As a landlord, offering a lease renewal can be extremely beneficial, especially if you have fantastic tenants. However, there are a few things that should be noted before you offer your tenants a renewal. Take a look at the pros and cons of reviewing your tenants lease to help you make a measured decision about what is the right thing for you.
Pros
You will save time and money - the cost of finding a new tenant can be huge. You will have to advertise the apartment, arrange viewings, fix any wear and tear from the previous tenant and potentially incur losses if the property is empty between tenants. Having a tenant simply renew their lease will be much more convenient for you, both in terms of your time and money.
If you have good tenants, you should keep them - if you have tenants who look after the property, pay their rent on time and are good at communicating, then you should do everything you can to keep them. Some landlords even choose to offer a month's free rent around renewal as a thank you for being good tenants, so this could be the incentive your tenants need to renew. If for whatever reason you decide not to renew your tenants lease, you risk having a bad tenant move in. You might have issues with missed payments and damage to the property which will cost you a lot of money in the long run. If you do opt for a new tenant, make sure you get references, avoid cash buyers, take deposits and have a written agreement in place.
You reduce the chance of having your property vacant - if your property is vacant between tenants, not only are you missing out on rental yield but you will still need to pay the mortgage if you have one and also utility bills. If you rely on this income in order to pay the mortgage or other bills, and you are happy with your tenants, you should do everything you can to encourage them to stay. Plus, having people living in the property and keeping it clean and warm will help to maintain it.
Cons
You won’t have a chance to improve the property to increase the potential rental yield - if you want to increase your monthly yield, one of the only ways is to renovate the property. Upgrading elements in the property can impress potential tenants and will increase the amount of money they’re willing to pay each month. If you renew a tenant's lease, it is far more difficult to make these upgrades. This is something to think about when completing your lease review.
Limited scope to increase rent - there has been an increase in the amount of rent-controlled areas in the last few years. Local governments have enforced restrictions on how much a landlord can increase the rent on a property by, meaning you won’t be able to make much more money by keeping the same tenants. This depends heavily on the initial type of agreement and also the new tenancy agreement. Yet, it seems that keeping the same tenants in your property makes it more difficult to increase the monthly cost.
You miss the opportunity to find a better tenant - if you find that your tenant isn’t particularly clean or has missed a few payments, but you are worried about the property being vacant so renew the lease anyway, you miss the potential to find a better tenant. This is a risky one as it could go either way, yet the cost of taking longer to find a good tenant can often be less than quickly finding a bad one.
