Deductions from the Security Deposit

Every landlord’s headache! If you find damages to the property during the move-out inspection you will need money to make the repairs. That money typically will come from the security deposit (In 1 year leases it is usually the equivalence of 2 months lease**, depending on your state laws), and if the cost of the damage exceeds the security deposit, you will need to request payment for damages through a demand letter. In the lease, clearly state that any damage to the property beyond normal wear and tear* will be withheld from the security deposit. To better keep track of the condition of your property during the lease term, we suggest using a walk-through checklist for both the move-in and move-out inspections supported with pictures and videos. *It is also important to define what is “normal wear and tear.”

**D’Lux prefers to request 2 months security deposit, instead of the popular: “first, last and security.” We also like to word-out that our leases withhold the security deposit up to 15 days after termination of the lease before returning in full or partial, giving ourselves time for any outstanding utility bill, unseen damage or discovery to the rental property.

8. Consequences of Lease Breaking

Breaking the lease can look different depending on the situation. If the tenant needs to end the lease early, due to change of jobs locations, closing business, etc. COMMUNICATION is key and you shall set it in the agreement for the tenant to communicate promptly as soon as learning of any occurrence that will affect his/hers/its obligations. If the tenant simply needs to end the lease before the set end date, you could require them to pay, which is the withheld security deposit. Now, if the tenant violates the terms of the lease in a serious manner, you may need to start the eviction process if all else fails.

Please consult with your legal advisor if arbitration instead of lawsuit will be advisable for your lease contract.

Violating the house rules you’ve set means that the tenant is violating the terms of their lease agreement, but again, each policy will be handled differently. Clearly state in the lease agreement the consequences of violating each policy so the tenant knows what to expect.

 

Please consult your attorney, accountant, financial advisor and any other professional to assist you on matters discussed on this page Information here is for educational purposes and is not legal advice.

 

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D'Lux Real Estate Services

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