Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
I know some of you are only doing month to month leases for flexibility and control. But what do you do if you have a really good prospective tenant who "needs" a longer term? Perhaps they just left their last rental early because it was sold or foreclosed on. Do you make exceptions to your month to month leases?
I normally try to lock in good tenants as long as possible, and in exchange for an extended term (2 years+), offer them to lock in their rent for that period. The extra 3-7% that I miss out on is made up by not having the turnover, which is very expensive.
I also try to get them to sign 1 year leases as a bare minimum. If they're not stable enough to stay for 1 year, they're not stable enough for me.
Finally, I have gotten all my rentals now to where they expire in late June or July. July/August is the best time to find tenants. You'll have the largest pool to choose from.
There are certainly advantages to both. I tend to be flexible with the lease arrangements. For single family homes though, I want them to sign at least a 6 month lease.
I normally try to lock in good tenants as long as possible, and in exchange for an extended term (2 years+), offer them to lock in their rent for that period. The extra 3-7% that I miss out on is made up by not having the turnover, which is very expensive.
I also try to get them to sign 1 year leases as a bare minimum. If they're not stable enough to stay for 1 year, they're not stable enough for me.
Finally, I have gotten all my rentals now to where they expire in late June or July. July/August is the best time to find tenants. You'll have the largest pool to choose from.
I've learned about the summer lease termination, too. I've talked to more prospective tenants this week than in several months. I leased one home today and am very close on a couple others. Get 'em leased before school starts.
And good point about locking in good tenants for the long-term in exchange for a discount.
I used stagered leases when two or more leases were going to be due about the same time, like one renews and then an empty is filled. Make one for six months then a year, you're less likely to have mulitple units vacant at the same time in the future. This worked well for a 12 units. but it does take a bit of a sales job sometimes and you can't really get them staggered completly. Sometimes a small discount was used but not always. Just said, we have a 3 month available that renews for one year!
On class A and B projects I prefer long term leases, these type tenants tend to honor the lease terms. On C and D I prefer month to month, these type tenants have financial problems, don't mind breaking a lease, and in some jurisdictions may be easier to evict with a month to month lease.
Class C and D apartments need short-term leases for flexibility.
Classes A and B I generally want to keep tenants for as long as I can because the tenant base stands to get a credit ding and a loss of deposit if they break the lease.
If I knew which tenants were going to be good or bad, I would lock in the good tenants for as long as possible, and more importantly - I WOULDN'T TAKE THE BAD TENANTS. C'mon guys - it's IMPOSSIBLE to KNOW whether a tenant (and the scum they allow to move in with them) will be good or bad. If that were possible, you would never have a bad tenant - and we all know that's not possible.
If an DINK couple with professional degrees rents one of my mid-Austin units to avoid traffic then I would PREFER to lock them in for as long as possible.
If they allow other scumbags to move in that violates their lease and I can evict them.
I don't know much about your business, but my suspicion is that you have a bunch of low-end rentals and that is coloring your perspective. I don't know anyone that has strong class A tenants that wouldn't want to keep them for a long period of time to minimize make-ready and turnover costs.
While we can't always be right in predicting the behavior of our tenants, there are indicators which will be correct a high percentage of time. One of the most important indicators is the type of apartments. In higher end rentals you tend to get a higher income more stable renter, one with steady employment and social responsibilty. On low end rentals you tend to get the opposite.
These are not absolutes, we are dealing with probabilities and percentages. My experience seems to be similar to Bryan's - interesting we both have dealt in the Texas market - other landlords in other markets may have different experiences.
Out of hundreds of tenants over the years I can only think of 4 that were trouble and about 10 or so that were difficult, but were trainable and complied with the requirements we'll say. The success boils down to the application process. We used written verifications and it took about three to four days to approve a tennant. The process was very similar to a mortgage loan application. I doubt many landlords would go to that extent or time. The other factor is having desirable properties and not a hole in the wall dump, that attracts trouble. Many of our tenants were college or young families, very few shacking up singles and a few mature tenats. Just the way it happened. Quailty properties + strengent underwriting = qulaity tenants. It's an art as much as it may be a science. Maybe luck had alot to do with it, but that's alot of luck, I tend to think it was because we were really picky. The market has alot to do with what you have to work with as well, but I stayed away from those markets. Cash flow was important, but the real money comes from appreciation. We never had the most expensive rental for like units, always a little less which kept many in place and vacancy rates down.
