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Most people think that real estate investment is a source of passive income. Reality couldn’t be more untrue. There is a tremendous amount of thought and work that goes into making a successful real estate investment portfolio and it is definitely not so easy as to just calling yourself a landlord and waiting for the cash to land on your lap. The work is so varied, it can involve legal issues,paperwork, handyman tasks and more. Much, much more. As a landlord or property owner, your job is to know how to wear many hats because there are so many different roles to do when you are a landlord. Today, we are going to talk about one of, if not the most important thing in the real estate industry -legal documents, more specifically rental lease agreements between landlord and tenant. As a landlord, your lease agreement is perhaps the most important document you will have and that you will use. Why? Because it is the one legal agreement that governs the business relationship between you and each tenant that occupies the properties that you own. The lease agreement acts as the rules by which tenants live in that property, as well as defining the legal repercussions should the rules be broken. Our world is governed by laws, and without proper legal documents, our society wouldn’t be able to function as smoothly as it does.
The lease agreements is crucial in real estate investment. It provides both renters and landlords/property owners with a legally enforceable contract, which provides security to both parties. A good lease agreement is mean to protect the rights of interests of both landlords and tenants, to help prevent misunderstandings that could potentially lead to painful, money-draining and time-consuming litigation. Without it, the real estate industry would probably break down and succumb to turmoil.
House rules are important and worthwhile for many reasons. It helps you clearly define and convey to your tenants in legal terms and on paper what your expectations are, prevent tenants from abusing your property, and legally allow you to take action should anything go wrong. Despite what you may think as landlords, not all tenants are purposefully difficult. A lot of the time,tenants break rules because they don’t know that those rules even exist. By explaining the rules and putting them in writing, you can clearly convey your expectations and have them understand where you stand on any particular issues. When you have clearly established rules regarding tenants on your property, it helps prevent tenants from abusing your property.Tenants are much less likely to violate rules if they know that there are consequences, and nobody wants to be evicted. Eviction is not only annoying for the tenant, it can leave future scars on their resume leaving very few landlords to want to take them in. Without rules detailed legally on a lease agreement, you cannot take legal action should your tenants repeatedly violate the terms intentionally. First time landlords sometimes think it’s unnecessary to implement so many house rules, but without them, you cannot properly protect your investments and maintain good tenants for your business.
No Illegal Drugs -This is pretty standard. As a citizen of society, we should understand what is legal and what is illegal. If we choose to participate in illegal activities,then we must understand that we can and will face legal consequences from our actions. No landlord or property owner would want their property portfolio to be tainted by illegal activities, especially in the form of illegal drugs. It could prove detrimental to their business if illegal drugs are found on their premises. As a tenant, you should abide by such rules to avoid landing both you and your landlord in hot water.
Tenants don’t always take care of a landlord’s property very well. For example, problems like garbage removal is a minor issues that can transition in to a major problem if no proper rules are set in place. If tenants don’t consistently take out the trash,your property can run the risk of violating local health ordinances and become unsanitary and unlivable. An unlivable property cannot be rented out or resold. It’s important to state in the lease how and when garbage is to be removed from the property, as well as any other stipulations regarding recycling and so on. It’s a good idea to be a clause in the lease agreement that allows you to charge tenants for any fees or penalties should the city assess against you for improper garbage removal and health hazards.
You are responsible for getting your rent in on time. The lease agreement states which date of every month that you must pay your rent, utilities, and other bills to your landlord. It’s important to talk about the policy of late rent on your lease agreement. The success of your investment is directly linked to whether your tenants pay you rent on time.Without rent, your cash flow stops, which can be detrimental to your real estate business if it’s a recurring issue. How and when will you enforce a penalty if your tenants fail to pay on time? You might be able to let it go the first time, but if it keeps happening, attention must be paid. You have different options in regards to how you want to deal with late rent issues (an issue that all landlords and property owners deal with). You might consider the rent as late if it is paid just a day after the specified date of the month (on the lease), or you may decide to give a grace period of three to five days. There is no industry standard, and completely up to you. As for financial penalty options, it’s possible for you to charge a flat penalty fee or a percentage of the rent for each additional day that the rent is late. There is some room for freedom in this area, but just remember to check with your local market’s real estate laws to determine what is legal and what’s not.
Locking Your doors to Prevent crime and break-ins is a standard policy in lease agreements. it’s one of the few ways that landlords and property owners can protect their properties.
Just because you have set specific rules doesn’t mean that your tenants won’t violate them. In addition to rules, it’s important to also have consequences for violating the rules. How you deal with violations is case by case and up to you. Some violations will require nothing more than a verbal warning, while others could be grounds for eviction. It is always better to start strict and go easy on the tenant as the lease goes on, than it is to start with lax rules and attempt to tighten up months down the road. You don’t want to end up with tenants who step all over you and are not afraid of consequences. There is nothing wrong with being firm with your tenants. Your primary goal is to protect your investment.
If you have questions or need help customizing a lease agreement, our professional team at Engel & Volkers can help guide you in the right direction. It’s also beneficial if you can work with a qualified real estate lawyer to draw up the best lease agreement - so that you and your tenants can be in a harmonious partnership.
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