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Going month to month at end of 1 year lease

15 posts by 8 users

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Bienes Raices

Orlando, Florida

Apr 04 '12, 08:05 AM


My lease states that it goes month to month at end of the one year term.

My experience so far has been that tenants want a new one year lease, rather than month to month, because they're afraid of being told to leave or having the rent increased.

Normally I would offer the option of a new lease, but these particular tenants have been late (beyond the grace period) with the rent a couple of times now, and there have been a couple of other minor issues.

Would you take a chance on them moving out because of the lack of a long term lease, or take a chance of a future eviction/unpleasantness on a new one year lease, if things continue to go south in terms of on-time payments?

Thanks.



Joel Owens Moderator

Commercial Real Estate Broker from Canton, Georgia

Apr 04 '12, 08:23 AM
2 votes


You shouldn't be relying on the tenant to pay the rent on time to pay your mortgage.

If you are doing that you are making a mistake.How much of a late fee do they pay now??

You could increase the late fee slightly.If they pay 100 a month late that is 1,200 a year to your bottom line !

What you want from the tenants is a PATTERN.A PATTERN shows stability even if paying late.What you don't want is the tenant being unstable and trying to run your business not knowing what they will do month to month.

I would just increase the late fee and shorten up the grace period and eviction time line.This will force the tenant even though paying late to pay earlier than before.

You could also up the rent on the new lease but offer a rent credit if they pay early every month.

Say rent is 800 now with a 100 late payment.Up rent on new lease to 850 a month but 50 dollar rent credit if they pay on time but still keep 100 late payment.

You are just trying to condition them in a nice way to pay you first and not after utilities,car etc.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Mike Jakobczak

Real Estate Investor from Toronto, Ontario

Apr 04 '12, 08:29 AM


Joel makes a good point. The second it.



Medium_us_fasttrack-01Mike Jakobczak, USFastTrack.ca
E-Mail: [email protected]
Telephone: 905-851-2942
Website: http://www.USFastTrack.ca
Michael Jakobczak [email protected] 905-851-2942


Brian Levredge

Real Estate Investor from Chattanooga, Tennessee

Apr 04 '12, 09:08 AM
1 vote


If you sign the lease, then you are stuck with them. If you are not thrilled with them, they why would you want to lock them into another year? You can actually serve them with a change in tenancy that the lease is now month to month, AND give them a rent raise at the same time. Or keep things the same. As a rule, I don't give new leases to problem tenants. I might let them stay on month to month if I'm stabilize another property or two and don't want the added vacancy and turn costs, but once everything else is stabilized, I will focus on getting them out and getting better tenants in.



Bienes Raices

Orlando, Florida

Apr 04 '12, 09:41 AM


Joel, I see your point, but I am not depending on them for a mortgage. At the same time, I don't want someone who is shaky and a potential future evictee. I don't know why they are paying late but apparently they are not managing money as well as my other tenants, for whatever reason. This is the first time I've had someone pay the rent late, out of all my tenants. Maybe I've just been extraordinarily lucky up to this point and I don't have a realistic view of other people's financial issues?

In any case I think I am going to offer them month to month at the same rent they are paying now, and raise it at some point in the future when the economy improves, or if I think the market will tolerate a higher rent.



Steve K

Real Estate Investor from Orlando, Florida

Apr 04 '12, 09:52 AM


You've been lucky so far if this is the first late payment issue you've had. I'd keep them in on a month to month basis and if they pay late again i'd market the property and tell them they've got 30 days. Certainly agree with the raising the late fee point.




Bienes Raices

Orlando, Florida

Apr 04 '12, 10:37 AM


Originally posted by Joel Owens:
How much of a late fee do they pay now??

Sorry, I missed this question when I read your original post...
The grace period is until the 5th of the month. Then they pay $50 extra for the first day they're late after that, and then an extra $10 for each day thereafter.



Joel Owens Moderator

Commercial Real Estate Broker from Canton, Georgia

Apr 04 '12, 11:35 AM


You have just been lucky so far.Like I said if they paid late every month and I made the extra coin that is great for me.

What you don't want is rollover of owed funds into the next month.

I would change the late fee to a much higher amount say 125 or 150.

What amount is the monthly rent??

In some areas of rentals the type of tenant you have is about as good as it gets.It depends on the area and tenant base.If you get rid of them you will have re-tenant costs and lost rent.

So I would only lose them if it gets much worse.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Ann Bellamy Verified

Real Estate Lender from Tyngsboro, Massachusetts

Apr 04 '12, 11:58 AM


I let all my leases after the first year go month to month automatically, unless they ask for a lease.

