Month To Month Tenancy Or Annual Leases? Why?

17 Replies

I am considering not renewing any leases as they expire. I feel one of the main benefits to a month to month tenancy is being able to adjust rents if a property has continuing issues that cost more cash out of pocket. Granted, a tenant could get mad and simply walk. I know there are some posters on BP that expressly operate using month to month. What do you think? What are the positives...and what are the negatives.

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com

Hi John,

I like 12 month terms personally.  I feel they help me minimize vacancy since I am marketing and showing an apartment 2-3 months before the current tenant moves out, and having the new tenant's lease start as soon as I feel I will have the apartment ready for them.  (We are fairly new to this, so we fix up the apartments a bit the first time they are empty, then the next time it takes less time to turn over the unit).  I budget for making improvements in the property and for repairs, and I increase rents each year if needed.  12 month leases are very typical for my area, and many landlords do not even offer shorter terms.  We are in a college town, so having a lease that starts and ends in August is pretty useful, so if a tenant wants a shorter term I address it at the time, and just won't do it if the lease is going to end at a difficult time to rent (Dec-Feb).  

The nice thing about month to month is that you CAN make adjustments along the way, and if there is a problem tenant you can get them out sooner by simply serving notice.  

Kelly

Originally posted by @Kelly N. :

Hi John,

I like 12 month terms personally.  I feel they help me minimize vacancy since I am marketing and showing an apartment 2-3 months before the current tenant moves out, and having the new tenant's lease start as soon as I feel I will have the apartment ready for them.  (We are fairly new to this, so we fix up the apartments a bit the first time they are empty, then the next time it takes less time to turn over the unit).  I budget for making improvements in the property and for repairs, and I increase rents each year if needed.  12 month leases are very typical for my area, and many landlords do not even offer shorter terms.  We are in a college town, so having a lease that starts and ends in August is pretty useful, so if a tenant wants a shorter term I address it at the time, and just won't do it if the lease is going to end at a difficult time to rent (Dec-Feb).  

The nice thing about month to month is that you CAN make adjustments along the way, and if there is a problem tenant you can get them out sooner by simply serving notice.  

Kelly

How can you get a tenant out early unless they violate lease terms and fail to cure?

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com

Why would you want to get the tenant out early if they are not violating lease terms?  Of course, you could have a PITA tenant who whines about everything little thing.  But you solve that by having them send you written communications involving everything but blood, flood or fire.   Don't answer their phone calls until you get them trained.   

Sorry for the confusion- what I mean is I will allow a shorter term lease if the timing suits me.  For example, I had a studio apartment available  in April, and a tenant that only wanted to rent it through September 2, so we have a shorter term lease but she is paying more per month.  Now I am marketing that unit again, and will look for a tenant that wants to sign a 12 month lease.  

We favor MTM. We have no problem with tenants staying long term on MTM leases. In fact half of our tenants have been with us more than 5 yrs, a few more than 10 years and two more than 20 years. If a tenant wants to move, they will, whether on a MTM rental agreement or a 12 month lease. 

On rare occasion we have a tenant who stays less than one year, and if so it is usually because our place is not a good fit for them. Better to see a non-performing tenant leave voluntarily than trying to force them to comply with the terms of the rental agreement and/or proceeding with an eviction through the courts.

One of the greatest advantages of a MTM rental agreement is the ability to change the terms of the agreement as necessary. We rarely raise rent, but we do find the need to modify other terms of our rental agreement from time to time. High maintenance tenants may see a rent raise more frequently than others.

In our jurisdiction, we can also use a 20-day no cause "Notice to Terminate" if a tenant gives us trouble, without needing to prove anything in court. We can still serve 3-day "Pay Rent or Quit" or 10-day "Cure or Quit", if necessary.

With the MTM rental agreement, the terms automatically renew, so we don't need to deal with a lease renewal process. We also don't need to deal with tenant's wanting to break their lease. So continuance of the rental agreement or termination is much easier for all parties involved.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

Similar to @Marcia Maynard we tend to prefer month-to-month with the exception of our student houses.  Due to a combination of lease-up cycles on student housing and the "transient" nature of the social cohesion of student housemates, we have found using academic year or annual leases provides more stability when leasing a house (or 3-4 bdrm flat) to a group of students.

