Pros and cons of month to month leases?
Realtor · New London, CT · Member since 2019 · 19 posts · 6 votes
Hi there, I’m a newbie just starting out with my first rental in southeastern CT. I’m curious to know what the folks on bigger pockets think about month to month leases compared to longer term leases.
Hoping to get insight that I haven’t thought of so please don’t hold back. Thanks!
I've always found that the term leases (anything over 30 days) always obligate the landlord, but never the tenant. I only offer month-to-month (MTM) leases in my properties. Here's why:
Let's say I sign a tenant to a one-year lease, and 3 months in, their personal/professional situation changes, and they break their lease and move out after a 30-day notice (or maybe less).
I am required, by law in most areas, to "mitigate my loss" by remarketing the unit, making it rent-ready, and starting up my lead generation machine to get applicants, funnel them into my screening system, identifying good candidates and ultimately leasing them up. This takes a LOT of my time.
If I went to get a judgement against this tenant for the balance of the lease (if I could even find them to serve court papers), the judge would tell me to go pound sand, absorb it as a business expense, go re-rent the apartment, move on with my life and quit bothering him with this "nonsense."
Another situation. Joe "pain in the a**" Tenant just signed a year lease. He is noisy and obnoxious and leaves trash in the common areas. I get numerous complaints from my "good" tenants, complaining about Joe. Joe's lease has provisions against this, so I properly serve him a "10 day notice to cure" using a process server ($$). He gets better for a bit, then goes back to his old ways. So, I serve him again ($$). This goes on.
I finally get so fed up that I serve him ($$) with an eviction notice for breach of lease. I spend time and money getting the petition and go to court. Joe tells the judge he "promises" not to do it again and shows receipts from all his on-time rent payment, so the judge gives him "one more chance. " Invariably, I'm back in court AGAIN. I may or may not get a warrant for eviction this time, but meanwhile two of my good tenants have moved out, exasperated by their neighbor, Joe.
Sure, my lease states that Joe is financially responsible for my expenses associated with the enforcement of the lease provisions, but good luck with that.
In each of these cases, the lease favors the tenants, and limits my rights as the landlord.
My month-to-month leases give me the right to terminate the lease for no reason or any reason, including being an "a**." If they don't leave, I get a holdover eviction warrant on them. I find this is a MUCH easier judgement to get than for breach of lease or even non-payment, since the tenant can "cure" his non-payment by showing up to court with the unpaid balance. Meanwhile, next month he starts neglecting rent payments all over again.
I always found that GOOD tenants love the flexibility that the MTM lease affords them if their personal or work situations changes. I tell them I don't want anyone living in my properties that doesn't want to be there, and that is precisely what would happen if they signed a year lease and their situation changed.
I explain to them I am not in the business of whimsically kicking people out, because that costs me money (see the lead generation paragraph earlier in my post), and my goal is to find really good people to call my properties home and then take good care of them so they want to stay a long time. In contrast, bad tenants don't like the MTM leases (another form of self-screening) because they know they'll be out on their ear in 30 days. So, if a tenant pushes back on the MTM, to me that's a red flag, because there really is no down side for them unless they are up to no good. If they are good tenants, they don't worry about it for a single second because they expect to follow the rules, and they rest easy at night knowing their neighbors will have to do the same.
I'm a time sensitive person. Meaning that time means more to me than money. Most people are the opposite. I use 1 year leases only. No month to month. I have greater tenant retention this way and fewer move outs. This results in less releasing saving me a lot of time. I would rather be at the gym or romancing my wife than turning over vacant property all the time.
I've always found that the term leases (anything over 30 days) always obligate the landlord, but never the tenant. I only offer month-to-month (MTM) leases in my properties. Here's why:
Let's say I sign a tenant to a one-year lease, and 3 months in, their personal/professional situation changes, and they break their lease and move out after a 30-day notice (or maybe less).
I am required, by law in most areas, to "mitigate my loss" by remarketing the unit, making it rent-ready, and starting up my lead generation machine to get applicants, funnel them into my screening system, identifying good candidates and ultimately leasing them up. This takes a LOT of my time.
If I went to get a judgement against this tenant for the balance of the lease (if I could even find them to serve court papers), the judge would tell me to go pound sand, absorb it as a business expense, go re-rent the apartment, move on with my life and quit bothering him with this "nonsense."
Another situation. Joe "pain in the a**" Tenant just signed a year lease. He is noisy and obnoxious and leaves trash in the common areas. I get numerous complaints from my "good" tenants, complaining about Joe. Joe's lease has provisions against this, so I properly serve him a "10 day notice to cure" using a process server ($$). He gets better for a bit, then goes back to his old ways. So, I serve him again ($$). This goes on.
