There seems to be a continual debate when it comes to the ideal length of a lease. Some landlords prefer a month-to-month lease, while others choose a minimum of one year. Each has its advantages and drawbacks, depending on the needs of both the tenant and the landlord.
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Definition of a Month-to-month Lease
As the name implies, this lease flows from one month to the next. It continues until the landlord or tenant gives a minimum of 15 days' notice to not renew the lease.
Other leases will ask for a 60-day notice. This is normally used as an extension of a lease, and involves automatic renewal. It could also mean that both the tenant and landlord signed a month-to-month agreement from the start.
Benefits of a Month-to-Month Lease
There are plenty of advantages to choosing a monthly lease, such as:
Flexibility for the Tenant
Many people who are looking to move, whether for work or other reasons, will look for a property that offers a monthly lease. Once they've found or finished their new home and are ready to move in, they can easily terminate the lease with 15 days' notice.
Not having to wait an entire year (or pay the consequences of breaking a lease early) is attractive to tenants. This also means that as a landlord, you'll have plenty of applicants looking for a temporary home.
Flexibility on Rent Pricing
For landlords, the month-to-month lease setup offers a great degree of flexibility. You can quickly adjust the rent price, especially if you want to take advantage of a higher property demand in your area.
You don’t have to count the months until a typical one-year lease ends. You can run with the market boom and will likely not experience problems with giving a notice to your tenants. It’s generally a given that short-term leases will contain regular changes.
Flexibility on Policies
You could also tweak leasing conditions over a shorter time period. If you want to add or modify a certain policy, like including a dog breed in the list of acceptable pets, you can do so quickly. Also, if you want to remove a clause, you can also do this in a short amount of time.
Easier Exchange to a New Owner
If you end up selling your property, there’s less complication with a month-to-month lease.
If you have a yearly lease, you have to send notices to tenants about the change of ownership. Then, you also have to turn over security deposits to the new owner. There are many procedures to follow, compared to the shorter lease of going from month-to-month.
Easy Tenant Replacement
A major advantage of having a month-to-month lease is you can quickly replace tenants, especially if you find ones who prove to be disruptive. Sometimes, there are tenants who may pass the tenant screening but can end up being a handful.
Maybe they're not responsible in maintaining your unit. Or, maybe they become a nuisance and are prone to constant complaints. Having a month-to-month lease means not being stuck with less-than-desirable tenants in your premises.
Eviction cases can be financially draining if your lease lasts for a year or more. These procedures can become tedious and may turn to the tenant's favor. Termination of tenancy is much quicker and easier with a month-to-month lease.
Like everything else, however, implementing a monthly lease also has its drawbacks.
As a landlord, the main objective in your rental property investment is to earn a consistent income. However, opting for a month-to-month lease makes this tougher.
Depending on where your property is located, it can be hard to predict vacancies, and tenants can easily abandon your unit because of its temporary nature. They don’t feel any long-term loyalty to the property or the owner.
This is a bigger risk on your part.
It’s difficult to predict your earnings for the year, since it’s largely dependent on the duration of a tenancy. With a monthly lease, you’re more exposed to frequent turnovers. You also have to bear the maintenance costs when there are vacancies for an extended period.
Shorter Period to Market your Rental
The month-to-month lease has a minimum notice of 15 days for termination. This is a pretty short time to market your rental unit and screen new applicants.
It might also expose you to the risk of taking in a problematic tenant. This is because you'll be more likely to accept any applicant just to avoid the expenses of a vacant rental unit.
Frequent Tenant Screenings
Since you’re subject to changing tenants often, due to the temporary nature of a month-to-month lease, screening of applicants will need to be done frequently. This can be exhausting, as you'll have to run through credit reports and criminal records over and over again.
This is on top of the marketing-intensive tactics you'll have to perform to prevent a vacant property. This can become a juggling act for you, especially if you have several properties.
What’s the best type of lease for a landlord? Should you choose a month-to-month lease over a fixed lease? There is no definite answer, as each landlord has different needs.
Some prioritize flexibility, and willingly embrace the risk of a month-to month lease. Others prefer more security and opt for fixed leases to better protect their income.
If you’re okay with constantly watching the market and raising your rents according to its movement, then a month-to-month lease is ideal. This way, your income will be higher compared to those who are implementing a longer, fixed-term lease.
If you also wish a degree of flexibility when it comes to policy changes, then a month-to-month lease is more fitting.
As a landlord, which do you prioritize more? Flexibility or income stability?