Is a 2 Year Rental Lease Agreement Better for the Landlord or Renter?

Tenant vacancy is always a huge issue for property owners. Some landlords assume anywhere up to 10 or 20% of monthly rent for vacancies while others are less conservative. But no matter what number you use, there will always be at least a few days of downtime in-between tenants.
Even in the most desirable areas, it takes some time to get the carpet shampooed and the place cleaned up. I’ve actually been surprised more than once with carpets beyond repair and holes in the wall; all of which contribute towards an extended downtime. And as much as we’d like to, there’s only so much we can deduct from a security deposit.

Benefits of a 2 Year Rental Lease Agreement

I had never really thought about a 2 year lease before, but upon renting my most recent unit, the first two applicants actually offered to sign a 2 year lease. That got me thinking, there are some real benefits to an extended lease.
At first glance, it seems like it overwhelmingly favors the landlord, so here are some of the benefits:

  • A 2 year lease shows that the renter is serious and willing to commit to your property.
  • Peace of mind knowing that there will be no vacancy for 2 years.
  • Monetary savings from not having to clean, make repairs, etc after the first year.
  • Renting a property takes a lot of time. You’ll save yourself a lot of hassle with a 2 year lease.

Downside of a 2 Year Rental Lease Agreement

There are two main disadvantages for landlords when agreeing to a 2 year lease. The first and most worrisome is what happens if you have a bad tenant? You know the type: someone who nags over every little thing and is constantly bugging you to fix this or fix that. Depending on what state you live in, the laws can make it tough to get rid of someone just because you don’t like them, so you could be stuck with this tenant for 2 full years.
A 2 year lease also makes it tough for a landlord to raise the rent. I don’t know if many renters would agree to this but you could try and put a clause in the lease to raise the rent by a certain percentage after the first year. Otherwise, you’d only be able to increase the rent every two years instead of every year.

What’s the Verdict?

Although every situation is unique, I think a 2 year lease is a great idea for small time landlords. If you only manage one or two properties, you don’t want to deal with finding a new tenant every year. But if you have multiple properties, you probably already have part of your schedule set aside for managing properties so renting out a property shouldn’t be as big of a deal.
Even though a two year lease makes it tough to increase rent, think of all the time you spend renting out a property. Everything from e-mailing back and forth with potential renters to showing the property and doing full screenings on your top applicants. I know the time that I’ll save more than makes up for the 3% rent increase I would have charged.
The real thing to look out for is a bad tenant with a two year lease. But a lot of bad tenants can be eliminated during the screening process. Make sure you use a reputable service and do your due diligence in order to weed out the bad tenants. A thorough screening process might uncover problems that could have haunted you later.