The purpose of the renewal process is to ensure you are achieving the best market rate and protect your investment. All too often we see property owners renewing a tenant’s lease (or worse, transferring to a month to month arrangement) without calculating the effective market rent or ensuring the tenant is still a good fit for the property. An effective renewal process is designed to protect you and your investment.
Starting the renewal process early is key. Vacancies have a huge impact on rental margins and doing what you can to avoid last minute surprises will give you the best chance of real estate investment success. I recommend breaking the process down into 3 stages.
Offer
Consider starting the renewal process about 3 months from the current lease end date. Research and calculate what you believe to be the current market rate and present the new offer to your tenant. Your tenant may try to negotiate but you should understand your value and stand firm. (See my other blog, I want to raise my tenant’s rental rate but ..) Once your tenant has agreed to renew their lease, have them sign their portion of the lease but hold off on the countersign. Knowing that the tenant has committed you can wait to sign your portion and move to the next stage.
Verify
Now is the time to perform you own due diligence.
Requalify Your Tenant
You may have read recently in the national press, where residents successfully sued apartment and multi-family communities for not maintaining up to date background checks on their residents. Both cases related to criminal background checks, specifically sex offenses and the National Sex Offenders Registry. Because of these landmark cases, at Gulf Coast Property Management, we suggest following the recommendation of the National Apartment Association by rescreening all renewing tenants. As with most things in life, past performance is no guarantee of future results and our goal in reassessing the tenants at the time of renewal is;
1. To reaffirm there are no new criminal background concerns (primarily sex offenses). I am sure you will agree it is futile to go through an initial in-depth background check at move in and then never look at the individual again. Something could occur the day after the tenant moves in and to not check that at the next milestone opportunity could be seen as negligent
2. To ensure the tenant still has the ability to pay. It is not commonly known that bankruptcy laws trump eviction laws and you cannot evict a non-paying tenant whilst they are in bankruptcy. Bankruptcy can last for months if not years, and that is a long time to go without collecting rent. By reviewing employment and credit we can establish that the tenant remains a good candidate for timely payments. It would be foolhardy to renew to a struggling tenant who subsequently enters into bankruptcy when you had the means to anticipate the issue ahead of time.
Inspect the Property
You would be amazed at the number of rental owners that I speak to, where the property has not been recently inspected. I do not understand why an owner or property manager would agree to renew a tenant’s lease without measuring how the tenant is looking after the property. Even if the tenant isn’t causing major damage you can nip minor issues in the bud and reset expectations. At the very least it is a great opportunity to remind the tenant that you are invested in the property.
Execute
Once the offer has been accepted, and you have ensured your interests have been protected then you can go ahead and sign your portion of the lease. You have successfully completed a lease renewal and can look forward to another year of market rate rental income from a tenant who respects and takes care of your property.
Hungry for more? Check out the two blogs below or visit our Owner Resource Center here to find answers to all of your questions. Or give us a call at (941) 782-1559, we'd be happy to answer any questions you may have.
Should I Rent My Property as a Vacation Rental or Annual Rental?
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