12 months vs 18months lease

[Ayyoub Reza]

Hi, quick question, Do you recommend to sign lease with tenant for 12 months and then month-to-month, or 18 months lease? I am in this situation that end of 18 months will be October 1st, is that good time frame for renting market?

Thx,

[Jay Thomas]

While I can't provide specific advice on Michigan leases, I can offer insights on lease options. Both 12-month + month-to-month and 18-month leases have their benefits: 12-month leases offer stability with flexibility afterward, appealing to tenants who prefer shorter commitments, while 18-month leases provide longer-term stability, attracting tenants seeking predictability. However, it's essential to consider local market dynamics. Research local rental trends, consult a Detroit realtor, and weigh your needs for stability versus flexibility before making a decision. Ultimately, it's up to you!

[Patricia Steiner]

I only do 12 month leases and re-evaluate the rent price based on market conditions at that time. In my market, that means the rent will increase.  I do not do month-to-month leasing as it is a disrupter of cash flow.  As far as when is a good time frame for renting, look at who your renters are and how you acquired them.  If you want to target college students, October misses the mark as would the placement of medical residents.  In your market, it misses the arrival of winter which has got to be a positive.  I hope you'll rethink your lease term to provide you with more stable/predictable cash flow as well as the opportunity to reevaluate pricing annually.  

Best...

[Ayyoub Reza]

The market For the property is for young professionals with may be new born or toddlers, or people in their 40-50s. No kids for school, and no university students. It more depends on job. Agree, October missed the warm season but still is not winter. 

[Ned J.]

People will break a lease and leave whenever they want to....it may make them hesitate for a bit before they do, it but when people want/need to leave they leave. A long lease may make you feel warm and fuzzy inside, but its not the insurance/stability you think it is. Longer leases favor the tenant WAY more than the LL.

I only do MTM from day one..... I want LONG term tenants and I dont do anything different on rent increases or any other factors that wouldn't be done in a 12 month lease- if they want to leave, be straight up with me..... if you are a PITA, I can easily get rid of you. Thats my opinion....

[Michael Smythe]

@Ayyoub Reza in Michigan, if a lease is at least 12 months in length, you can charge tenants for maintenance and if not a health & safety issue, require them to fix it.

Why would you have a lease end during the Oct-Feb timeframe, when it's the slowest time of the year for real estate sales & rentals?

[Nathan Gesner]

You ideally want the lease to end during spring to fall months. Property can be hard to rent in the colder months, particularly around the holidays.

I do 12-month leases because it keeps me on track with inspections, rent increases, and other things. Month-to-month is only allowed with a 25% increase to the advertised rent.

[Ke Nan Wang]

A lot of good feedbacks here but I want to plug one point in:

It really depends on what do you want to achieve? Are you someone who's ambitious and energetic and wants maximum cashflow? You don't mind the hustling of tenant placement. If that's who you are, you should keep your lease as flexible as you can be. Tailor to whatever people need. 

During slow season, when people come ask me if they can rent the place for 6 month, I ask them can you pay 10% more than the advertised rent? And then go month to month after that at 25% more. Some times you have this one person needs it and they sign a lease and the property is filled. You get more money, that person gets a place to stay. But you just need to understand at 6 month time, getting ready to find another tenant or hope the tenant is not ready to move out and pay the 25% increase rent on month to month. I negotiate with tenants on the spot all the time, if they want something different than what I want, I don't reject them, I propose something to accommodate but of course, I get paid for the accommodation. If they don't agree with my increase then they can say no. 

Now, if you are someone who likes to have stability than maximum cashflow, longer lease term can provide you with less hassle. I know investors like that too. To them, the property is paid off, they aren't ambitious to grow, and they just want that mailbox money to enjoy retirement, so I say they are perfectly fine with a longer lease term. 

So no one can give you the best advise without knowing what do you want. I know what I want:

12 month lease at advertise rent and month to month at 25% increase rent afterwards. 

[Steve Vaughan]

I've never gone longer than 12 months. If the year ends during the winter/slow time, I let it quietly become month to month.

Make sure your state doesn't require anything longer than 12 months to be notarized like mine. The whole thing could be declared invalid otherwise.  

[Marcus R.]

In this case I'd do a shorter lease so it ends during spring/summer. I tend to adjust leases so they fall in that time frame...6 months lease, 8 months lease, 9 months lease, 11 months lease, etc...

[Lynn McGeein]

I avoid turnovers in fall/winter as much as possible, so I've done 15- or 18-month leases when something unexpectedly opens up Oct-Feb.  

[Kenneth Jenkins]

We are in Michigan and have just now come out of the winter "dead months" in the past 3 weeks or so.  You should always end your leases Apr- Aug in Michigan.  The other considerations noted by other posters are valid, but when you weigh them against the high risk of extended vacancy, ending at the beginning of winter is to be avoided at all costs.  2 months of added vacancy is a 16.6% loss to annual income.  So avoiding that vs the opportunity to raise the rent with a future lease renewal is an easy choice.  Follow these three rules in order of importance:  

1.  Keep 100% occupancy

2. Collect 100% of what your owed

3. Minimize expenses

Maximize income is a distant 4th. This doesn't mean ignore rental increases, but at the end of the day it is a math problem.  Leaving $25-75 a month on the table to avoid a $1,500 loss of occupancy and a $2,000 unit turn bill is a smart choice.

Best of luck with your new tenant!

[Ayyoub Reza]

Thx Kenneth! That makes sense.

[Jim Wellington]

I always push for a 2 year lease up front. Always!   Turnover costs money and could potentially be your biggest expense as a landlord. Why?   because not only do you lose revenue but there is undoubtedly some need for repairs. Paint, flooring, and upgrades. You’re much better off keeping them in there. I do 2 years and a 25 increase on the 13th month. Most of my tenants have long tenures. I’ve got 3 different houses with 15 year tenants. I treat them well, I provide good safe and clean houses and as a result….people stay!  

[Ron H.]

Just because you have a month to month lease doesn't mean tenants aren't going to stay 25 years, or tenants with 25 year leases aren't going to move after a week.

I do 1 year to start then month by month for the duration.  This gives me the option to get rid of them quick if problems develop.  All my current tenants have been with me for at least 4 years now.

[Alecia Loveless]

@Ayyoub Reza I only do 12 month leases. I don’t usually care when they end. Depending on the tenant I will either renew it for another 12 months or go MtM.

I wouldn’t go 18 months because too many things can happen in that timeframe.