start new tenant with MTM or year lease
Dunedin, FL · Member since 2018 · 19 posts · 7 votes
start new tenant with MTM or year lease
Most Popular Reply
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3yQuote from @Daniel Okeefe:
Hi BP family, Does anyone start off a new tenant with a MTM term or maybe a 3-6 month lease before committing to a full year lease ? In an effort to make sure you are happy with the tenant and is a good fit ? I Have a vacancy coming up and we are new at the screening process so was thinking a short term start with someone that passes the basic checks IE ( income, criminal, evictions etc. ) would be a good idea but didn't know if that may effect the quality of tenants I have apply for the apartment. As a landlord I like the comfort of a yearly lease but wondering if a shorter "trail" period would be wise and if other LL would prescribe to this approach.
Any feedback or experience is greatly apricated !
What your not saying here, but inferring, is the most important part, because it's incorrect.
Your with this thought that if everything goes bad, that your going to be able to easier, quicker get a bad tenant out on M2M vs a term lease. That's simply not true.
What happens with trying to get out a "bad tenant"?:
(a) they just say "F-U" and they won't leave, so, one has to file for eviction. - Ok, does the term of lease change this? Nope. Someone say "no, I won't go" term changes nothing.
(b) unit damage, a tenant is tearing up the place. - Generally speaking term length means nothing BUT we do see this happen more frequently with shorter term, and less often the longer the term. I call this the "Rental Car Factor". Someone who jumps into a short term, or uber-short term situation, ya-gotta wonder on there mindset. Someone who is thinking 3yr+, think of there mindset. Who's more likely to not give a damn about the property, someone thinking this is just a "4-now" place, or someone who is thinking day 1 this is "there home". Tenant Psychology, this is considered far too little. It's a major item.
In the end, yes M2M LOOKS like it would be "easier" because you can just suddenly stop leasing, but in reality, it's a giant invitation for the kinds of tenants a person does NOT want to attract. In standard rental, the magic words to hear from a tenant is "I am looking for LONG TERM, I don't want to have to keep moving", ahhhhh, that's magic to my ears! The truth is, a landlords #1 focus on screening should NOT be about getting paid, it should be RISK EXPOSURE, who will best take care of the property! A missed payment sucks, but tenant damage can easily equal 6 months rent, even a year+, not to mention the down-time to do repairs. Tenant damage should be the #1 focus, and mitigation of that. THEN it's about DURATION, getting that "cruise-control" because vacancy is the #2 most expensive cost factor in the mix. THIRD is actually payment reliability.
By the #'s, when looking at data, this is the CORRECT order of what "costs" a landlord the most. In our portfolio, we hover right around 98% rent collected in any given month. Non-payment is a 2% and under issue. It makes no sense to focus the whole thing to such a rare impactor, especially being one of such minor impact. UNIT DAMAGE is the #1 most expensive item, so focus there and we do that by knowing the indicators who who's most prone, and adverse to do such. Short term tenants, M2M are the #1 group for unit damage.
10 Replies
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I guess it depends on you. All of mine are on 1 year leases in part because getting rid of a month to month tenant is harder where some of my properties are. Not for eviction reasons, but non-renewal.
- 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
Yes we have done both many times. MTM is popular in wa. state. I find it makes for respectful tenants them knowing that a 30 day notice of non renewal could be coming. We collect the same first and last month's rent plus security deposit at move in and turn over of keys. We value our tenants and we look after their needs that's why they pay their rent. It is a two way street the way we see it.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Daniel Okeefe:
This depends on your skills as a Landlord, the state laws, and your judicial system. I have strong screening skills and very few problem tenants. When they are a problem, I can usually get them out without relying on the court. When I do have to rely on the court, it happens in 30 - 45 days. So for me, one-year leases are my preference.
The DIY Landlord Book4.7247 Reviews - Real Estate Broker · Nashville, TN · Member since 2022 · 45 posts · 34 votes3y
@Daniel Okeefe - IMO: most expect a minimum 1 year lease, unless they are specifically looking for short-term lease.
Know what screening criteria you are going to use and the standard resident you want to attract and affirm or deny based off that criteria.
- Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes3y
Month-to-month can be more problematic than a long-term lease. If you're screening properly and holding to your criteria, a long term lease can provide you with the stability of cash flow that a MTM cannot. Also, MTM leases are not accepted by lenders as income due to their term/termination with 30 days notice.
