Month to Month versus Yearly Lease in Northern Florida

Ocala, FL · Member since 2015 · 12 posts · 1 vote

Just about finished renovating a 2nd house that I own. Seeking to begin renting January 1st. Have never been a landlord before. As such, is it best to do a Month to Month (1st months rent and one month security deposit) or a Yearly Lease (1st and last months rent + security deposit)? I thoroughly comprehend the screening process and the dos and don'ts of qualifying prospective tenants. Just need to be aware of the pluses and minuses related to month to month and yearly.

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Michael BarbariPro Member

Banker · Downers Grove, IL · Member since 2014 · 396 posts · 107 votes

10y

@Davison Horst I would caution short term leasing. Especially when it comes to lending. My bank would not add your month to month leases into your cashflow analysis. I personally do annual.

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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
There's pro/con both ways. Personally, I use a 3 month lease, renewable at mon/mon, terminated by written notice of 30 days. Here's why:
- it's long enough to test the cooperation of the tenant and their ability to be amenable to others.
- it's long enough to avoid becoming a transient boarding facility.
- it's short enough to be able to issue a notice of non-renewal.
- AND it avoids a tenant paying rent for just one or two months and then squatting on the rights of their lease w/o further payments.
IMO, a long term lease ONLY benefits the tenant.
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Michael BarbariPro Member
Banker · Downers Grove, IL · Member since 2014 · 396 posts · 107 votes
10y
@Davison Horst I would caution short term leasing. Especially when it comes to lending. My bank would not add your month to month leases into your cashflow analysis. I personally do annual.
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Davison Horst
OP
Ocala, FL · Member since 2015 · 12 posts · 1 vote
10y
Originally posted by @Jeff B.:
There's pro/con both ways. Personally, I use a 3 month lease, renewable at mon/mon, terminated by written notice of 30 days. Here's why:

it's long enough to test the cooperation of the tenant and their ability to be amenable to others.
it's long enough to avoid becoming a transient boarding facility.
it's short enough to be able to issue a notice of non-renewal.
AND it avoids a tenant paying rent for just one or two months and then squatting on the rights of their lease w/o further payments.
IMO, a long term lease ONLY benefits the tenant.
J,
In a 3 month lease would you do a 1st month and one month security?
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Davison Horst
OP
Ocala, FL · Member since 2015 · 12 posts · 1 vote
10y
Originally posted by @Michael Barbari:

@Davison Horst I would caution short term leasing. Especially when it comes to lending. My bank would not add your month to month leases into your cashflow analysis. I personally do annual.
Interesting. That is definitely something to consider.
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
1. Originally posted by @Davison Horst:In a 3 month lease would you do a 1st month and one month security?
That's exactly my lease. In Calif, you can collect first & last OR one month + security which can not exceed 2x the monthly fee.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
I prefer leases and then after the lease term ends we can go MTM. If you go MTM it might be possible for the state to require you to collect sales tax particularly if they vacate before 6 months and one day. Check with the FL Dept of Revenue to be sure. If you fail to collect sales tax and they require it that will come out of your pocket.
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Davison Horst
OP
Ocala, FL · Member since 2015 · 12 posts · 1 vote
10y
I was not considering reporting to either the IRS or state taxing authorities. Rental payments will be on a cash basis only. If this is the case, where would the sales tax become a factor?
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Wade Sikkink
Real Estate Investor · Lincoln, NE · Member since 2013 · 584 posts · 353 votes
10y
We do something similar to @Jeff B.. Our building is C class and sometimes it's hard to get top notch tenants in a property like that. We go with a 6 month lease followed by MTM. By the 6 month point we know what the tenant is going to be like and we have given notice to some that their MTM tenancy is not being renewed and they have to move out. For us, the flexibility is important. Now on a higher class property you could probably go with a longer lease.
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
Originally posted by @Davison Horst:

I was not considering reporting to either the IRS or state taxing authorities. Rental payments will be on a cash basis only. If this is the case, where would the sales tax become a factor?
IMO, SHAME ON YOU.
I just denied an application when I really think the tenant would have been great - - WHY? He could no document any income; it was all under the table or "in his daughter's account". What goes around comes around.
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Davison Horst
OP
Ocala, FL · Member since 2015 · 12 posts · 1 vote
10y
Some Questions:
Is it advisable to draw up a lease where the tenant requires a co-signer and if the co-signer meets all of your qualifications?
If I advertise the property as "no pets" am I forced to consider a person that has a service dog?
If a prospective tenant requires a wheelchair am I supposed to make changes to my rental property in order to accommodate if he rents the property? Do I have an option of not qualifying this person if my rental property will not accommodate the wheelchair and will cost a great deal in renovations to accommodate?
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Davison Horst
OP
Ocala, FL · Member since 2015 · 12 posts · 1 vote
10y
Originally posted by @Jeff B.:

Originally posted by @Davison Horst:
I was not considering reporting to either the IRS or state taxing authorities. Rental payments will be on a cash basis only. If this is the case, where would the sales tax become a factor?
IMO, SHAME ON YOU.
I just denied an application when I really think the tenant would have been great - - WHY? He could no document any income; it was all under the table or "in his daughter's account". What goes around comes around.
Shame on me? For what? Accepting cash payments for the rent? In the first place, the yearly income received from rent does not push me into an income tax bracket. I would pay no income tax anyway as the rest of my income is from Social Security. The state of Florida has no state income tax. I do not intend to use the rental income as part of my overall income for qualification purposes as I don't buy any big ticket items at 75.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@Davison Horst I recommend you hire a good PM company.
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Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
10y
@Davison Horst
Just a recommendation.
Tax evasion is a serious crime and not something I would advise someone to post on a social media site.
In all honesty it would probably benefit you to report it because depreciation will normally cancel out gains and may be give a bigger tax return.
I am not a fan of being taxed but understand that we must all follow pay our fair share if our country is to become what it really should be.
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