month to month lease VS. Annual

8 Replies

My first question here....but I wanted to wait until I actually 'owned' a rental income property rather than be seen as a "I'll get in the game soon big talker" :)

The dilemma or situation is certainly not dire - I have a great job and W2 in Boston and purchased back home in Central New York.  Better market for ease of entry and my price range! $$

backstory:  3 bdrm 2 bath vacant for now - which I can afford and BOS but ideally (obviously) not for long.  One of the first great applicants has offered $200 MORE monthly rent  in exchange for month to month.  Tempting, but since i dont want it to be all about the money it would seem theres a dangerous 'catch' here.  Great references and ability to pay on time from previous landlord.

Since CNY is not ideal for winter moves my  plan was to have a lease go to August or September and then switch to an annual lease.

Any words of wisdom here??  Many thanks

What does that $200 per month extra mean?  If they stay a full year, does it net you another month's rent? Two months?  This should factor into your calculation.  Why do they want MTM?  Has there been other interest in the property from qualified renters?

If you do accept it, make sure the lease states a clear notification time for termination.  I'd try for 60 days, but would not accept anything less than 30 days.  This way, you can properly market the property when they're set to leave.  You could also set penalties for terminating during certain months.  IE Nov-Feb, as it you mentioned it's tougher to rent in the winter months. 

Just my 2 cents worth.

Many landlords only offer month to month leases because it allows you to get rid of a bad tenant if need be.

@Thomas H.McNeill I always require a year lease when first renting to a tenant. At the end of the year, my lease automatically goes to month to month. Good tenants get a leave renewal letter with two options. Pay X and sign up for another year or pay X+$50 and go month to month. I have one tenant that opted for month to month and now one year later, he is still there. Many people just like the flexibility of month to month. In your case, I would be skeptical why he wants month to month so badly. My guess is he has plans to move in less than a year. For me that is a non starter. Turnover costs are one of the biggest expenses in the rental business. You can't be renting to people who only plan to stay there a few months.

I would allow month to month if it was November-January, because those are hard times of the year to rent. March is a great time, coming into spring so you should have no trouble finding someone who will sign a lease.

I don't totally understand why some landlords only rent on month to month. If the tenant is "bad" that means they are probably breaking the lease, so you would be able to evict them even when they are in a lease term. I like leases for good tenants because they keep my tenant form shopping for a better place.

That being said, leases do give landlords a false sense of security. I have had tenants sign a lease, only to break it and move out. You can't force someone to stay in your property. You can have some financial penalty for early termination in your lease, but that is about it.

As others suggested, I would suggest a 60 day notice requirement in your lease, if allowable by law.

@Thomas H.McNeill There are two modes of thinking on this, and both have their merits.

1) Year leases will "keep" good tenants at the property, as they will honor the agreement they signed and recognize that there's a legally binding contract which they have to follow. This does, in fact, work with the best tenants.

2) Year leases don't have an effect to the extent that it actually protects the landlord. Tenants move when they need to, even the 'best" ones, and a MTM lease gives the landlord more flexibility to get rid of bad tenants.

The issue here, as others have pointed towards, is that if a tenant is asking for a MTM lease from the outset then they're obviously not expecting a long stay. With a MTM lease that leaves a question of when they'd move out as unanswered, so could could get stuck with a vacancy during the slowest leasing season. The vacancy from that may override the boosted rent you'd receive. Alternatively their plans could change and they could end up staying longer than a different tenant who signed a year lease.

The year long lease "feels" more secure, since you "know" you'll have tenancy for that period, or at least legal recourse for recovering vacancy in that term. The reality is often that you never know when to expect vacancy and recovery is difficult, if it occurs at all.

I think the best choice really comes down to what space you're operating in in your local market. If you're in the top end, the security of the year lease is probably more beneficial than not as you'll expect to have tenants who value their credit scores. In mid to lower segments that won't be the case, and protecting yourself from bad tenants becomes more important, so the ability to non-renew a MTM lease can be important. As a side note, in MO the state statute for a tenant that overstays a non-renewal, "unlawful detainer", is then required to pay double the rent for the period in which they unlawfully occupy the property.

Currently in the PNW there is a shortage of rentals, and evictions can be painful; so the fashion is MTM; a few years ago it was leases. A couple of years from now the pendulum may swing back. Like others here we focus on getting the best tenant possible and offer MTM, at least for the first year.  

Either way as a wise woman said on here recently "there are two things you cannot control as a landlord-when they pay  and when they leave". 

In tenant-friendly NY, I've always found that a term lease only benefits the tenant, and not the landlord.  Specifically (as others have stated), it makes it very difficult to remove a tenant who is paying their rent but violating the lease in other ways.  If a tenant moves out early and breaks their lease, you as the landlord are still obligated to mitigate your losses by turning the unit over and marketing the unit again - something you'd have to do with a MTM vacancy anyways.  I've very seldom heard of a landlord collecting more than a month's rent as compensation for a broken term lease.

If a tenant wants to move but feels obligated to stay and not break your lease, that is also problematic.  I don't want anyone living in my properties that doesn't want to be there.  It just makes both parties miserable and strains our professional relationship.

A concern with MTM leases that some have is that tenants may leave in the middle of winter when it is hard to find a new tenant.  In upstate NY, I still find this a rare occurrence as most people don't want to move when the weather and temps can make it more of an ordeal.

I have only ever done MTM leases for my rental units and it has served me well.

@Thomas H.McNeill I like your idea of one lease to August then an annual.

Personally I always do TAW!

Thanks for your insight here...all valid points!  Growing pains right - gotta pull the trigger and learn by doing.

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