Why Landlords Prefer One-Year Leases over Multi-Year Leases

Many landlords on real estate forums express a preference for one-year leases over multi-year leases for several reasons. Here are the key factors gathered behind this preference:

1. Flexibility with Rent Adjustments

• Market Fluctuations: With a one-year lease, landlords have the opportunity to adjust rent annually based on market conditions. If the local rental market is experiencing rapid growth or high demand, landlords can increase rent more frequently, which might not be possible with a multi-year lease.

• Inflation and Rising Costs: Landlords are also able to account for inflation, rising property taxes, or increased maintenance costs by adjusting rent at the end of each year. A multi-year lease locks them into a fixed rate, which can squeeze profit margins if expenses rise.

  
  

2. Managing Problem Tenants

• Easier to Exit the Lease: With a one-year lease, landlords are less tied to tenants who may turn out to be difficult or unreliable. If a tenant frequently misses payments, damages the property, or causes disruptions, landlords can simply choose not to renew the lease at the end of the year. A multi-year lease makes it harder to remove problem tenants without going through legal proceedings or costly early termination agreements.

  
  

3. Flexibility for Landlords’ Future Plans

• Potential Sale of the Property: If landlords decide to sell the property, a one-year lease gives them more flexibility. A shorter lease term makes the property more attractive to potential buyers, as they can have the option to occupy the home sooner or adjust rental terms more quickly.

• Changing Use of the Property: Landlords might want to convert the property for other uses, such as short-term rentals, or occupy it themselves. A shorter lease gives them flexibility to make such changes without waiting for a long-term lease to expire.

  
  

4. Screening and Tenant Quality

• Regular Re-Evaluation of Tenants: One-year leases provide an opportunity to regularly reassess tenants’ financial situation, employment status, and behavior. A tenant who is a perfect fit in year one may experience financial difficulties or become less responsible over time. With a yearly lease, landlords can decide whether the tenant is still a good fit before renewing the agreement.

  
  

5. Ability to Make Upgrades or Repairs

• Property Improvements: Many landlords prefer having a short-term lease so they can assess the property at least once a year for necessary repairs, upgrades, or renovations. A multi-year lease might delay planned improvements or create complications, especially if tenants are resistant to scheduled maintenance or disruptions.

  
  

6. Increased Tenant Accountability

• Motivates Tenant Care: Tenants on a one-year lease may be more careful with the property, knowing that their lease renewal is contingent upon their good behavior and upkeep of the rental. With multi-year leases, some tenants might feel less urgency to maintain the property well since they are locked in for the long term.

  
  

7. Easier to Adjust to Market Changes

• Shifts in Neighborhoods or Regulations: Some neighborhoods can shift in desirability quickly, or local regulations can change (like new rent control laws or zoning changes). With a one-year lease, landlords can more easily pivot and adapt to these changes. A multi-year lease may limit their ability to react promptly to such shifts.

  
  

While multi-year leases provide stability and reduce turnover, many landlords on BiggerPockets prefer one-year leases because they offer more control over the property, tenant relationships, and rental income. The ability to adjust rents, re-evaluate tenants, and maintain flexibility in property management decisions outweighs the appeal of locking in a long-term lease for many property owners. Ultimately, the choice between a one-year and multi-year lease comes down to balancing the need for stability with the desire for flexibility in a changing rental market.