Is month to month better than a lease

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Fixed Term vs. Month-to-Month Leases

In today's rental market, the most popular type of agreement is a fixed-term lease that can have a duration of a year or more depending on what is agreed upon between the landlord and tenant.

Fixed-term lease agreements are popular for landlords because they provide a measure of financial consistency by bringing in constant rent. They are popular for tenants because these fixed-term lease agreements provide security by locking in the rent amount for the term of the lease as well as ensuring they cannot be evicted as long as they pay their rent on time. While fixed-term leases can be very beneficial for tenants and landlords seeking financial and residential security, a month-to-month lease agreement that is not for a fixed term can be beneficial to landlords and tenants who are seeking flexibility.

Benefits of a Month-to-Month Lease for Both Tenant and Landlord

There are many situations that can arise in which a fixed-term lease might not be the best option, and when these situations arise, the month-to-month lease can be an excellent solution. There are tenants that must constantly move from location to location as required by their employer, and for them, a month-to-month lease offers a great deal more flexibility over a fixed-term lease.

Another type of tenant that finds month-to-month leases beneficial are those who have recently sold their home and have not yet found their new residence.

Having the ability to rent a temporary residence while they find their new home is invaluable, and it ensures that there will be no legal or financial issues associated with having to break a long-term lease.

This type of agreement is also beneficial for those who want to get to know a neighborhood or a landlord prior to committing to a long-term lease.

The month-to-month lease can also be beneficial for landlords depending on their specific property situation. There are many properties that are in less than desirable locations, and these properties tend to attract lower income tenants who might have more difficulty being consistent with rent payments. When this occurs, a month-to-month lease gives a landlord much more flexibility in removing non-paying tenants since the lease can be terminated for any cause as long as a 30-day notice is given. It also makes it much easier for the landlord to increase rents when the market dictates rather than wait for a long-term lease to expire before applying the increase. Other locations that benefit from month-to-month leases are vacation properties and properties located in transient prone areas such as college towns.

How a Month-to-Month Lease Works

The month-to-month lease is structured so that the contract automatically renews each month until one of the parties gives a 30-day notice that they plan to end the lease. Many times, it is possible for tenants to negotiate a clause in the monthly lease that guarantees the rental amount will not be increased for a certain period of time. This gives the tenant a measure of security that normally is found only in fixed-term leases.

Landlords might also find this advantageous because that measure of security might keep a good tenant in the property for longer periods, and if it is located in an area where rent amounts fluctuate up and down, it ensures a static amount that the landlord can depend upon. While the month-to-month lease is not a perfect fit for all situations, there are definitely many situations for the landlord and tenant where its flexible nature can benefit both.

How to Create a Month-to-Month Lease Agreement

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.

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.

Disadvantages

Unstable Income

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.

Bottom line

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?

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