On average, the vacancy rate for rental properties in the United States is 7% but the rate varies from location to location. Vacancies are something that rental property owners want to avoid.
When calculating your returns, you have to consider vacancies. When you have a full group of tenants, you might think the reasonable thing to do is to offer a lease renewal but this is not always the best option.
Keep reading to learn more about lease renewals.
Are Lease Renewals Right for Your Tenants?
To decide if lease renewals are right for your tenants, you have to weigh the pros and cons. You can decide to renew leases for multiple tenants or just one. Here are some of the pros of renewing a lease contract:
- Keeping good tenant
- Long-term renter potential
- Eliminates the time and cost of searching for new tenants
- Reduces risk of vacancy
- Familiarity with the lease terms
As with anything, there are also cons to offering lease renewal to your tenants. Whether your tenants have a month to month lease or a yearly lease, consider these cons:
- Limits on rent increases
- Limited opportunity to renovate
- Difficult tenants might not move out
- Landlord lets rules slide
The pros outweigh the cons depending on your goal for your investment property. Keep in mind that some tenants might not want to renew their lease because of a new job, rent increase, or marriage.
Offering a Lease Renewal
Offering a lease renewal is not a simple process and you'll want to follow specific steps to do it right. Here's what you'll need to do when offering a lease renewal:
Determine the Lease Renewal Period
In general, the lease renewal notice should be provided to the tenant at least 90 days before the current lease expires. This provides a good amount of notice for you and the renter to prepare.
Send the Lease Renewal Letter
Leasing options should be communicated professionally and a lease renewal letter is one way to do that. The renewal letter should include the following:
- Current lease expiration
- New lease period
- New rent price
Note that your tenants should respond by a certain date with their decision. This will give you time to prepare the new lease agreement or find a new tenant to replace one who doesn't want to renew.
Draft a New Lease
A new lease agreement is necessary for both parties even if there are no or minor changes. Check state-by-state laws and lease inclusions that you might need to add to the new lease agreement.
The last step is for you and the tenant to sign the new lease.
Should You Offer Lease Renewals?
If you have a great tenant, you'll likely want to offer them a lease renewal. However, lease renewals aren't right for every tenant.
There are major benefits of lease renewals, but the biggest con of not offering a new leasing agreement is having to fill a vacancy. Property management companies can help with leases and finding new tenants.
Contact us today to learn how we can help landlords and property owners like you.
