San Francisco, CA · Member since 2018 · 72 posts · 30 votes
I just purchased my first property and will be looking for tenants to move in. Due to the economic climate and high percentage of people not paying rent, would it be smart to rent by the month or 1 year lease? My concern is having a tenant that refuses to pay rent and is tied into a 1 year lease vs having a month to month contract where I can have them leave the following month if we can’t find common ground. Please let me know your thoughts on this! Thank you!
Thanks Andy I’ll definitely take all that into consideration and be picky and selective with my next tenants. I’ll probably do month to month with a guarantee that I won’t raise rents for the following 12 months
Btw I’m jealous you’re in SD. Lived there for 4 years and miss it every day lol
Allan,
I think you need a better understanding of CA's rent control laws.
By law, you can raise rent only once in a twelve-month period.
Also, by law, you can only evict for just cause. So even if you tenant is on a month-by-month lease, if he/she stops paying and claims to be impacting by COVID, he/she is protected from eviction.
@Account Closed You are making a great point and I am sure many landlords are asking themselves the same question. I know I am. I guess I cant say which is the "best" option, but to me the month to month lease makes a lot of sense right now. Being from California, we both know how difficult land lording is right now. This may be our very slight upper hand, but you have to consider how long it will take to get a tenant out with a month to month lease. How much notice are you supposed to give them? Plus you'll have to do some repairs after a tenant leaves. A month to month option leaves you vulnerable to having to repair and rent out multiple times a year. Are you willing and able to handle that risk?
Something great I heard recently was that investors tend to get really afraid of not renting their units out, so they rent to bad tenants. If you have the reserves, be very picky who you choose to be your tenant. Consider them an employee who needs to meet certain qualifications that will allow for the best possible outcome as far as your property goes. If you can believe it, there are still people paying rent on time in California!
Thanks Andy I’ll definitely take all that into consideration and be picky and selective with my next tenants. I’ll probably do month to month with a guarantee that I won’t raise rents for the following 12 months
Btw I’m jealous you’re in SD. Lived there for 4 years and miss it every day lol
Thanks Andy I’ll definitely take all that into consideration and be picky and selective with my next tenants. I’ll probably do month to month with a guarantee that I won’t raise rents for the following 12 months
Btw I’m jealous you’re in SD. Lived there for 4 years and miss it every day lol
Allan,
I think you need a better understanding of CA's rent control laws.
By law, you can raise rent only once in a twelve-month period.
Also, by law, you can only evict for just cause. So even if you tenant is on a month-by-month lease, if he/she stops paying and claims to be impacting by COVID, he/she is protected from eviction.
@Account Closed CA is one of the worst states for eviction. And you should be wanting long term tenants unless you plan on investing short term. Turnovers costs a lot.
@Allan Pilapil. the eviction part I think is similiar for both types of leases. In regards to lease terms. I've had qualified.. tenants tell me they cannot rent month to month because they have children and they cannot risk any type of notice to leave within 30 days because the kids are in school also some people think it's a red flag when you go month to month because you're ready to sell the property I think it depends what market you're renting into, higher end markets are generally yearly mid - lower markets are both I would advertise the props as both and then qualify them as per there references you cannot qualify a 750 applicant the same as a 500 applicant.
However read up on the California laws just to make sure.
As far as the benefit of a 12 month lease vs a month to month, it benefits the tenant more than the landlord because when it comes down to it, if a tenant wants to leave, they will. I recently discovered the hard way that a bank won't consider income from a month to month but would if it was on a lease. (this applies to recently acquired properties.) Anyway, we usually do 12 or 24 month leases.
I love long term leases, but not with everyone. All comes down to the neighborhood, asset type, and external conditions. In my commercial buildings I'd like to do 3+ years with month to month after, but usually re-up another few years before lease term ends.
Apartments, I would do 12 or 24 month leases, depending on the applicant's requirement. The longer assurance is nice.
However, as you've pointed out, it's a bit different today. I would go with month-to-month right now, but that's my personal preference as I value flexibility over incremental revenue.
Don't get a mediocre tenant, get a great one. Second, what do you want? What do they want? Talk to them. If you market is driving month-to-month without a year long lease, then you should change your strategy of investing. Month-to-month in my experience is a waste of time. People treat the property as an a hotel, break things constantly, a lot of maintenance, a lot of calls, most of the time, they just don't have a sense of ownership. Then they leave the to-do-list is huge... If you are considering month-to-month, you may need to also consider the short term rental spectrum.
I would say, most contracts are on a one-year lease, then month-to-month. Otherwise it can be very hard to get a quality tenant and you may be spending a lot in costs such as advertisement, scheduling, maintenance, commission for RE, etc.
@Account Closed I just leased a property and we had them sign a one year lease. I always want the tenant to be there at least one year to start.
I don't think you want to advertise month-to-month, because you may attract someone who only needs temporary housing. You don't want them there 3-6 months, then having to lease it again. Turnover costs are one of the highest expenses for a landlord.
That being said, a lease term protects a tenant more than a landlord. Lease term takes away your ability to "not renew", meaning just giving them 30 days notice to vacate, because you want to do something different with the property.
I think it really comes down to screening. If you screen for credit score in particular, you should be fine. My only word of caution is to be aware of local laws. From what I have observed, San Francisco has the most restrictive landlord laws in the country. If the property is there, it could limit your ability to screen.
So to summarize, I would require one year lease term, but I would have very strict qualification standards.
Hey @Account Closed, Great question! I actually stopped renewing leases until the Eviction moratorium expires on 12/31. Reason being is just that, if a tenant stops paying I just evict for non-color of title instead of the financial. The moratorium does not have any clause in there about a month-to-month. So instead of posting a 3-day (State of Ohio) we just post a 30 day and if they don't move, we go to court. For the most part, we have seen great tenants and communication so we are definitely thankful for that!
The month to month definitely has some advantages. BUT, one needs to know their states landlord/tenant laws. There's a strong argument for eviction due to lease expired (one month). Your cause could be anything... what to remodel, sell, move it, and that "might" fly past the Covid restrictions.
Question: Has anyone tested the above?
And, for us longer term landlords, why wouldn't a clause for either party to terminate with xxx days notice for any reason work? I have that in my leases and only enter into LONG term leases, min of 2 years..... 20 years is better <g>.
Allan..............if you're worried about tenants not paying rent, why not rent out to Section 8 tenants? Guaranteed money. Because of the tenant friendly laws in the bay area I only have Section 8 tenants on my properties here in the Bay Area.
I just purchased my first property and will be looking for tenants to move in. Due to the economic climate and high percentage of people not paying rent, would it be smart to rent by the month or 1 year lease? My concern is having a tenant that refuses to pay rent and is tied into a 1 year lease vs having a month to month contract where I can have them leave the following month if we can’t find common ground. Please let me know your thoughts on this! Thank you!
If they don't pay rent, regardless of the lease length, you have a problem and can ask them to leave legally. 1 year leases are always better in terms of review from a financial institution (more stable) M2M is nice when you plan on rehabbing in the future and don't know exactly when.
Hi! Is the property in San Francisco? If so, once the tenants have been living in the property for 30 days, they have full tenant's rights, same as someone with a year lease, which means either way you can't ask them to leave. In both cases, non-payment of rent would normally be a "just cause" for eviction (https://sftu.org/justcauses/) but since CA isn't allowing eviction for non-payment through Feb 2021 (https://www.gov.ca.gov/2020/08...) you would just have to find another way to pay your mortgage. I might consider advertising it both ways - you want to be able to pick from several applications rather than turning down an application and risk having a housing discrimination complaint filed against you (https://sf-hrc.org/how-file-di...).