Learning how to create a lease should be high on your list if you’re well down the path of purchasing your first investment property. There are many things to do before closing on an investment property. You probably already have a good idea of what you can earn in rent, but keep a close eye on comps as you get ready to market your property.
If this is your first property, you may not have a nice template to build off of. Don’t worry, you won’t be starting from scratch. There are several great example leases to pull from. That said, this is going to be YOUR lease for YOUR property, so it really should fit like a glove. Let’s talk about how to create a lease.
Finding Lease Templates
We don’t need to recreate the wheel. One of the components of your lease, depending on your state, may be very specific language required by regulatory agencies. Nobody wants to read ancient tomes in a library to figure out what you need to say. By all means, copy and paste!
Ask Your Friends
If you’ve found yourself interested in real estate, you no doubt have friends in real estate too. Ask them for a copy of a lease or lease template. They may not be comfortable sharing their tenant’s information, but that isn’t an obstacle because you don’t need it. What you need are the building blocks of the agreement to rearrange for your situation.
I had friends that used property managers and I saw their leases. Other friends were (or were married to) real estate agents and I saw what those leases looked like. Finally, several friends were just regular old landlords and had gone through the same process as me.
Ask Your Agent
Your agent may be able to provide you with a lease template. In my state, there is a realtor’s organization that provides standardized leases for the use of real estate agents. That means there is a great, thorough, and well used lease template out there. Unfortunately, I’m not really supposed to use it since I’m not a real estate agent.
Even if you can’t use a template you find for whatever reason, there will be language or items that you can pull out for your own use.
Search the Internet
There are several paid websites that will provide you with a state specific lease. Many sites (for example, Rocketlawyer.com or eforms.com) will provide you with a simple questionnaire that takes key information from you and spits out a completed lease. While these leases are prepared for your specific state, they do leave a bit to be desired. A one-size-fits-all approach tends to have that effect.
There are other resources that will provide you with templates for free. For example when I wanted to find a pet addendum for my lease I found one here on BiggerPockets. It’s worth noting that BiggerPockets also has templates for purchase that are state specific, but I did find a free generic one here.
Create a Lease that Works for You
Creating a customized lease takes some though. First, there is no way around it, you’re going to have to read a bunch of templates. It isn’t fun, but you will learn quickly what to look for and what you like or don’t like.
The first thing to do is find the lease that works best for you. It doesn’t have to be perfect, just one that looks closer than any of the others to what you want for your lease. This lease will be the base of your creation.
Find and highlight other pieces that you really like. Does one lease handle the transition to month-to-month better than another? Is one just so much more clear on the tenant’s upkeep responsibilities? Keep a record of those and plug them in to your base template when you’re ready.
Lastly, I spoke with several friends about their leases while I built mine. I heard some great stories of people learning from their mistakes. One that will always stick with me is of a friend who bought a brand new washing machine for a unit and the tenant broke it within two months. His advice: washing machines and refrigerators should be explicitly listed as tenant responsibility for repairs.
The Finishing Touches
Once you’ve created your Frankenstein monster of leases, take a step back. Hopefully you began this process long before you needed a lease and have some time. The extra time will clear your mind and prepare you for a final review.
Once you’ve given it a day or a week (depending on how urgently you need the lease), read it again. You will see things that you didn’t before. You may notice you repeated a section or contradicted yourself. This is the opportunity to really clean this baby up before it’s ready for action.
An Optional but Perhaps Prudent Step
If you’ve never created a lease before or don’t have much experience with legal documents, it never hurts to have a lawyer take a look. Sometimes it’s worth the money for the peace of mind even if you’re pretty sure you’ve done a good job on your own. If you do have a lawyer take a look, it’s pretty easy to take the logical leap from here that maybe you should have just hired a lawyer to create your lease in the first place. It probably costs the same.
This is also a good time to rely on friends or family. Having another set of eyes can be helpful, and they may catch something obvious that you missed. They will certainly be cheaper than a lawyer.
How to Create a Lease
Now that your lease is ready, it’s still not quite done. Your Frankenstein is about to be born into the real world. Your tenant may have special situations or asks and you may or may not want to adjust the lease to reflect these items.
Once negotiations are finished and it’s all finally signed… Congratulations, you created a lease!
