Tenant Renewal- How to avoid month to month in exchange for fixed

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Tenant Renewal- How to avoid month to month in exchange for fixed

Marcus MacDonald
Member since 2020 · 2 posts · 0 votes

Hello,

I have a tenant renewal coming up an it’s my first one. My lease has a month to month term, which can be terminated with 30-day notice. I am worried about my tenants leaving me in the middle of winter when occupancy rates and move ins are at lows. Can you tell me what your experience has been with this? 

Also, if rental rates sky rocket, do you increase rents to marketable levels or by a certain amount?  I know state legislation affects everyone in a different way, but curious to see what your process is. I am trying to make an equitable situation for me and my tenant. 

I appreciate the help and advice! :) 

Thank you,

Marcus

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
6y

@Marcus MacDonald think outside the box!

We don't do MTM leases for new tenants. About 15% of current tenants inquire about renewing with a MTM when their current lease is up. IN OUR LEASE ARE OUR RENEWAL TERMS:

1) A standard 5% increase unless they contract 60 days ahead of time to negotiate otherwise.

2) If they want a MTM renewal it's a10% increase AND if they are there October 1, the lease requires them to stay until February 28.

As already pointed out, it's not uncommon for tenants to break a lease and vanish without warningly or. There's a direct correlation with this and the tenant demographic - likelihood increases with lower demographics. It's not that difficult to deal with though.

Overall, having renewals built into the lease supplemented with our automatic email reminders we send, leads most tenants to cooperate. Think of the 80/20 rule, 80 percent will follow and be s relatively easy to deal with. The other 20 percent will be difficult no matter what you do.

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  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    @Marcus MacDonald, welcome to the wonderful world of property management, aka being a landlord.

    Month to month, or long term lease, tenants do the darndest things.  Yup, sometimes they leave without notice, in the middle of the night, when it's 20 below and turn off the heat.

    Fortunately, that is the exception.  

    You can weigh the benefits of each type of tenancy for yourself, but just remember to expect the unexpected.  

    Take precautions like asking your neighbors to report anything that seems suspicious or out of line.  Keep communication open between you and the tenant.  Inspect the property on a regular basis (we do 2--3x per year at a minimum), and take care of maintenance issues asap.

    Good luck on the adventure!

    1Reply
  • James Mc Ree
    Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 934 votes
    6y

    My leases go month-to-month and I haven't had anymore move out in the Winter in 7 years across 6 properties. It certainly can happen, but that is not the peak time for families to move.

    Check your local market for current rents. Try to bump your rent up $25 or so if you are in the market rent ballpark. Your justification, if you need one, is taxes, insurance and other expenses go up, so rent goes up too. You can position the increase as $50/month as the lease is now month-to-month or $25/month if the tenant commits to another 12 month lease. Vary the amount to suit your situation.

    You may get a 12 month commitment or you may get the tenant's real intent. No matter which way it goes, you are getting a little more rent and information, and maybe a 12 month lease.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    6y

    @Marcus MacDonald think outside the box!

    We don't do MTM leases for new tenants. About 15% of current tenants inquire about renewing with a MTM when their current lease is up. IN OUR LEASE ARE OUR RENEWAL TERMS:

    1) A standard 5% increase unless they contract 60 days ahead of time to negotiate otherwise.

    2) If they want a MTM renewal it's a10% increase AND if they are there October 1, the lease requires them to stay until February 28.

    As already pointed out, it's not uncommon for tenants to break a lease and vanish without warningly or. There's a direct correlation with this and the tenant demographic - likelihood increases with lower demographics. It's not that difficult to deal with though.

    Overall, having renewals built into the lease supplemented with our automatic email reminders we send, leads most tenants to cooperate. Think of the 80/20 rule, 80 percent will follow and be s relatively easy to deal with. The other 20 percent will be difficult no matter what you do.

    [email protected]248-209-6824
    Logical Property Management4.9458 Reviews
    WebsiteView Page
    2Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    @Marcus MacDonald

    I do 1 year leases to avoid vacancies in the winter, and I do market rate, or extremely close, at all times. I raised rents during Covid, because their alternative if they moved would have been even worse for them. I’m in it to profit.

    1Reply
  • Percy Matsunaga
    Flipper/Rehabber · Sacramento, CA · Member since 2016 · 282 posts · 85 votes
    6y

    @Marcus MacDonald

    I have a property in CA and the it rents higher in the summer months. So I always have a year lease with the lease ending in June, July or August. That way I can get the most rent possible on the property. 

    M2M is too short for me, Although the tenant can always move out before the lease is up, but I would be still in control over the length of time when I really need to be looking for a tenant. 

    0Reply
  • Marcus MacDonald
    OP
    Member since 2020 · 2 posts · 0 votes
    6y

    Thanks for the replies everyone! They have all been great ideas and help me expand my knowledge. My tenant ended up signing another 12 month lease for a slight increase. I will definitely be changing my future leases. 

    0Reply
  • Adam Martin
    Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    I haven't done it however I saw another post that on their lease instead of it defaulting to M2M it defaulted to another year which I thought was clever.  Rents aren't raising super fast where I am so I have thought for my next one I will try to put it in there that the lease extends another year or goes M2M for a 10% increase.  I am ok with collecting slightly less on my rent rolls in exchange for reducing turnover and keeping things simple.  I have a full time job, kids, and hobbies so while I am certainly in this for profit we all have limited time and money and sometimes we have to make a tradeoff.  If they were there for a few years I could always slip in an increase here and there upon renewal. 

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  • Zachary Ray
    Investor · Tampa, FL · Member since 2017 · 589 posts · 251 votes
    6y

    Month to month fees should be charged at a higher rate to help cover the risk of them leaving quickly. Lock them into a long rate to prevent this. 

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y

    We generally don't bother re-upping tenants beyond M2M unless they ask. All new tenants we require a one-year lease if the property rents between March & October, anything else will end on June or July 30th. Once a tenant proves to be one we want to keep, we leave them the flexibility of M2M. We can then raise the rent as prices dictate or they can leave when they buy a house or move out of the area. And sometimes good tenants go bad, and having M2M gives you flexibility to send them on their way.

    Bottom line is anyone who really wants to leave, will, regardless of whether they have a lease or not. We used to worry about having to re-rent in winter, but we've rented all 12 months of the year and renting in winter also has some advantages - very low inventory, and usually more serious inquiries/applicants instead of the good weather tire kickers.

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