Multi-Year Leases: The Good, the Bad, and the Ugly

Multi-Year leases: the gold standard or leaving money on the table while locking you into a long term lease?

Let’s discuss the pros and cons of multi-year leases.

The Good

Reduced Turnover – Loss of rent between tenants is expensive and advertising costs (flying out or hiring a manager if you are not local)

Reduced Move in Wear and Tear – Housing is damaged more often during moves.

The Bad

Undermarket Rents – Rents naturally increased year to year. When they are not increased then the rates fall below market value. Long term leases lock you below market for the length of the lease.

Lease Non-Breakable Without a Clause – Life changes and the landlord is unable to move back into their own house or sell it unless both sides can agree to the terms.

The Ugly

Military – They can break the lease no matter how long the lease.

Average Tenants – Default law (Buy Out Clause Discussed) allows tenants to break the lease no matter the length as long as they find another person. Therefore, a long lease only locks you and not the tenant into the lease.

Turnover Expense – Longer tenancy will require larger, more costly renovations between tenants. Personally, multi-year leases do not sway me. I have had three tenants who signed long leases either break it or try to break it. Therefore, I personally go with the best well-qualified tenant. I certainly don’t give a break on rent. With the improving economy there is a huge likelihood of rent increasing. Therefore, you are leaving even more money on the table when you give a discount.