As we discussed in 3 ways to Renew Your Lease, there are three ways to renew your lease. Personally, I use a one-page renewal letter 80% of the time. So far I have not used automatic renewals at all in my leases (my markets don’t support them) and I only do full lease renewals when something huge has changed on my lease (for example my repair deductible, break lease clause, etc). Every other time I use a one-page renewal.
The reason I love one-page renewals are they are very quick, easy and pretty painless. Here is my 3 step painless process.
First – Gauge Tenants Interest in Renewing
I send my tenants an email to see if they are interested in renewing.
Here is an example of a letter I sent to a tenant.
Dear Great Tenant,
Time has certainly flown by. I cannot believe that it has been almost a year and it is renewal time. You guys have been great tenants and we have enjoyed being your landlord.
Upon review of the market if we were to list the house we would list it for $1350. As we would like to keep you as tenants, we would like to offer you a discounted rate of $1300 for a 2 years lease and $1325 for a one-year lease.
We look forward to having you as long term tenants.
Second – Receive Tenants Response
This is where you hear from the tenant. I usually get three types of responses.
Honestly, my least favorite are the negotiations as these are tricky. As much as I just want to say no, to anyone who want to negotiate. That does not always work in my favor. Over the years, I have learned that negotiation is an art.
Here are 6 Things I think about when negotiating.
- Am I in a position to replace the tenant? – Yes, a tenant is always replaceable but life doesn’t always make it easy between vacations, deployments, and other life’s challenges. Therefore I think about my schedule and my time commitments. Yes I know the rent I COULD get but does my schedule allow me to be proactive enough to allow it. Remember, if you have to let the house sit for one month because of your schedule are you really making money?
- What do I really think market rent would be? – After a while, you start to get a sense of how well your house will rent in your market. So while I come up with a number for my tenants, I usually sit back and think of what I will truly get. Is this number truly reasonable or is it high. What is the number I think I could realistically get compared to my tenants offer?
- What is the strength of what they are offering?- I often have military tenants and we all know that the SCRA allows them to get out of their lease. Therefore, when thinking about a situation I think about who is held more to the agreement myself or the tenant. For example, signing a deal at a reduce rate when a tenant is entering sea tour, is giving the tenant WAY more security than myself. In the sense that they can move out any time based on deployment orders. Therefore, the tenant receives a MUCH lower negotiation rate, yet I receive nothing in regards to lease protection.
- How is the market? – Aka Do I think that it is becoming more or less of a renters market. In some of my areas with the prices increasing and the new squadrons coming in. In years to come prices will potentially greatly increase. These are the places that I am less willing to sign long-term leases without a good reason financially. IE why would I sign a 3-year lease $100 under potential rent right now when 2,000 people and an entire new air wing is coming into town, creating a high probability that rents will increase by $300.
- House Turn Expenses– What is the expense to install a new tenant. While I personally always want my house in top shape. The reality is if I rent the house for less now because of its shape. I will be double hurt both now, the loss of rent, and in the future when I STILL have to do the repairs. For example, if you give someone a lower rate for worn carpet now, that doesn’t go away. You still will have to pay for the carpet. So now you lost $2000 and still have to replace the carpet when they leave.
- Can I let him win the battle, while I really win the war?– While I am red head, over the years I have learned to really try to leave emotion out of the debate. I try to let a tenant feel like they are winning, without compromising my position whenever it is possible. At the other end, I make sure it is known that I am not a push over.
For example, I recently had a renewal where a tenant had a new baby and wanted to keep the same rent for the first year and increase on the 2, and 3rd. Personally, since he was on sea tour this has no interest for me as I knew that he could SCRA his way out, etc. On the otherhand the market was blowing up in the next 12 months as 2,000 more people were coming into the area, and they would all need housing. So instead I congratulated him on his new baby, offered him just a one-year lease, implying that we would re-access the market next year once all the new squadrons were arriving. This way he won, but I wasn’t tied down. Guess who signed a 3-year lease with my original offer. Someone didn’t like the idea that his rent could significantly go up.
Third – Response to Non-Renewal
If the tenant decides not to renew then I discuss the next process. Move out date, them showing the house to potential tenants, etc.
So Your Tenant Are Renewing
Now if they do decide to renew now is where on my one-page renewal comes into play. This is where I send a simple addendum.
Here is an example I have used in the past.
Lease Renewal Addendum
This amendment is renewing the original lease entered into on the 16th day of July, 2015 terminating between __________, tenants and Elizabeth Colegrove, landlord. This renewal addendum is renewing the lease for one additional year (August 1, 2016 to July 31, 2017), at X a month, a rent increase of $40.
The new rent due on the first of every month is $X a month starting August 1st, 2016. This agreement only alters the lease termination date and rent amount, everything else in the original lease remains unaltered.
_____________________ (Tenant) _____ (Date)
_____________________ (Tenant) _____ (Date)
_____________________ (Landlord) _____ (Date)
Tips to create this document
Personally, I create it in word and then send it to the tenants as a pdf. This way they can just print it out sign it and send it back. Yet they cannot change the documents. The last thing I want tenants to do is make a subtle change and that I not notice.
Overall we have found renewal to be easy and stress-free. While this might sound silly, just make sure you get the final paperwork completed. Just because everyone agrees, verbally or through email that the terms sound okay. Till you have that signed paperwork it doesn’t matter. I can’t tell you how many people I know who have been burnt because the paperwork hasn’t been finished or was forgotten and months later someone decides to vacate. That’s why it’s so important to finish the paperwork, till its signed and seal, it doesn’t count.
Don’t want to create your own renewal? Wish you could just download a simple one-page renewal? Check out Ezlandlord Forms. They have state specific renewals you can download. No need to create your own!
I would only do a one-page lease renewal if you are 100% happy with your lease and do not want to make ANY changes. If you are not 100% happy with your lease THIS is the time you make changes. You do that by writing a new lease and having both parties sign it.
Interested in putting together a New Lease? Check out my article, How to Create a Rock-Solid Lease in One Evening
What has been your experience with Renewals ? Any words of wisdom or experience?1