Advertiser Disclosure

advertising disclaimer
Skip to main content
young renters

The Pros and Cons of a Long-Term Lease for Renters and Landlords

Many renters sign a lease that covers a single year. But should you lock yourself into a longer-term agreement?


[Updated: Feb 04, 2021] Jan 25, 2020 by Maurie Backman
FREE - Guide To Real Estate Investing

Take the first step towards building real wealth by signing up for our comprehensive guide to real estate investing.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

Most people who rent homes sign a short-term lease that covers a 12-month period. But what if your landlord offers you a long-term lease instead? There are benefits and drawbacks to a longer lease agreement from both a tenant and landlord perspective, so here's what you need to know.

Should you sign a long-term lease as a renter?

When you're looking to sign a new lease on a home, you may be given the option to sign a one-year agreement, or a multi-year agreement. The latter choice won't always be on the table, but if it is, here are a few differences to keep in mind:

  • Long-term leases offer more stability; short-term leases offer less.
  • Long-term leases let you lock in your rental rate for more than a year; short-term leases only guarantee your current rental rate for a year.
  • Some long-term leases offer discounted rent for committing to a longer-term.
  • Short-term leases offer more flexibility; long-term leases offer less.

With that in mind, let's determine whether you're better off opting for a long-term lease or not.

Benefits of signing a long-term lease

Signing a lock-term lease gives you more long-term stability. That's an important thing to have when you're hoping to stay in the same locale for several years or longer, or when you're moving with a family.

When you sign a short-term lease, your landlord may force you to vacate your home after a year, even if you're interested in renewing your lease, and even if you've been a great tenant. With a long-term lease, you buy yourself the option to stay put for multiple years. The result? You don't have to worry about pulling your kids out of a certain school district right away, or having to bear the expense of moving your belongings from one rental to another.

Another benefit of signing a long-term lease is locking in the same monthly payment for several years at a time. It's common for rent to increase from one year to the next, even when you stay in the same home. But if you sign a multiyear lease, you won't have to worry about your rent going up and wreaking havoc on your budget.

Furthermore, some landlords offer tenants a discount on their monthly rent in exchange for signing a long-term lease. That way, they're guaranteed a steady stream of rent payments for longer, and you benefit from a reduced rate.

Drawbacks of signing a long-term lease

While there are plenty of good reasons to sign a long-term lease, if your career and life in general are in flux, it could be a big mistake. One major downside to signing a multiyear lease is that you're making a commitment to stay in one place for a relatively long period of time. But what if you get a new job 18 months into that lease, or you have a baby and find that you need a larger living space? Suddenly, you're stuck in your rental longer than you'd like to be.

Another downside of signing a long-term lease? You remove the option to cut back on your housing costs during its term.

Imagine you move to a new city and sign a one-year lease on an apartment, only you realize midway through that you're paying too much rent for comfort. At that point, you can scale back on other expenses temporarily to ride out your lease's term, and then find a cheaper home once your lease expires. When you sign a long-term lease, you lose that option, and as such, you put yourself at risk of getting stuck paying higher rent than you can afford.

Also, while you might snag a discount on your rent by signing a long-term lease, this won't always be the case, so there may not be all that much financial upside involved.

Remember, too, that when you sign a long-term lease, it could mean getting stuck with some very bad neighbors for years. Imagine you rent in a building and wind up living next door to a couple that blasts music all day and night. If you sign a multiyear lease, and they do the same, guess what? You're stuck with them for a very long time. Granted, the risk of bad neighbors exists any time you rent in a multiunit building, but with a shorter-term lease, it's easier to escape a bad situation. With a long-term lease, you're often trapped.

Should you offer your tenants a long-term lease?

As a landlord, you have the choice to limit your tenants to year-long leases or offer long-term leases. And there are pros and cons to going either route. Here are a few of the differences to keep in mind:

  • Long-term leases offer more income consistency; short-term leases offer less.
  • Long-term leases offer less administrative hassle; short-term leases offer more.
  • Short-term leases allow more freedom for rent raises; long-term leases offer less.
  • Short-term leases offer more flexibility; long-term leases offer less.

Benefits of offering long-term leases

One good reason to offer long-term leases to your tenants? You'll get income consistency. As a landlord, you're no doubt well-aware that vacancies are a blow to your income. With long-term leases, you get a guarantee to take in monthly rent for a longer period of time.

Along these lines, long-term leases can make for less administrative hassle than shorter ones, especially if you're the one tasked with finding tenants, screening them, and getting them set up. If you give out short-term leases, you'll potentially have to repeat that process every year, but if you have your tenants sign long-term leases, you won't do it as often.

Drawbacks of offering long-term leases

While long-term leases do give you a guaranteed stream of income for longer, the flip side is that you lose the opportunity to raise rent prices from year to year. Imagine that midway through a long-term lease, a string of new restaurants opens around the corner from your property that suddenly makes it much more appealing. Unfortunately, you're stuck collecting the same rent because you're locked into a longer-term contract.

Long-term leases also give you less flexibility as a landlord. If, for whatever reason, you want to reclaim your rental, whether to sell it or give it to a grown child or relative of yours to live in, you'll need to wait for your lease to expire to do so. In the case of selling, that could mean missing out on a prime opportunity to command top dollar for your home.

Finally, offering long-term leases means potentially getting stuck with bad tenants for the long haul. If you have a tenant who's frequently late with rent payments or who complains a lot, it'll take you that much longer to get rid of that renter.

The bottom line on long-term leases

Long-term leases can be beneficial to renters and landlords alike. No matter which side of that agreement you're on, be sure to weigh the pros and cons carefully before making your decision.

Unfair Advantages: How Real Estate Became a Billionaire Factory

You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But those barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.

To get started, we’ve assembled a comprehensive guide that outlines everything you need to know about investing in real estate - and have made it available for FREE today. Simply click here to learn more and access your complimentary copy.

The Motley Fool has a disclosure policy.