I finally get so fed up that I serve him ($$) with an eviction notice for breach of lease. I spend time and money getting the petition and go to court. Joe tells the judge he "promises" not to do it again and shows receipts from all his on-time rent payment, so the judge gives him "one more chance. " Invariably, I'm back in court AGAIN. I may or may not get a warrant for eviction this time, but meanwhile two of my good tenants have moved out, exasperated by their neighbor, Joe.
Sure, my lease states that Joe is financially responsible for my expenses associated with the enforcement of the lease provisions, but good luck with that.
In each of these cases, the lease favors the tenants, and limits my rights as the landlord.
My month-to-month leases give me the right to terminate the lease for no reason or any reason, including being an "a**." If they don't leave, I get a holdover eviction warrant on them. I find this is a MUCH easier judgement to get than for breach of lease or even non-payment, since the tenant can "cure" his non-payment by showing up to court with the unpaid balance. Meanwhile, next month he starts neglecting rent payments all over again.
I always found that GOOD tenants love the flexibility that the MTM lease affords them if their personal or work situations changes. I tell them I don't want anyone living in my properties that doesn't want to be there, and that is precisely what would happen if they signed a year lease and their situation changed.
I explain to them I am not in the business of whimsically kicking people out, because that costs me money (see the lead generation paragraph earlier in my post), and my goal is to find really good people to call my properties home and then take good care of them so they want to stay a long time. In contrast, bad tenants don't like the MTM leases (another form of self-screening) because they know they'll be out on their ear in 30 days. So, if a tenant pushes back on the MTM, to me that's a red flag, because there really is no down side for them unless they are up to no good. If they are good tenants, they don't worry about it for a single second because they expect to follow the rules, and they rest easy at night knowing their neighbors will have to do the same.
Hi there! Welcome to the club of becoming a landlord! I offer m2m as well. I like it that way, so if any of my tenants need to move, they would need to tell 60 days on advance. So far, only one of my tenants left because she went to live to her own home. My tenants are so happy to live in the property that they all say that they will live there until they can buy their own home.
@Shawn Burns This gets discussed here regularly, so lots of prior threads to look at.
We used to do one year and MTM thereafter now we just do MTM. No annual leases anymore. MTM favors LL and keeps the tenant on their toes. Yes they can leave when they want, and when they do we raise the rent for the next tenant.
When we had tenants in California they were all on longer term leases. Here in Wa most everyone is MTM.
Check and see what other LL's in your area are offering; to some extent you will want to fall in step with the market. All the best!
M2M all day long. I've had several tenants on M2M for 8 plus years. Never lost an applicant or tenant early because of M2M. I have corrected the behavior of a couple tenants by reminding them of M2M. M2M is one of the best things I've learned in 12 years of rentals.
Just because they sign a one year lease doesn't mean they will stay the full year. They will move when they want. I had one move in with her new boyfriend after 2 months of a one year lease. And one I wanted to get rid of after 6 months of a one year lease but was stuck with her until the lease was up. MTM only. Good renters don't mind.
@Shawn Burns we have this battle with our owners all the time. @Wesley W. laid it out perfectly. Most think that the longer the lease the more 'stable' the property will be but that is really just an illusion on paper. In the real world a LL will have to mitigate damages and take reasonable and timely steps to re-rent the unit... most courts will limit your loses until you find a new tenant... IF they enforce your loses at all (most wont). As a property manager, we get get push back from most owners all the time against M2M, as you can imagine, most believe it's just an attempt to charge them extra leasing fees - even though we give them a tenant guarantee for a period of time. The reality however is that most have to realize: 'You can not make or force a tenant to stay in your unit regardless of what legal instrument, lease, or contract you use' --- So understanding this and that a tenant can move out and break lease at any time with limited or no repercussions the long term lease really only binds the LL - M2M would make your life easier and lessen your costs.
I'm in the month to month mindset as well. They act up and either the rent jumps or they are invited to leave.
I can’t help but snicker when I see people on here locked into a 2 or 3 year lease thinking they are reducing turnover or creating some kind of tenant retention game plan lol do you honestly think the tenant gives a crap ? Look they will leave when they feel like it and it suits them ! M2m is the only way to go
@Shawn Burns
Depends on where you are at.
MTM in the winter in Iowa sure stinks when somebody leaves in December. And no, not everybody just leaves when they want, like many in the “only MTM” camp will tell you. People absolutely honor their leases most of the time.
I prefer to protect myself with rigorous screenings and requirements. Of course it doesn’t always work, but most of the time it is better than not. I do a 1 year lease, ending in the spring or summer. It works best for me.
