Renter Wanting The Following.

I have been in touch with a potential renter.
Here is something the person wants.
We are new to landlording, so some of these are new
to us.

- 12 months
- Right of first refusal on renewal with some percentage cap on rent increase
- Right to break lease at any time with 60 days notice

Can someone help decode the item in Bold please??

Our take is that, if we choose to increase the rent
the renter wants to reject it as well as reject the
renewal of the lease. But what is this Cap on rent
increase???
Anyone familiar with this lingo in their contracts??

Thanks a Bunch
-Krish[ Edited by krish on Date 04/18/2005 ]

Comments(9)

  • krish18th April, 2005

    Thanks for the reply.
    Have been in email contact wth the renter. Wll be
    meeting them this coming weekend.

    For the property they wish to rent, they ought to be
    doing quite well, since the rent alone is 2K/month
    and add up all the extra maintenance costs over the
    rent.

    I have a standard contract and the language seems
    ok. I am going to stick to my guns on this. Will see how
    it goes.
    The renter wants to be able to bail in 6 mos with 2 mos
    notice if they can purchase a place on their own, which
    is perfectly understandable.
    -Krish

  • smithj223rd June, 2005

    Like most that have replied, I find that the first and third requests are pretty reasonable. Make sure that the right to break the lease applies to both parties: Landlord and tenant.

    The 2nd request is a little more tricky. What is the rental market like in your area? If it is poised for an increase, I would put the cap rate at a high number (say 50%) and assure the tenant that you will only increase the rent according to market forces at the time of renewal taking into consideration their rental history and performance.

    The fact that they are asking for a cap rate does not mean that you MUST set it low. The cap rate is the maximum you are allowed to increase rent so use it to your advantage.

    Hope this helps.

  • InActive_Account24th June, 2005

    Anybody else care to chime in? I need to decide today.

    TIA!

  • edmeyer19th June, 2005

    What has happened in CA, AZ etc. is that the demand for housing has driven up the prices much faster than rents have gone up. This seems to be occuring around the perimeter of the country except for the northern border. I am currently on an out-of-state trip (now in OK) to find markets where there is very strong cash flow with a hopefully added bonus of soon to increase prices. Jackson probably has not had large increases in prices over the last few years (Is this so?).

  • browndogproperties21st June, 2005

    It has seen some, but it is below the national average. What are you looking for?

  • edmeyer22nd June, 2005

    browndogproperties,

    It is not so much what I look for but how I characterize markets and explain why they are the way they are.

    Much of my investing has been in Stockton, CA. Three years ago 20% down could get a slightly positive cash flow. Since then some of these have doubled in price. The rents have not, so buying today is more difficult if it is necessary to have positive cash flow.

    Some of my investments are in Indiana where there is a 3 to 5 % housing price index. I view this as a cash flow market since it is not difficult to do a transaction that produces cash flow.

  • dlitedan22nd June, 2005

    I cash flow like that in VA. 2 houses I bought were 30k each. they rent for 400 and 500 a month. A duplex also I bought for 62k. It rents for 1025 a month. I would say though that our areas are unusual. Here in WA you can not cash flow unless you put a lot of money down. I have heard of other ares like ours, texas for example. I say go where the deals are. The deals are here in WA but they are in the form of new construction, not buy and hold for cash flow.

  • dlitedan23rd June, 2005

    Yes that is very true, details do matter when you cashflow. If one guy cash flows putting 20 percent down at an interest rate of 5 percent that isnt that great. I cash flow so far by putting 10 percent down at a not so great rate of 7.75 percent. plus I pay PMI. So needless to say when I refinance these not using a stated income loan (which I had to use temporarily) I will really start to cash flow. I invest in Lynchburg,VA. I went to college there and have a friend who I split 50/50 with. I have heard of a lot of VA towns that are good cash flowing. I always get emails from someone in norfolk and if what they say is true on paper then they have some sweet deals. I wish I had a friend or investor partner there. also with my investments in VA they are professionally managed by an awesome company. we even pay somebody to mow the lawn. the bottom line is I just sit and write checks and get checks. and pretty soon I will not even write them (I am going to get set up with automatic withdrawal for my mortgages and other stuff). dont get me wrong i am not cash flowing enough to quite my day job, but hopefully soon. All 4 properties (6units) cash flow a total of around 1k a month.

  • dlitedan24th June, 2005

    I would love to know how you do it with no money out of pocket. the only ways I ever hear about are some type of fraud. please share.

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