Although I prefer the month to month lease, I would recommend extending the lease to a six month lease after a very thorough credit and background check is performed on the prospect, and then extend the lease thereafter for a year or so. What I have learned from my personal experience is that a bad renter will show their true colors early on. So by doing it this way, you are still protecting yourself. Good luck!
I screen carefully and very rarely have to ask a tenant to move out. But when I want them out, I really want them out and don't want to wait 12 months to get rid of them.
My very worst tenant was completely wackadoodle crazy on top of being a demanding whiner. He came with an 800 credit score, excellent income, and sterling landlord references.
If I'd been stuck with him for 12 months, I would have shot him well before the lease was up.
Did I mention he was nuts? He had a long drawn out temper tantrum because it was cold in the house, yet refused to turn the heat on because he "couldn't afford to run the furnace". He was furious because I couldn't get the temperature up without turning the heat on. (it was SNOWING outside!). He kept showing me that he could see his breath, and he had a thermometer to show me (repeatedly) that it was only 50 degrees inside the house.
He also had a temper tantrum because he vacuumed the rug and got 1/2 a canister of "dirt". His roommate had two 130 pound hairy husky dogs. Yet I was a slum lord because there was dog hair in the carpet and the house was "filthy".
He wanted me to replace all his groceries, have a hazzmat team disinfect the house, put him in a hotel, and pay for all his restaurant meals, because he thought he saw a mouse. No evidence of a mouse, but I set traps and bait. When he announced that he was going to report me to the housing authority because I wouldn't call the hazzmat team in, he got his 30 day notice on the spot.
Seriously. He had excellent landlord references. The only thing I can think was that he went off his medication.
Any time I hear the word "lease" I think of that tenant.
I only rent 12 month lease for 1st time renters moving into my units. Right now I am moving into only voucher tenants and they require 12 months at first then month to month. I recently told a sec 8 tenant that I was not renewing their lease because they were complainers, naggers, nasty people and they used the term "sue" too many times for my comfort. At least I got a years worth of payments. It will suck to have a vacancy after school starts considering it took about 3 months for me to find tenants last year for this building. If I was not comfortable with giving someone a 12 month lease then I will not rent to them.
After a whack-job tenant / roommate I had, I prefer month to month leases.
It seems that long-term leases can lock in a landlord more than a tenant.
Then again, well-qualified, professional tenants might be less likely to move at midnight, and be more easy to collect from if they do.
For roommates, I will only do monthly. They know I can say "30 days and you're out" whenever. It's worked well. They seem more appreciative of what they've got, and less entitled. Could be their individual personalities, but when I did yearly leases with roommate, one or two of them would end up very whiny and not on their best 'tenant' behavior. Short-term leases don't seem to take it for granted and follow the lease better... at least my roommates have.
The downside is... they can too. I've had several stay for long time monthly, though. I had one short-term lease that was a few months. The tenant walked away, offering to let me "keep" rent even though they ultimately didn't move in. Of course I could... they broke the lease and didn't move in. They "paid" that month they didn't live here, but had the key. I could've tried to collect the whole short-term lease, but didn't.
In an upscale single family home, I would require a year lease. I wouldn't want the wear/tear then short turn around for a whole nice house. I've seen too many near trashed, or at the very lease requiring deep cleaning. I wouldn't want to have to deal with that more than once a year per house.
I've wrestled with this; I lean towards year leases; I've even done a 2-year lease.
The month-to-month, if they don't wanna leave, they won't leave. If they're good people, month or year it doesn't matter, they'll tell you they need to move out next week (as we all know, people lose their jobs).
For a month-to-month renewal, I raise the rent 8%.
What is the easier contract to sign with a prospective tenant, month to month or yearly? With the current state of the economy and everything that is going on with policy I can understand why so many firms are nervous about a long term lease.
Scott, you said with a month to month renewal you raise the rent 8%, does that mean you are making that much more with all of your tenants on m to m renewals?
i don't want a month-to-month. they could qualify for a mortgage & find a great deal in november. Good luck trying to find a tenant in the holiday season.
