By definition, month-to-month leases are short-term and help landlords not to overextend a tenancy. In contrast to long-term fixed leases that often last for a 12-month period. One will be advantageous over the other for different reasons. So being aware of the benefits and drawbacks makes decision-making easier for landlords.
At MN Property Nerds we believe month-to-month leases have some real value, which is why we have put together the following article:
A month-to-month lease binds a landlord and tenant to a continuous agreement each month. It only ends when the landlord or tenant informs the other through a 30-day notice. A lot of times, a month-to-month lease can be used to extend a current lease, but it could also be that both parties have already agreed to a month-to-month lease agreement early on.
If you’re a property owner who prefers a degree of flexibility with your tenants, you’ll probably favor a month-to-month leasing arrangement. It can also be an option when your renter has finished a fixed long-term traditional lease but intends to stay longer for a short while until the place, they’re moving into is properly set up.
Opting for a month-to-month lease doesn’t come without cons though since your rental income can be inconsistent. If you opt for a month-to-month lease then it’s best to properly set aside a budget to prepare yourself for upcoming vacant periods.
If you like being flexible then month-to-month leases are the way to go. This is a great way to still earn an income while you’re waiting for a property buyer. So, when the right time comes, you won’t have a long wait to find a better tenant. The flexible nature of a month-to-month lease helps you make new changes easily. But there are more reasons to use a monthly lease:
With a straightforward 30-day notice, you can inform the renter that you want to end the month-to-month lease arrangement easily. As it’s more of a hassle with fixed-term leases since you have to wait for the tenancy to be over before making any property updates.
Landlords have a greater degree of control with a month-to-month lease. You can easily change tenants, and policies, or adjust rental fees. If you’re a new landlord, you can also try this setup until you gain confidence in handling the tenant screening procedure properly.
Given the shorter time duration of a month-to-month lease, it’s easier to change the rent price without fear of losing long-term renters. This gives you the flexibility to adjust to sudden high property demands in your location.
You can skip waiting for a fixed long-term lease to reach its end. Instead, you can set a higher rent price for maximum returns on your rental property investment with only a month’s notice.
Given that you only need a 30-day notice to inform the tenant of the end of the month-to-month lease, you’re not liable to pay penalties. You’re both aware that the rent setup is temporary from the start.
Either party has the power to stop the month-to-month lease arrangement. Landlords can also take advantage of peak season demand to earn higher values. They can quickly end the month-to-month rental agreement and find new renters willing to pay the higher rental fee.
With good tenants who pay on time and treat your rental property well, you can just keep extending the month-to-month lease as long as they still want to stay.
Although the upsides of a month-to-month lease are many, it also faces its own risks, such as:
Even if a month-to-month lease is favorable for its flexibility, it also leaves landlords with plenty of uncertainty due to the shorter tenancy periods. You can end up easily letting go of great tenants if they wish to do so, instead of locking them up for a longer rental stay to benefit from a steady income flow.
With 30 days to find new renters, it can be a ton of pressure to land good renters. You may find yourself lowering your rental standards to fill your vacant property, which can backfire and create a lot of problems for you.
A month-to-month lease can result in irregular income as it’s designed to be temporary in nature.
There’s no need to keep signing a new lease at the end of the month, as long as there is a holding-over clause in place. This is a condition that permits the leasing arrangement to continue on a month-to-month basis when the end of tenancy expires each month.
Since this clause is stated in your leasing agreement, it deems the month-to-month lease signing unnecessary. This clause also guards against overstaying renters.
A minimum 30-day notice period is set for the landlord or tenant to inform the other when they wish the month-to-month lease arrangement to stop soon. They can also choose to communicate more than 30 days of notice to give the other party enough time to look for a new tenant or new rental unit to stay in.
It’s also best to review your state laws regarding the acceptable notice period and the preferred method of sending notice.
Now that you’re aware of the advantages and disadvantages of a month-to-month lease, you can make a smarter decision to adopt a month-to-month lease or a longer fixed-term lease. If you prefer the flexible nature of a month-to-month lease, you may need marketing support to ensure that your rental income is protected.
A property manager can assist in marketing, tenant screening, collecting the rent, and taking care of your rental.