Updated over 2 years ago

The other condition under which we will lease-up on annual leases is when we plan to refinance, or sell, a property as lenders here like to see annual leases.

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

I like month to month.

1. They are a time saver. I don't have to remember when the lease is up and mess with contacting the tenant, print on out new lease agreements, and getting signatures.

2. I think MTM actually causes some tenants to stay longer. Many people are procrastinators. So they forget about looking for another place to live, until the subject of lease renewal comes up. Then they get busy looking at other options. But if they are on MTM, then there is no hurry. They can move anytime so they procrastinate the decision and actually stay longer.

3. If something has changed in someone's life causing them to want or need to move, I'm not going to use a lease to force them to stay and be unhappy with me and my property. My places are easy to rent, so I'd rather they leave if that's what they need to do and get the next happy tenant in. So I might as well do month to month.

For the initial lease term, I do 12 months minimum. My lease has a clause that is converts to a month to month after 12 months.

My reasoning for the initial 12 months is that I am time limited.  I simply do not have time to move some one in every few months.  Some people ask for 6 month leases and I refuse, unless the rent is adjusted upward just a little to compensate me for my time. If someone is transferred or gets a new out of town job during the first 12 months, I will help them get out if their lease if they cooperate with me about showing the apartment/house.

I am inclined to go with MTM after the leases expire. I do have one tenant MTM and my only complaint is that they are violating the initial terms of the lease. However, I have raised their rent twice in six months to compensate and I could never do this with an annual. My only recourse with an annual would be to give a 7 day notice to cure.

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com

The risk level of the tenant helps me determine which way to go in the beginning.  Is this a newer, first time to area, job or first time renting?  Are they recovering from past mistakes?  If so, they get a MTM, and a portion of the deposit is forfeited if they vacate voluntarily within a few months.     With 'perfect' credit, criminal, job history, etc we are more inclined to offer longer terms.  In my area it is normal for a tenancy to automatically convert to MTM after lease term expires.  No renewals.

I prefer month to month, it makes it easier for me to get rid of undesirable renters faster, and I don't mind people leaving with 30 day notice if they don't want to be there as they may become a disgruntled indentured tenant.

However yearly leases may make more sense in seasonal markets, areas of low demand, and when your rent is at or above market.

I like to start out a new tenant on 12 month lease....then if all goes well month to month is fine unless there is a reason i need or want to lock the tenant up for longer.  if i have a tenant that wants less than 12 months initially then the rent is slightly higher for shorter lease.

We do 12 month or longer leases.  It makes us feel better.  I'm pretty tough on screening, so we usually get pretty good tenants.  A bad apple may slip through cracks one day and make me regret it, but for now it works.   

I am going to try starting with 7 month leases and then convert to month to month. In FL, leases less than 6 months and 1 day are subject to sales tax and I don't want that headache. After 7 months I will have a great idea if I can work with a new tenant and if we work well together.  It may result in more turnover until I find the right tenants, but will give me some flexibility to raise rents, etc and also to get poor tenants out quicker. Thanks all. At some point I am sure I will post whether I feel like I made the right move or not.

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com

I think it makes sense to start a new tenant with a 12 month lease and then going month to month beyond that point. It takes time to get any place ready for rent, and you want to have at least some level of commitment from the tenant on the front end, especially if you have a place that's fairly desirable. We are a college town and I would not want someone to flake out and leave in November, leaving me with 2 or 3 difficult months to rent, and pay additional heating bills, etc. Once someone has proven some level of commitment (my rents are low compared to similar houses), I have no problem going month to month.

I agree with @Jd Martin. @John Thedford as you know, Seasonal rates in SWFL are close to double the annual rate.  You need to guard against seasonal residence taking advantage of the MTM.  Starting new tenants out on an annual then transferring to MTM after one year would keep the seasonal residence from taking advantage of you while allowing you the perks of the MTM with loyal tenants.

We do a one-year lease, that automatically goes month-to-month afterwards. Then they get charged a month-to-month fee, which is to encourage a renewal.

The biggest reason we stick with a year lease is because of our climate. In the winter time, the rental market declines quite a bit and you can't get as much rent, and vacancies last much longer. We always target our leases to end in the spring/summer when the market is really strong.