I know 1 guy who's got 3 months & counting in a landlord's market. Nice home in a decent area but the phone ain't ringing.
Again, this is a gray area in landlording; there are pros & cons to each side.
Everyone has strong opinions on this subject. For me, I started out doing month to month leases because, as others have said, I didn't want to be stuck with someone I didn't like. That all stopped in 1998 when I bought a house and rented it out to a family. The day that they moved in, they found their "dream house" and gave me a 30 day notice. They paid for one month and didn't even stay the whole time. I then did twelve month leases, but I don't think that's long enough. I signed a lease last week with a couple for 30 months. They were in their last house for twelve years and said they would like to live in mine forever. They wanted to sign a fifteen year lease. I told them we would do 30 months and year by year after that.
I'm trying to have all of my leases expire in warmer months as others have mentioned. With a month to month, someone could move out between October 1 and January 1 when it's more difficult to find tenants. I offer my tenants free carpet cleaning to sign another one year lease when their lease expires.
I have a tenant who is bi-polar. Her boyfriend is also bi-polar. I haven't had any problems with them. (The neighbors now hate me). Neither of them can hold a job, but her parents are loooooaaaaded. The mom pays the rent in advance six months at a time. She will only sign a six month lease. She refuses to go any longer. I have the lease set to go from Feb 1 to July 31 and August 1 to January 31. That way when they do move, I'm in a decent season to re-rent. So far it hasn't been a problem.
I also do what Scott W. mentioned and charge more if they want a month to month. Back in May, I had a lease that was over and they wanted to go month to month. (They had talked of buying a house). I told them I would do a two year lease @ $950, a one year lease @ $975, or a month to month @ $1,000. They decided to go with the two year.
I have had tenants that I don't like. As long as they pay me, I don't have to like them. I'm not going to evict a paying tenant because I don't like them. If someone does break the lease, you can go after them for the difference. If they're not collectable, you can at least keep the security deposit.
I had a tenant sign a one year lease in March. Turns out, she was all kinds of crazy. In May, she sent me a 30 day notice that she was moving. I explained to her that she signed a twelve month lease and she needed to stay the twelve months. She mailed me a bunch of incoherent legal paperwork that made no sense. When she moved, I kept her deposit.
Sorry for the long reply. To sum up, I vote for a year (or longer) lease.
What is the easier contract to sign with a prospective tenant, month to month or yearly? With the current state of the economy and everything that is going on with policy I can understand why so many firms are nervous about a long term lease.
Scott, you said with a month to month renewal you raise the rent 8%, does that mean you are making that much more with all of your tenants on m to m renewals?
What is easier to sign will depend on the tenant IMO. Some want to lock in rents at today's price to avoid an increase down the road. Some are actually interested in being able to move ASAP without ties, because they fear the neighborhood or the landlord's willingness to do repairs and upkeep.
The 8% increase is something I build in to my lease for leases that run for multiple months, for the renewal rate if month to month. See link:
A couple years ago, I had shown a unit 35 times, in the summer. The previous tenants, who were still living there, had the place in bad shape.
Obviously, I didn't know any better so I kept showing it saying it'll all be fixed.
I get a phone call from a nice young girl. She had a teaching degree from the University of Illinois & took a job nearby to teach kindergarten.
She was on vacay for a month in Taiwan. She asked me to send her video, which I obliged.
I ran her credit; it was outstanding. I decided to take a chance - "2 year lease with 2nd year $25/month more." She took it, on the condition her job would be renewed with the school.
She chase quick paid me the security deposit & I went to town getting that sucker rent ready.
The 1st time she saw the place was when she arrived. She's been my best tenant ever.
The rent was $950/month & is now $975/month so this is a low income property.
Used to be month to month, now 1 year. As the area has improved the tenant has improved which, like the others say, with better tenants you want longer terms. I am also more likely to get first and last and security deposit with a more stable tenant.
For those of you with month to month leases, have you ever had trouble actually making the tenant leave after you did not renew the lease? It seams like someone willing to squat and force you to do an eviction would do the same whether on a long term lease or a month to month.
Do you still have to do the eviction process to get a constable to remove them from the premises?
