Resourceful Investor's Guide To Structuring a Short-Term Lease

You've decided to get into the short-term rental industry. As a result, you need to know how to structure a short-term lease. 

A whole host of situations and challenges come with this type of property. One of the primary challenges is the level to which your state regulates the industry. There are many laws and regulations that may apply to your city

As with any real estate agreement, you want to protect yourself with an enforceable contract containing legally binding terms. Your agreement must encompass the landlord's and tenant's rights and outline essential details concerning the local occupancy laws. 

To help you, we will review the 9 essential items you should include on a short-term lease agreement.

What is a short-term rental?

A short-term rental is an investment property that is rented for a short time. These properties, sometimes called vacation rentals, are an alternative to hotels. They have seen their popularity rise since AirBnB emerged in 2008. 

Owning a short-term rental comes with some distinct benefits, including the following: 

  • The rental rate is higher than longer-term rentals.
  • You can use it as a second home or a vacation home. 
  • Tenant turnover is frequent and by design.

Before Creating A Short-Term Lease, Do Your Research 

First, you must ensure you can have a short-term rental in the property's location.

Local laws

As a real estate investor, you must check local laws and regulations. Laws vary between jurisdictions: in some places, there are no regulations, and in others, short-term rentals are outright banned. 

Protect yourself

Short-term rentals have more tenants shuffling through them. An increase in the number of people coming and going on the property increases your potential liability. 

We've long championed the usefulness of an LLC to shield yourself from liability; without an LLC, you may be liable (sued) for incidents that occur on your short-term rental. And a lawsuit can be costly. 

In addition to an LLC, it's a good idea to work with an attorney to create a short-term rental agreement. A legal professional can advise on safeguarding yourself from potentially problematic tenants who steal from or damage your investment property. 

Screen your tenants 

Screening your tenants is incredibly important. You will run into fewer issues and save time and money if you thoroughly vet your tenants. Make things easier on yourself by having a platform that lets you directly communicate with your tenant. 

After you've done due diligence, you should establish a short-term lease agreement. 

Short-Term Lease Agreement: The Essential Ingredients

As a real estate investor, you may ask yourself, "what should I include in my short-term lease agreement?" The answer depends. Local laws and regulations may stipulate precisely what you have to include, and the rules may apply at the granular level. 

In general, every short-term lease should have the following 9 elements included.

#1. Property details

The first item on a short-term lease should be a clear description of the property. Your description should include every item inside your vacation rental. Also, be direct and to the point, and do not leave any room for misinterpretation or ambiguity. 

#2. Tenant information

Your short-term lease agreement must include relevant information about the tenant. At a minimum, you should have the following: 

  • Name
  • Home address
  • Phone number

#3 Tenancy period

The tenancy period is a critical portion of the lease agreement. The length of the stay starts on the day (down to the hour) that the tenant enters your rental property. The period ends the day (and hour) the tenant departs. 

Suppose you fail to list the tenancy period. In that case, you may run into severe legal issues-like a tenant refusing to vacate the property.

#4 Payment

This potion should include everything that has to do with payment. You will want to include the following: 

  • Security deposit information
  • Agreed upon rent amount
  • The date that rent is due
  • Whether you offer a grace period for late rent

#5 Tenant duties

You must define the tenant's obligations in the short-term rental lease. The duties might include maintaining the property and paying the agreed-upon amount at the agreed-upon time. 

#6. Cancellation process

This section explains how the tenant should cancel the rental agreement. Typically, you'll want a written cancellation request from your tenant. 

#7. Amenities 

You can use this section to add more details and information about the property and what you have available. You can include information about AC, TV, and a pool. 

#8. Additional clauses

Consider including additional clauses that limit your tenant's acceptable activities. A standard additional clause is the prohibition of pets from entering the premises. 

#9. Signature 

Your contract is legally binding only if both parties sign it. Consequently, you need to leave room for signatures. 

Key Takeaways About Crafting Your Short-Term Lease

A short-term lease agreement is critically important because it protects you. As a result, you should always remember to have one for yourself and your tenants' safety and protection.

This legally binding contract makes it so that you can enforce the terms of agreements and ensure that your rights are safe. 

To learn more about short-term rental properties, or the real estate investment industry, join our Royal Investing Mentoring sessions. It's FREE and comes with no obligation; we want to help you learn more about real estate investing so you can secure your financial future.   

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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