Updated December 15, 2020
The Pros and Cons of a Month-To-Month Lease
One of the most important documents you will have tenants sign is the lease when it comes to renting out your property. This document will contain important information about the agreement between you and your renter.
One of the terms of a lease is the length of duration. Leases can either be long-term or short-term. Traditionally, long-term leases last for a year, although in some cases, landlords opt for a two-year lease.
Short-term leases, in comparison, are usually month-to-month agreements. A month-to-month (M2M) lease offers its own unique set of positives as well as negatives.
If you are trying to determine whether you should provide a long-term or short-term lease, check out the pros and cons of a month-to-month lease here compared to a long-term lease.
Starting with the negatives
First, if you are considering a M2M lease, you should understand the risks and negatives associated with this lease type. The following are some of the cons of using a short-term lease for your rental property.
1. Vacancies at the Wrong Time - One of the downsides of M2M leases is that it is much harder to time your vacancies for seasonality. For example, if your month-to-month tenant decides to leave in February, you might be sitting on a vacancy for longer than if you had a year-long lease timed to end during peak rental season in July.
2. Turnover Rates Increased - Turnovers can be a costly business for landlords. Unfortunately, with M2M leases, turnovers are more likely to be a constant in your life. You can face more gaps between tenants if you are in a challenging market, and you can face higher costs for flipping the unit repeatedly.
3. Quality Tenants Deterred - While it is not always the case, a M2M lease could deter quality, long-term tenants. These renters are looking for long-term security and may worry that with a M2M lease, they are at risk of being asked to move out with short notice.
4. Taking Screening Shortcuts - Because of the higher rate of turnover with M2M leases, some landlords are at risk of taking shortcuts in their screening process. It can be tempting to skip the necessary screening steps and lower your criteria to quickly fill the property.
While some of these negatives might seem daunting and might make you run back to your year-long lease, there are numerous benefits you should also consider that make M2M leases the number one choice for many landlords.
The positives of month-to-month leases
The landlords who choose to operate with short-term leases do so because of the benefits they believe outweigh the risks mentioned above. The following are the pros of using a M2M lease.
1. Easily Get Rid Of Bad Tenants - One of the number one reasons landlords opt for a M2M lease is because it makes getting rid of a bad tenant a lot easier than when you have a year-long lease. With a M2M lease, if you have a troublesome tenant, you can simply end the tenancy effective at the end of the next month. With a year-long lease, unless a tenant is in direct violation of their lease, you can have difficulty getting rid of bad tenants.
2. Raising Rent - Another benefit of M2M leases is that they allow you to raise rent prices at will. Typically, you need to wait till the end of a 12-month lease to raise the rent. However, with M2M, you can raise the rent as often as you want.
3. No Constraints - For landlords who might be moving back into their rental property at some point, might be selling the property, or might be planning major renovations, a M2M lease is ideal. This will allow you to make changes without the constraint of a 12-month lease fulfillment.
4. Charging A Higher Rate - If you live in a competitive market, having a M2M lease can set you apart and allow you to charge more in rent. Just as it is easy for you to get rid of a tenant, it is easy for a renter to end their tenancy. For those who travel for work, such as traveling nurses, this can be extremely appealing.
Should I use a month-to-month lease?
Since month-to-month leases offer both pros and cons, it can be difficult for some landlords to know which lease type they should use. The answer is not the same for everyone. Depending on the market you are in, your personal needs, and the type of rental property you are operating, a M2M may be the perfect solution for you or the worst option.
At the end of the day, if the only reason you are choosing to use a M2M lease is because of your fear of bad tenants, you should instead improve your tenant screening process. Month-to-month leases can cost you a lot in turnover, so if you can, it is best to opt for a long-term lease.
Make sure you screen tenants thoroughly with a credit check, background check, and eviction history report. This will prevent you from the need to evict and turnover tenants.
The following blog post was contributed by TurboTenant.
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