If you missed our first article on rental investments, be sure to check it out here. We went over picking out the right home/property and tenants for you. If you are just getting into rental investment, you may want to take a look at it. But in this one we are going to go over choosing individual vs. traditional leasing. If you need information on financing your property, please check out our articles on Financing the Purchase of Your Home. It goes over homes but it can also be helpful for other types of properties.
Should I choose individual or traditional leasing?
There are several ways to charge your tenants for rent. Traditionally, regardless of the number of tenants, the landlord would have all of the tenant’s sign one lease and everyone is equally responsible for making sure that the set amount gets paid. So if the amount is $1000 monthly, with 3 people living on the property, each would have to pay $333. But if one of them could only pay $200 that month, the other two still have to make sure that the landlord gets his $1000, so they would each have to pay $400. The traditional leasing method is very popular still, and good to make sure that you are always getting X amount month after month. You may not make a large amount, but you are at least always getting the amount you need.
Individual leasing started rising in popularity in college towns and on properties that are aimed at college students. The difference is that each tenant would have their own unique lease with the landlord, and would be responsible for paying only their portion of the rent. This is very helpful when tenants either don’t know each other very well, or if certain tenants need different lengths of a lease. It also helps the landlord in that he can charge slightly more for the convenience of only being responsible for their portion. So in our example earlier, if the landlord has a 3 room multi-family property, he can charge each tenant $400 monthly. The tenants benefit because if one of them backs out, they are responsible still for only $400 not $500. Some leases have a clause that if a roommate leaves, the other roommates must find a replacement with a set amount of time, normally 30-60 days. After the grace period ends the other roommates either will pay slightly more monthly (say $450-$500 monthly) or the landlord will find a tenant to live with them.
Traditional leasing is obviously useful if you need a set amount every month, and could not afford to go without a payment, whereas individual leasing will net you more per month. Traditional also is aimed more at slightly older, more established tenants and families, whereas individual leasing will tend to attract more college-aged tenants, and less established or familiar roommates. Ultimately you also need to factor in if the property you own is multi-family (allows more than 2 last names on the lease), or is a single-family home. The difference doesn’t matter in some cities, so be sure to ask your cities planning and zoning department if you are unfamiliar with how the law is written in your city of residence. If you enjoyed this article, our next article in the Rental Investment series will go over proper upkeep and setting the rent amount.
If you’re interested in San Marcos rental investment property opportunities, contact The Damron Group REALTORS® today to discuss your goals! We’d love to help you find and close on the perfect rental investment property as quickly as possible, for the best price possible.