Month to month vs 12 month lease? Which is better?

Question

My husband and I bought of first duplex. We went back and forth on leasing options, but decided to go with a month to month contract for our first tenants. Which contract option is better - month to month or a 12 month lease?

Kyle J. · Answer

Longer leases are typically more advantageous to the tenant since they have a guaranteed place to live, can’t be kicked out (except for very serious violations of the lease), the landlord can’t raise their rent, etc.

Month-to-month agreements are typically better for the landlord since you can usually change the terms whenever you want with proper notice (often with as little as 30 days notice), increase the rent as much and as often as you want (again, often with as little as 30 days notice), and more easily sever ties with tenants who aren’t working out.

People often assume long leases lock tenants in, but the reality is they usually just lock landlords in because tenants generally just leave whenever they want. They get new jobs, get divorced, break up with their boyfriends/girlfriends, have fights with their roommates, and then they just move.

You can’t physically force them to stay, and the reality is you can’t even usually legally hold them to the full obligation of the lease because almost every state requires the landlord to mitigate damages and make a reasonable effort to re-rent the place to another tenant.

So whose hands are really tied by longer leases?

Aaron K. · Answer

12 month because it gives you some control over when vacancies happen (you can also do whatever month number will put you in a good position), for example if a unit goes vacant in winter it is harder to fill and may rent for less while the opposite is true in spring.

Account Closed · Answer

@Heather Nunn

Answer depends heavily on local laws. I do 12 month leases all set for turnover August 31. But I do that because I have an influx of around 8% of population sept 1 for school. And I also have the advantage of being able to end the tenancy at 12 months if I choose. Meaning it’s up to me. With month to month I don’t have that control. The only time this changes is if I have someone not compete their term and have something start in the winter, then I’ll do 6 month followed by 12 if I renew them.

Dennis M. · Answer

Lower income area -you should do month to month no question.

Nathan Gesner · Answer

The only time a month-to-month would be more advantageous is if you are an inexperienced Landlord or the eviction laws are extremely tenant-friendly in your area. The advantage is that you can give the tenant 30 days notice and they have to leave. Unless they don't want to, in which case you still have to evict. There's no perfect solution.

Long-term leases are advantageous because you can project vacancies and prepare for them. You get stability. Tenants tend to stay longer. Yes, there is the risk of a Tenant breaking the lease early but I have ways of mitigating that risk and in about 80% of all early terminations, I actually make more money than if the tenant stayed.

It's a matter of understanding the law, building experience, and developing solid policies and procedures to minimize your risk and increase income.

Nick K. · Answer

I'm currently going through the downsides of a 12-mo lease. I don't have extensive property management experience, but I've been doing it since 2015. I'm in CA, which I think is its own beast. Laws are set up different, and stricter. Your situation will probably be different, so take what I have to say for what it's worth.

Before my most recent tenant, I was a solid advocate of 12-mo leases. It gave the advantage of locking down a tenant so you didn't have the worry about having to regularly re-rent the property should the tenant give notice. Compared to my current tenant, the past ones (who seemed pretty good at the time), now seem like perfect-angel unicorns. They were clean, paid rent on time, or early, and never made a fuss. If I had to make repairs or updates to the property they'd happily oblige and even went out of their way. I think they knew that I was only trying to make things better for them.

My current one. Wow... I thought I had screened well, but somehow she got through. Honestly, I think I was in a little rush. I needed to get it rented so that the purchase of another property could go through. She has been nothing but bad news. I did a thorough financial screening and called her past landlords. They said only good things, even the older ones. I understand the prior landlord lying in order to get her out, but why would the older ones also lie? I'm still thinking on that one.

Six months in, she has paid rent on time about half the time. She allows her pets to destroy the property. Her illegal guests disturb and endanger the neighbors. She doesn't allow me entry to make repairs, even though it's my right. Basically a nightmare. I'm counting down the days until she is someone else's problem. I've consulted multiple attorneys. When I told them she was on a 12-mo, they said to never do a 12-mo. Even though she chronically pays late, is dirty, is destroying the property and disturbs the neighborhood, the attorneys said that there wasn't much I could do, unless I really wanted to fight her and try to evict. In order to to do so I'd have to forgo multiple months of rent until it gets resolved (you can't evict and accept rent) and there isn't even a strong guarantee that I would win (CA is a tenant-siding state). So my only recourse is to hold my breath and wait six more months until she's gone. Even regarding the denial of entry thing in order to make repairs. The attorneys said that, yes, it is my right as landlord, but there's nothing to keep her from claiming that I stole property when I entered. They said I would literally need to go in there with another person and film the entire time just so I could prove that I didn't steal something.

That being said, some things will probably be different in your state, and your city. I'd ask the local attorneys what the law is like and how bad it would be to end up with a terrible tenant, then weigh the risks/rewards of shorter/longer leases. A M2M may be a little inconvenient now, but at least it gives you a solid out in case things go south.

Hope my misfortune can help you make a better and more informed decision. Best of luck.

Justin Tahilramani · Answer

Heather,

I would recommend seeking advice from someone who understands rentals in your area. The decision on month-to-month vs 12 months is completely dependent on the market drivers in YOUR area. Also, im just going to go out on a limb and assume that VA and CA landlord tenant law is quite different......

Heather Nunn · Answer

@Kyle J. Great perspective - thanks!

Month to month vs 12 month lease? Which is better?

Month to month vs 12 month lease? Which is better?

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