Example Of A Good Rental Lease Agreement

Rental AgreementA detailed rental lease agreement is imperative for both landlords and renters alike to minimize headaches down the road. The more thorough the lease to account for any issues that may arise, the better.

I’ve spent the past 10 years refining my residential lease agreement based on all past experiences. Now my residential lease agreement is posted here for all to use at your own discretion. Feel free to run it by a lawyer or other property professionals before use, and make suggestions on how to make it even better.

There’s always a feeling of excitement on both ends when a lease is first signed. Both parties go in with a leap of faith, hoping everything will work out. But conflict is inevitable in any sort of relationship. “Understandings” that are agreed upon with a handshake tend to mean nothing if they aren’t written out when problems arise.

As a Financial Samurai landlord, your goal is to achieve maximum tenant occupancy with minimum ongoing headaches in order to enjoy your freedom. Freedom is what having money is all about. If one of your assets is giving you more headache than freedom, then something must change.

Provide a good product with good service and clear terms, and I’m confident you will reap great benefits down the road.

Who Spends Over $100,000 A Year On Rent? Apparently All Types Of People!

Burning Money On RentBack in 2001, I rented a crappy two bedroom, one bathroom apartment at the edge of Chinatown in San Francisco. The garbage truck would wake us the hell up at 4:30am twice a week. The paper mache walls couldn’t deaden the incessant arguing sounds of our Cantonese neighbors.

At $1,800 a month for two, the rent was cheap compared to the $2,100 a month studio + alcove apartment I rented with a colleague in Manhattan earlier. $300 less a month and 25% more space. What a steal in the world’s cheapest international city.

Unfortunately, I think my roommate was a little schizophrenic. About once a week at around 10pm, I’d hear his head banging on the wall as he screamed nonsense for about 30 minutes in a row. I was too afraid to see if anything was wrong so I stayed in my room.

One evening, my roommate came home from his night shift at In N’ Out Burger all bloodied.  He had been whacked in the head with a bottle by assailants who stole his wallet as he traversed the Tenderloin district, at that time, the most dangerous neighborhood in San Francisco.

The trail of blood he left on our hallway floor jolted me into making a lifestyle change. Was the sacrifice to save as much money as possible putting me in danger?

How To Minimize Tenant Vacancy To Zero For Maximum Rental Income

Breakfast In BedPop the champagne! I recently celebrated my 10 year anniversary of being a landlord. There have been plenty of headaches along the way, but I realized everything is fixable with time, money, and compromise.

The one thing I’m very proud of is going 120 consecutive months without a single vacant month for my first rental. I’m on my fourth master tenant, and so far so good. The rent started off at $2,150 in June, 2005 and is now at $4,000 with this latest one year rental renewal. If all goes to hell, perhaps I can find a job as a rental property manager!

I also started renting out a single family home in June 2014 after purchasing my latest house. This rental has proved to be a challenge in its first year given the higher price point of the house, and the multiple roommate scenario. One had a dog who damaged several doors and cabinet sidings. One tenant needed to break the lease early for a job move. But in the end, it all worked out thanks to a lot of scrambling.

As a landlord on a quest to achieve financial freedom, your goal is to maximize rental income and minimize costs. One month of vacancy will cut your annual income by 8.4%. Two months of vacancy will cut your annual rental income by 17%. And if you’re at three months of vacancy or more per year, you might as well hang up your boots or hire a property manager because you are doing a piss poor job being a landlord!

As I discovered in my mortgage refinance rejection, banks ascribe a 25% discount to all rental income when calculating your debt to income ratio. In other words, banks have a default assumption that each landlord will on average, have three months of vacancy. Banks were crushed during the mortgage default crisis, hence it’s hard for anybody to blame banks for being so conservative. But if you’re reading this post, you won’t be any typical landlord. You will be a Financial Samurai landlord!

Stocks Versus Real Estate: It Depends On Your Luck

Fortune (fu) in Mandarin

Always Lucky

I’ve written a pretty detailed post about analyzing whether it’s better to invest in stocks or real estate. Check it out if you’re wondering where to put your money. I tried to be unbiased in my analysis, but due to my experience investing in both asset classes for over a decade, I came to the conclusion that real estate was my preferred choice to building wealth.

Once acquired, real estate is pretty straightforward. Maximize rent, minimize expenses, let inflation take its course, and keep tenant turnover to a minimum. You are the King or Queen of your asset. Stocks, on the other hand, require constant re-balancing, trust in management, trust in a fund manager if you buy an active fund, and careful analysis of competitive forces that may hurt your investment. Think about how many great companies have disappeared over the years. This is why I recommend keeping most of your equity investments in low-cost index funds and focus on asset allocation instead.

One commenter pointed out the reason why I prefer real estate is because I was lucky to have bought in San Francisco in 2003. In this post, I’d like to address his beliefs and see if we can all just get lucky with our investments. After all, it’s always better to be lucky than good!

What Type Of Investment Property Should I Buy? Single Family Home, Condo, or Multi-Unit

Amazing Property Overlooking The Ocean

Buy property for lifestyle

For years, I sort of regretted buying a single family home in San Francisco instead of a multi-unit property.

Even though the idea was to grow into this four bedroom home, it felt wasteful during the meantime with only the two of us. So I finally decided to rent out the ground floor bedroom to a middle school teacher for below market rent. I’ve always had a soft spot for teachers, and it felt good helping someone who made less than $36,000 a year find a place in a good neighborhood within walking distance from work.

With the money I spent on buying the house in 2004/2005, I could have bought a two-unit building with a 1,300 sqft, 2/1.5 apartment upstairs and a similar size 2/1.5 apartment downstairs. I could have lived in one unit and rented out the other unit for maximum efficiency and profits, perhaps to the tune of an extra $150,000 – $300,000 over 10 years. Furthermore, having smaller units would provide more flexibility to accept new job opportunities – like the large offer in NYC I turned down – because of my perception at the time that it would be easier to rent out a 2/1.5 condo vs. a 4/3.5 SFH.

Then I rented out my whole house and had a change of heart.

Property Sellers: Only Accept All Cash Offers To Maximize Profits And Happiness

Mountain Of Cash

Skylar And Walter’s Mountain Of Cash

Almost every Sunday I go for a walk, jog, or hike around a neighborhood to check out open houses, speak to Realtors, get some exercise, and find inspiration for interior design. Open house hunting is seriously my new favorite free past-time. My previous favorite past-time was test driving new cars at various dealerships. What a blast that costs nothing!

I went to see a particular condo in Pacific Heights, San Francisco the other day because it was a close comp to one of my rentals in the same building. This particular property was only a one bedroom compared to my 2/2, but at 610 square feet it had a nice southern facing deck and private parking. The asking price? $690,000.

The open house was absolutely packed with couples under 35 years old as well as many retirees. Who knew one bedrooms were so popular?

Clarifying The $250,000 / $500,000 Tax-Free Home Sale Profit Rule

Tax Free Profits For Homeowners

Who doesn’t love free money?

The Financial Samurai community rocks. There’s just so much collective knowledge from each of you that ensures the content published here (posts and comments) is as accurate and helpful as possible. As the conductor of the site, it’s my job to highlight as much good as possible.

In the post, Buy Real Estate For Capital Appreciation, Rental Income, or Lifestyle, I responded to one reader by mentioning potentially moving back into his rental for two years in order to take advantage of the $250,000 in tax free profits for a single person, or $500,000 in tax free profits for a married couple if he/they then sell within five years of moving back in.

Here’s a great response from reader, Yetisaurus,