IN THIS BLOG:
- Which better suites my property - a longer term or shorter term lease?
- What are the benefits and risks associated with both?
- What other factors should I take into consideration?
New owners of investment properties have a lot of decisions to make! One of the most important of these decisions is how long of a lease term you plan to offer your tenants. Lease terms vary from 6 to 24 months, and each type of lease term comes with its own set of pros and cons.
BENEFITS TO LONGER TERM LEASES:
The most obvious benefit of a longer term lease is lower risk of vacancy. By offering tenants longer leases, you decrease your rate of turnover. When you lock a resident into a 24 month lease for example, chances are good that the resident will stay in your property for two years. Many landlords like the security of a longer lease. This has been very true for property management clients with homes in Arvada and Broomfield; two very strong rental markets.
RISKS OF LONGER TERM LEASES:
A longer lease also presents some risks. Long term rentals lock in a rental rate for a longer period of time. In an area like Colorado where rental rates have been appreciating steadily, you may lose out on profit potential by locking tenants in for a longer period of time. Rents have been appreciating at a steady rate in the Denver metro market; especially in outlier cities like Commerce City.
Additionally, long term rentals make it more difficult to get rid of tenants who may not be an ideal fit. This doesn’t necessarily mean you are going to be stuck with a tenant who is breaking the law or the terms of your lease agreement, but more so means you are locked in with a tenant that you would no longer prefer to occupy your property. With a shorter lease, you have the option to issue a non-renewal at the expiration of their lease and pursue better-suited tenants for your property.
Two important considerations to factor in when deciding on the lease terms you will allow for your rental property are:
- Current time of year: Make sure to weigh the current time of year with the prime leasing season in your market. In Colorado, the spring and summer months are best for leasing. People tend to move more often in the warmer months than in the colder, winter months. This translates into landlords being able to charge higher rental rates in the peak seasons. You should plan to have your leases expire in these peak months. When leasing in these months, we recommend 12 month leases to ensure the lease expires again in the most optimal leasing times.
- Mid-term rent increase clause: If you find a great tenant and decide to offer a longer term lease agreement, we recommend you add a mid-term rent increase clause to your lease. This simply means that at the middle of your lease, you have the right to raise the rent. The amount should be fair and clearly stated in the lease.
If you have questions about choosing how to best time your leasing strategy or need advice for renewals, give us a call. Our team is happy to help. 303-255-1990