Landlords are faced with many important decisions when renting their properties, including the duration of the lease. Although all landlords would like to have stable long-term tenants, there are times when a month-to-month lease may be a better option than an annual one.
A month-to-month lease lasts for 30 days and automatically renews at the end of the month until either the landlord or tenant decides to cancel it. Monthly leases work similar to a longer lease, with the same clauses, deposit requirements, and penalties. Most states require at least 30 days’ notice to quit the lease, although it varies from state to state. Month-to-month leases can be a great option for many landlords, but it’s important to weigh the pros and cons to make sure it’s the right fit for your property.
Please note the following is for informational purposes only and is not intended as legal advice.
Pros of a Month-to-Month Lease
Flexibility and Control
The most obvious reason to choose a month-to-month lease is the greater flexibility it offers compared to a yearly or 6-month lease – for both landlords and tenants. A monthly lease makes it easier to adjust the lease as you see fit, like removing outdated policies or adding new ones. If you want to raise the rent (within your location’s rent control limits), you can do that without needing to wait a year.
Month-to-month leases give you greater control over your property by not keeping you locked into renting to someone for an extended period of time; if the tenant isn’t a good fit for some reason, you don’t have to renew the lease. If the tenant isn’t sure they want to rent your property long-term due to uncertainty in their life or other circumstances, a monthly lease can be used as a trial run. If something changes and the tenant decides they’d like to stay on, the monthly lease can be converted to a standard lease.
Increased flexibility for tenants also means taking on greater risk of temporary vacancies. For this reason, some landlords will charge more for short-term rentals to cover costs like advertising, cleaning, and preparing the home for a new tenant. Check with a lawyer in your area to find out if this is a legal option for you.
If your tenant doesn’t pay rent for the month or violates the lease in some way, you don’t have to worry about breaking your contract, working with an eviction lawyer, waiting for a pay-or-quit, or other considerations you’d have with a yearly lease. All you need to do is give the tenant proper notice that you won’t be renewing the lease.
As long as there are no “just cause” requirements in your area for short leases, evicting a nonpaying renter is simpler. Just make sure that you’re up on your local laws and any restrictions in place due to COVID-19.
Cons of a Month-to-Month Lease
Now that we’ve looked at some of the benefits of a monthly lease, here are some cons to be aware of:
A yearly lease gives you the benefit of knowing you likely won’t have a vacancy for a year; with a month-to-month lease, that certainty goes out the window. Although a tenant could easily become a long-term renter, they could also be gone in a month or two. It could be difficult to find a new tenant with only 30 days’ notice, so you may have vacancies for longer periods – which can affect your finances.
Another thing to consider is that with only 30 days’ notice, you may be crunched for time to find a new tenant. Don’t be tempted to skip important steps like tenant screening – it’s the best way to make sure you’re choosing quality tenants who pay their rent on time.
Anxiety and Uncertainty
If you tend to be anxious about vacancies, a monthly lease may not be a good option – you may find yourself worrying that every new month may be the last one the tenant plans to stay. Unfortunately, month-to-month leases bring uncertainty because there’s no way to know for sure how long the tenant will stick around.
Whether you’re using a month-to-month lease or a yearly lease, you want good long-term tenants. Likewise, many responsible tenants want stability and may not like the idea of a month-to-month lease. You may find that it’s harder to attract potential long-term tenants without some sort of incentive.
Final Thoughts on Month-to-Month Leases
Although there are pros and cons to month-to-month leases, many rental housing professionals tend to see them as the most flexible option. In states with tough eviction laws, a monthly lease may also be the easiest way to make sure you don’t get stuck with problematic tenants long-term – and save time and money on the eviction process.
However, other rental housing professionals like the stability an annual lease offers, especially in areas that have higher turnover, like college towns or military communities. Keep in mind, though, that there’s no guarantee a tenant won’t break the lease anyway.
Ultimately, you’ll need to weigh both the pros and cons in relation to your needs to determine which type of lease works best for your property.
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