Extend tenants for 1-year or give month-to-month option?

Question

Hello all, I'm new to this, renting out my old SFH when I bought a new place. Halfway through the lease, things going well so far. The current tenants, a young couple,take great care of the place, always pay on time, etc.

My rental place is in a popular place for young professionals. I had 7 groups come for the only showing I did, 2 days after listing it on Craigslist, 4 put in applications and all were qualified. I rented it for $1600/month which seems in line with the area. From comments received, my place is towards the upper end of quality in the area, so probably could get a bit more ~1700-1750 perhaps. The lease ends in July and I would prefer to keep it on a one year cycle so as to keep vacancies in the summer when demand is highest.

The one tenant took a new better paying job and has an hour commute. Philly area so this is not abnormal but 20-40 minutes is most common. When they signed, I was clear that I didnt want to do month to month but I think that it's likely that they'll at least inquire again about month to month.

How much benefit is there to renting in summer time? Am I overvaluing this?

If I give them a month to month option, how much more would be reasonable / typical to charge? They are excellent tenants, don't want to chase them off. Also, what kind of notice can I require?

Any other ideas I've missed?

Chris Clothier · Answer

Fran Flanagan - I think you are over thinking the best time to rent a property problem a bit. Ours is very different as we see a spike in rental between February and May and it has been that way for 5 straight years. That being said, if they wanted to go on a month to month, I like Steve Babiak's idea of building in an automatic rent increase, but allowing that means that you have a great deal of confidence in the tenant to take care of the property and continue to pay on time. IMO, there is no reason to replace a tenant that is taking good care of a property and paying on time. Not even a higher rent. The trade-off of re-renting and making any necessary prep for the new renter is too high compared to the comfort of a good tenant. I would do anything I could to keep them including the possibility of going month to month.

Steve Babiak · Answer

To add: My lease has a built-in increase of at least 8% at end of the lease in the event of automatic renewal for month-to-month. I posted more details on how I offer renewal in this other thread:

http://www.biggerpockets.com/forums/52/topics/77245-best-method-of-renewing-leases?page=1#p456461

Kurt K. · Answer

I was reading a book saying something to the effect that you should do a month-to-month rent for everyone, since even with a lease most are allowed to break if given a 30-day notice, essentially making the lease a month-to-month thing for the tenant since they can leave with proper notice. Does this make sense? I can't remember exactly how it was worded but that was the jist of it.

George Paiva · Answer

It depends on the tenants but usually if they are a good tenant I allow it to go month to month. As long as there is a lease in place you will be ok.

Of course the risk is the season of vacancy. I haven't had too much trouble filling vacancies in the winter months even up here.

James H. · Answer

I think the seasonal nature of rentals has more to do with the school year than the weather. Although if you live in a place with a lot of winter snow, I could see that having some effect. General rule of thumb seams to be spring and early summer for optimal leasing. If you can get your lease expiration to fall during that time, you might as well do it. Otherwise, I don't see it being that big of a deal. Apartments and houses get rented in the winter all the time, too.

Tim Delp · Answer

I agree that it is generally better to be vacant in spring/summer as more people lookign to move then. I would possibly offer month to month option at a premium let them make the decision. If they've been good renters maybe offer a nominal increase of $25/month if they renew on 1 year lease or if they would prefer month to month offer that at $100/month. If they go month to month for 6 months the extra rent will help offset a little extra time for the new renter. I generally send "early lease renewal incentive" which gives them the couple options as mentioned above with higher rates for each option if they don't renew 60 days prior to their current lease ending.

Steve Babiak · Answer

I try to keep mine on a late spring / early summer ending; that seems when more tenants are looking to move. I have found that in the colder months, most don't "want" to move; who the heck wants to load and unload a truck when it's 15 degrees out, and maybe snow on the ground? So the ones looking during winter "need" to move. Some good reasons for the need to move include: need more space (expecting a child or elderly parent moving in), need to relocate for job, lease ended, house they are in had a disaster event strike (fire, hurricane like Sandy).

I just filled a vacancy during November with somebody who was moving due to house they were in had a break-in.

Just about anything else for a reason to move is suspect.

But you will get some on BP who will only do month-to-month. For your area the tenant quality can be a bit better, and the better tenants will follow the lease and not just move when they feel like it.

Extend tenants for 1-year or give month-to-month option?

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