As for late fees vs rent credits, when I have poor credit tenants who have otherwise good jobs and good landlord references, I up the rent and give them an on-time credit. Like Joel does. I prefer to get my rent on time than to get the late fee, and it does seem to work - so far every tenant I've used it on has paid on time.

I had an applicant on the phone the other day who, after telling me she had bad credit, and after my explaining the credit-for-on-time-payment policy, said she'd rather not do that. I thanked her for helping me screen my applicants.



Medium_small_logoAnn Bellamy, Buy Now, LLC
Telephone: 800-418-0081
Website: http://www.buynowhardmoney.com
Hard money lending in NH and MA, and for free networking in MA, http://www.BlackDiamondREI.com


Bill Gulley

Real Estate Investor from Springfield, Missouri

Apr 04 '12, 12:23 PM


Rent credits, I have thought about that but never did it, I like that! Take a $500 rental, charge $550, discount it $50 if paid by the 5th and a 10% late fee after the 10th or 15th at $605! Now that's an incentive to pay on time!

It's a rough call on what to do here as we don't know the issues but I'd consider the market and how many headaches it's worth to rent to them or the vacancy period and take your chances again.....at least you know what you have....Good luck!



Bienes Raices

Orlando, Florida

Apr 04 '12, 01:11 PM


Originally posted by Ann Bellamy:
I let all my leases after the first year go month to month automatically, unless they ask for a lease.

Ann, do many of them ask for a new lease? Do they get turned off that it's going to be month to month?



Christopher Brescia

Rehabber from Vernon Rockville, Connecticut

Apr 04 '12, 01:52 PM


The on-time credit is an interesting idea I'd never seen before.

@Ann Bellamy @Joel Owens How do you handle the on-time credit? Do you write a check back to them each month or do you accrue the credits and send checks out at certain points in the year?

@Bienes Raices I have been renting for over two years (I know, I know, i have only recently seen the light of REI..) and I personally like that my rent went from month-to-month. Our agreement is only reviewed (for increase) once a year and as far as terminating I am required to either give two months notice or I can leave whenever but I am on the hook for 2-months rent unless they can find a replacement sooner. It takes away the threat of end-of-lease stress and I feel I can move at any time and not be screwed. Speaking from a renter's perspective, I prefer a month-to-month.



Ann Bellamy Verified

Real Estate Lender from Tyngsboro, Massachusetts

Apr 04 '12, 02:32 PM
1 vote


Originally posted by Bienes Raices:
Originally posted by Ann Bellamy:
I let all my leases after the first year go month to month automatically, unless they ask for a lease.

Ann, do many of them ask for a new lease? Do they get turned off that it's going to be month to month?

Actually, most prefer it. One said if I made her sign a lease, she'd leave. She's been there over 15 years. If they ask for a lease and they are good tenants, I give it to them. I have mostly 1BR's and starter apartments, so they prefer the flexibility.

@Christopher Brescia, the on-time credit is handled as follows

If I want 650, the lease states 700 with verbiage defining the on-time credit. Then the security deposit is also the higher amount of 700. I have NO GRACE PERIOD and it's spelled out clearly in the lease. If your rent is not in the rent box by 7AM on rent day, and the rent is picked up at 7:30 AM and the check isn't there, they are late, and it's very clear in the lease.

I also explain to them that I am not trying to jack up their rates, I simply want to pay my mortgage on time, and I need their rent to do it. (I don't, but that's not the issue)

As for the credit, if it's paid on time, they take their credit, if not, they owe the extra, and in my software, I record the rent and the credit as two different line items. I have never yet had to chase them for the extra, but if I did, I simply would not apply the credit, and if they didn't pay the full amount, they are now late for that amount. I would make a call and give them the opportunity to make it up within the 3 days.

I'm a lazy landlord, and I don't like bad tenants. I'll screen and sit on an empty apartment until the right person comes along. I don't have many bad ones, but when I do, I hate the high maintenance, so I'll act quickly to get rid of them. I once remodeled an entire bathroom and moved walls just to have a legal reason (in NH you have to have "other good cause" if they are paying) to evict the tenant.



Medium_small_logoAnn Bellamy, Buy Now, LLC
Telephone: 800-418-0081
Website: http://www.buynowhardmoney.com
Hard money lending in NH and MA, and for free networking in MA, http://www.BlackDiamondREI.com


Bienes Raices

Orlando, Florida

Apr 04 '12, 04:10 PM


@Ann thanks for the detailed answer, I always enjoy your posts.

@Christopher back when I was a tenant I liked it too when it went month to month...maybe the tenants I've had so far have been an anomaly.

I'm just going to let it go month to month and keep the rent the same (for now) and see how it goes.



Bienes Raices

Orlando, Florida

Apr 05 '12, 09:57 AM


update: I told them I was going to enforce the late fee, and they came up with the rent on time.



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