My recommendation would be - if you want to go MTM - is to furnish it and rent it as corporate housing, traveling nurse housing, or a modified vacation rental (areas around hospitals are good for this).
The quality of tenant in our market is best for long-term or furnished purposed short-term.
Hope this helps.
- Investor · San Antonio, TX · Member since 2017 · 31 posts · 33 votes3y
@Patricia Steiner
There is no cash flow stability with a year lease. A tenant can move out or stop paying at any time. The lease gives you the ability to follow the legal process and TRY to collect what’s owed to you assuming the tenant beaks the contract. Learn your local and state regulations to see which option is easier to get a tenant out of your property if they break the lease. That will aid you in making a decision that aligns with your risk tolerance.
- Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes3y
Let's start here: there are no guarantees. Someone can sign a lease with you and get hit by a bus the next day - regardless of the term. But cash flow is determined by LENDERS to be that realized under a lease of one-year or more. Real Estate Investing is about using leverage effectively. As a former career wealth manager/banker, an investor, and Broker of an investment client firm, I respectfully disagree with you.
- Investor · San Antonio, TX · Member since 2017 · 31 posts · 33 votes3y
@Patricia Steiner
I’m not disagreeing with how lenders view cash flow. I’m simply reinforcing what you also stated in your reply, a year lease or MTM does not guarantee cash flow.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Daniel Okeefe:
Hi BP family, Does anyone start off a new tenant with a MTM term or maybe a 3-6 month lease before committing to a full year lease ? In an effort to make sure you are happy with the tenant and is a good fit ? I Have a vacancy coming up and we are new at the screening process so was thinking a short term start with someone that passes the basic checks IE ( income, criminal, evictions etc. ) would be a good idea but didn't know if that may effect the quality of tenants I have apply for the apartment. As a landlord I like the comfort of a yearly lease but wondering if a shorter "trail" period would be wise and if other LL would prescribe to this approach.
Any feedback or experience is greatly apricated !
What your not saying here, but inferring, is the most important part, because it's incorrect.
Your with this thought that if everything goes bad, that your going to be able to easier, quicker get a bad tenant out on M2M vs a term lease. That's simply not true.
What happens with trying to get out a "bad tenant"?:
(a) they just say "F-U" and they won't leave, so, one has to file for eviction. - Ok, does the term of lease change this? Nope. Someone say "no, I won't go" term changes nothing.
(b) unit damage, a tenant is tearing up the place. - Generally speaking term length means nothing BUT we do see this happen more frequently with shorter term, and less often the longer the term. I call this the "Rental Car Factor". Someone who jumps into a short term, or uber-short term situation, ya-gotta wonder on there mindset. Someone who is thinking 3yr+, think of there mindset. Who's more likely to not give a damn about the property, someone thinking this is just a "4-now" place, or someone who is thinking day 1 this is "there home". Tenant Psychology, this is considered far too little. It's a major item.
In the end, yes M2M LOOKS like it would be "easier" because you can just suddenly stop leasing, but in reality, it's a giant invitation for the kinds of tenants a person does NOT want to attract. In standard rental, the magic words to hear from a tenant is "I am looking for LONG TERM, I don't want to have to keep moving", ahhhhh, that's magic to my ears! The truth is, a landlords #1 focus on screening should NOT be about getting paid, it should be RISK EXPOSURE, who will best take care of the property! A missed payment sucks, but tenant damage can easily equal 6 months rent, even a year+, not to mention the down-time to do repairs. Tenant damage should be the #1 focus, and mitigation of that. THEN it's about DURATION, getting that "cruise-control" because vacancy is the #2 most expensive cost factor in the mix. THIRD is actually payment reliability.
By the #'s, when looking at data, this is the CORRECT order of what "costs" a landlord the most. In our portfolio, we hover right around 98% rent collected in any given month. Non-payment is a 2% and under issue. It makes no sense to focus the whole thing to such a rare impactor, especially being one of such minor impact. UNIT DAMAGE is the #1 most expensive item, so focus there and we do that by knowing the indicators who who's most prone, and adverse to do such. Short term tenants, M2M are the #1 group for unit damage.
- Dunedin, FL · Member since 2018 · 19 posts · 7 votes3y
Thanks everyone for the advice & input and @James Hamling , that's exactly what i wanted to ask and get feedback on, i want to attract the best tenant possible and you opened up my mind about the MTM strategy and in the end like I said, i am more comfortable with the year lease and will focus more on the Risk exposure , do the best screening i can do and get someone looking for more of a home that will care for the property that wants to stay ! thanks again
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