If you own a rental property, there will eventually come a time when you need to decide if you want to offer your tenant the opportunity to renew their lease and what the terms of that lease will be. You may be thinking that’s it’s a given to offer an existing tenant the opportunity to renew the lease at or close to the original terms. However, before renewing your tenant’s lease consider these three things.
- Your Tenant. Consider your tenant’s history of paying rent on time, the way they have treated your property, and your overall relationship with them. Have they paid the rent on time every month or has it always come just under the wire of the grace period? Worse, has it been late on more than one occasion? More than likely you have seen at least the outside of your property during your tenant’s stay. Has the outside of the property been well kept? Have your neighbors made legitimate complaints about noise or other disruptions? Has there been any police involvement during your tenant’s stay? Lastly, consider your relationship with the tenant. Have you and the tenant had a respectful relationship? Has the tenant demanded that you fix non-urgent issues immediately? Have they observed the terms of the lease and not ignored things like no-pet or no-smoking clauses?
- Your Long-Term Goals. You should have evaluated your long-term goals before entering into a lease with a tenant but before renewing your tenant’s lease is a good time to refresh those goals. If you intend to sell the property, renewing with a tenant may not be in your best interests. Attempting to show a property to potential buyers with tenants still in place can make a buyer shy away from presenting an offer; even if your tenants intend to leave before closing. If you are looking for a long term tenant and your current tenant has expressed interest in only a month-to-month arrangement you should be hesitant to jump at the chance to keep your income stream positive. Having a month-to-month tenant can leave you looking to rent the property during an off-time of year or make you lose a long term tenant because your move-in availability doesn’t align with their needs.
- The Market. As we all know, markets ebb and flow and the rental market is no different. What may have been a competitive rental price last year may be below market this year. Research current rental rates for properties similar to yours. Be sure to take into consideration the amenities your property offers and any cost increases you can foresee for the coming year. Also, weigh the possibility of turnover v. the cost of not raising the rent.
As you can see, it’s not always easy to decide to renew your tenant’s lease. We always recommend you do your research and adhere to the terms of renewal as listed in your current lease agreement and local & state rental laws.