Property Management, Real Estate

The Advantages and Disadvantages of Month-to-Month Leases

The month-to-month lease is an interesting prospect for many landlords. While not nearly as common as a year-to-year lease, it does come with a certain set of advantages; there are also reasons why it’s less popular than other options. When considering a month-to-month lease, it’s important to remember what types of tenants you’re trying to attract and the nature of your business.

Month-to-month leases can be terminated or changed by either party after giving notice; the amount of notice needed is usually 30 days. This presents both an advantage and a disadvantage. If you are having a hard time finding low-risk tenants, a month-to-month lease can allow you to evict a tenant without nearly as much paperwork; you simply need to terminate the contract if the tenancy is no longer viable. Conversely, because your tenant can leave any given month, the income source is less reliable than a fixed-term lease, and any months spent looking for tenants are months without income.

This is why the type of tenant you’re looking to attract plays an important role in determining how you want your place to be leased. Some relatively attractive potential tenants, like military families or individuals waiting for a home to be built, might need a month-to-month lease, and refusing to provide one could make you miss out on a good segment of the market. There’s no rule saying you can’t provide month-to-month leases sometimes, and fixed-term leases other times; you might even increase the rent for month-to-month slightly in order to compensate for the transient nature of those tenants. Should you be looking to avoid transient tenants, month-to-month leases probably aren’t for you.

Month-to-month leases can also be attractive in areas where your costs fluctuate rapidly; if you can adjust the rent each month, you’ll be able to cover for unexpected costs with an increase. Be wary of using this ability too much, however; if the cost of rent isn’t consistent, most tenants will shy away, as it makes budgeting quite difficult. Month-to-month may also allow you to reward good tenants with lower rent, and recoup the costs of bad tenants with higher rent.

It’s important to keep in mind that month-to-month and yearly are not the only two types of rental agreement. You can offer 3, 6 or 9-month leases as well; these can be particularly useful for attracting students or traveling business folk who know they’ll only need the place for a few months. It gives you a safety net of consistency while accommodating the desires of your potential tenants.

Choosing the right property managers can help you determine what your lease periods should be; because a good property manager will have dealt with a plethora of properties and groups of tenants, they’ll have hard data on which rental agreements work best for your part of town and for each demographic. They’re also experts at finding viable tenants, so you won’t have to worry about signing month-to-months just to avoid the hassle of evicting a bad tenant.