Leasing terms can last for a year or month-to-month. Some landlords are confused about which one is better to implement in their rental unit. To best answer this question, it’s most beneficial to run through the pros and cons of a month-to-month leasing period.
Defining a month-to-month lease
By the term itself, a month-to-month lease is only good for 30 days. It renews itself automatically when the landlord doesn’t provide a notice to end the tenancy. If the landlord no longer needs a property to be rented out, a notice will be given. The tenant will then need to vacate the property within 30 days.
Pros of a month-to-month lease:
1. The tenant retains a flexible option.
If a tenant needs temporary shelter while waiting to move into a more permanent home, then a month-to-month lease is preferable. Depending on the appropriate time to relocate, the 30 days can be adjusted.
It can be hard for a tenant to rent for a whole year and find that they need to move out in a few months. They will then need to pay penalties to the landlord for breaking the leasing agreement early. Therefore, a short-term lease is a more suitable and flexible arrangement.
2. The landlord can adjust their rent price accordingly.
Given a rising market demand for your property, you can quickly increase your rental rate. If your rental is located in a tourist hub and you’re renting during travel season, you can maximize this peak in demand.
A month-to-month lease allows you, as the landlord, to change the price without needing to send a notice to the tenant. Not having to provide an explanation for your new rates means zero stress for you.
3. The landlord can easily integrate policy changes.
In a month-to-month lease, policies can be added and reconsidered. If the policy has become inefficient, it can be discontinued. This makes implementation quick. You don’t have to wait until the entire yearlong tenancy ends.
For instance, maybe you wanted to make your rental unit more affordable. So, instead of having a maximum of 2 people per rental unit, you changed this to 3 occupants. This can be done immediately without losing a good opportunity. The landlord can adjust to the market trends readily and create attractive policies for new renters.
4. There’s less waiting time when it comes to tenant turnover.
A landlord who’s operating with a month-to-month lease can simply wait a few weeks for an undesirable renter to move out. Unlike a fixed rental term, you don’t have to suffer for months. Evicting a tenant can be stressful, and some landlords opt to wait it out. In this case, the shorter waiting period is a relief.
Even if a tenant does well in a tenant screening, it may be a different experience as occupants. Some can be difficult to manage, so it’s better not to renew the lease. This is more efficiently achieved in a short-term lease.
Cons of a month-to-month lease:
1. The landlord must deal with an unstable income.
Given the frequent tenant turnover in month-to-month leasing arrangements, income is inconsistent. In comparison, a fixed lease allows the landlord to plan home improvements or diversify the expected returns.
Sometimes, tenants will extend their stay and renew month-to-month. Sometimes, tenants won’t be staying long and will only last for a month. The potential of vacancies is expected in this setup. Even so, a landlord is still bound to spend on property maintenance costs.
2. You’re faced with constant pressure to market and land tenants right away.
In a competitive market, seeking new tenants time and again can take a great deal of effort. So aggressive marketing is expected to prevent a vacancy. If you have a solid network to find tenants and your rental unit is in high demand, this won’t be much of a problem.
However, some unscrupulous renters also tend to stay flexible. They’d prefer month-to-month leases rather than being locked up in yearlong ones. This grants them the option to quickly leave when their troublesome activities are discovered. Landlords can be forced to entertain low-quality renters just to keep the rental unit occupied.
3. The landlord is required to frequently screen tenants.
Choosing to offer a month-to-month lease means spending time assessing each tenant. When a landlord has little time to spare, the process can be skipped making it easy for low-quality renters to be approved.
If you’re a meticulous landlord, you’ll also find the tenant screening process tedious and repetitive. In comparison, landlords who offer longer leases can focus their time on other property management activities.
Ask yourself the following before deciding whether to offer a month-to-month or fixed-term lease:
Is your state more tenant-friendly?
This matters since tenant-friendly states create laws more favorable to the renter. You can have a tough time evicting a tenant in a long-term lease. This translates to potential income loss.
Are you planning to sell your property?
When you’re marketing your property and have interested buyers, a month-to-month lease is a quick way of turning over the property. Ending the tenancy will only take 30 days compared to the long procedure for fixed-term leases.
What type of rental property do you own?
Most rental homes designed as vacation houses often use month-to-month leases, given the nature of their location. Some months can also be peak seasons. In this case, the landlord can opt for flexibility to adjust rental prices quickly.
Coming up with the best type of leasing arrangement depends heavily on your needs as a landlord. Do you value flexibility more? Can you cope with frequent turnovers? Do you have other sources of income?
On the other hand, would you rather have a stable income you can count on? Are you willing to be stuck with renters who can be tough to manage? Is it okay to lose out on additional rental profit because you can only adjust the rate when the tenancy ends? These are questions to review to find if a fixed-term or month-to-month lease is better for you.