@Anthony Wick
How many times have you actually tried a m2m in your business Anthony ? Or are you just figuring that’s the way it is ? Didn’t we read about some issues you had not too long ago with your tenants screwing you on here ? Perhaps you would have had better options on a m2m instead
@Dennis M.
I have absolutely had tenants break a lease. One recent tenant was great for about 14 months and then broke her lease. I evicted her.
I’m very clear that no system is perfect. I’m also very clear that in my coke weather state having leases run into the spring or summer does work better.
I never shared that I also had a recent tenant that wanted to buy a house. They decided to wait until this spring because they didn’t want to break their lease and run the risk of being responsible for a new mortgage, plus their rent if I could t find a new tenant.
I’d rather tenants at least think about their lease than merely giving a 30 day notice in December or January.
@Dennis M.
I have absolutely had tenants break a lease. One recent tenant was great for about 14 months and then broke her lease. I evicted her.
I’m very clear that no system is perfect. I’m also very clear that in my coke weather state having leases run into the spring or summer does work better.
I never shared that I also had a recent tenant that wanted to buy a house. They decided to wait until this spring because they didn’t want to break their lease and run the risk of being responsible for a new mortgage, plus their rent if I could t find a new tenant.
I’d rather tenants at least think about their lease than merely giving a 30 day notice in December or January.
So you never tried a month to month then or is this narrative based on experience ? I think if you tried both models you’d find Long leases are an illusion that protects the tenant not the landlord . There’s a reason these guys on here with far more years and units than us constantly repeat the m2m . It’s nuggets of wisdom .
@Shawn Burns
Just keep one thing in mind. The terms of the agreement are almost always voidable or at least debatable.
When tenants want to move you will not stop them. You may win in court but all parties lose will lose money or worse time in court.
We’ve had over a hundred tenants and we have only had one or two leave at the end of the term. Most people leave before or stay longer.
I try to get tenants to sign a three year lease. Sometimes they opt for a year lease and I usually give it to them.
I usually let tenants go month to month after lease expires. Unless I need leases for the bank then they need to sign.
The most important items in the lease to me are payment and maintaining the property. I like to have good rules and enforce them. Like late fees.
I say the longer the lease the better it looks to investors and bankers. And the better chance you have for less turnovers. So I recommend a three year lease.
@Shawn Burns Southeastern Connecticut has some opportunity and it sounds like you found something down there, congrats on that.
The only way a month to month lease isn't ideal is if the tenant is looking for stability and looks at the month to month lease as an easy out for you. Also, as a landlord if a tenant moves out let's say 4 months into a month to month lease that is more lease and vacancy cost for you as the landlord. Get a couple of those in a year and it really cripples your cash flow.
@Dennis M. I just don't believe in a one size fits all scenario. But I don't necessary consider a 1 year lease a "long term lease". I believe it also depends on area, number of units you own, how many reserves you have, etc. Yes, with a MTM, the landlord controls a quicker lease termination and move out. But I've had a MTM before wherein the tenant decided December would be a good time to leave. I've had an open unit for a couple months in the winter. I bought a duplex last winter and had two open units for 6 weeks. If that's a person with just a couple units and just starting out, that's a 50-100% vacancy rate. Just harder to get tenants in Dec-March here. If a person on a 1 year lease decides they will leave, for whatever reason, you do have options (keep damage deposit, take to court, etc). It's small remedies, but it is remedies. Again, MTM works great for people. I just don't like it for my units, in Iowa. And a 1 year lease here is very common, so it's not like I'm going against the grain.
The only time I can see this make sense is if you plan to brrr the property that year . A bank will want to see one year leases they view this As a security in a sense apparently . Of Coarse as landlords we know better . Most tenants will leave when it suits them
Hey everyone, thanks so much for your input. I’m personally more concerned with the prospect of being stuck with a bad tenant rather than having a tenant move out with short notice. So I think I will stick with the M2M leases for now.
Thank you all for your time, it was very helpful.
hey @Shawn Burns
We always use 1 year leases for our Groton area properties for the most part. For no other reason than we're able to track renewals and rent increases better. We use the year anniversary for mandatory unit inspections, fee collections and rent increases. Now nothing says we couldn't do that with a M2M lease in place, but this process works for us. We have done a M2M lease for tenants that we've placed in certain complexes and those tenants may have a past that isn't favorable. As in we want to give them a 2nd chance but just in case; M2M.
have had the same Tenants for 3 years they are now month to month from now on
Yearly lease PROs:
Yearly lease CONs:
Monthly lease PROs:
Monthly lease CONs:
There will be many arguments for either but from my experience yearly leases 'bind' the Landlord much more than they do the Tenant. Why not make a Hybrid and create one with the best characteristics of each?