What are the PROs and CONs of going month to month

8 Replies

I am on the hunted for my first multi family property with my sister as my partner in the state of Washington. We are seeing a lot of properties with tenants that are on "month to month" leases. Is this a growing trend due to the COVID moritorium on evictions? Should we keep practicing the leasing pattern going forward? 

@Doris Moore Many leases will go month to month after an initial period of time, usually a year. This is pretty standard in many markets and it puts some flexibility into the situation. Basically either party can end the contract with a 30 day notice. As an investor this can be beneficial if the rent is below market and you want to raise it upon acquiring the property. Or if you need to give notice to the tenants for whatever reason (rehab, poor upkeep, etc) it will only take 30 days verses however much is left in their lease.

If the tenant is good and you want the security you always have the option to renew at the same or higher rent. Hope this helps!

It may be because the tenant landlord laws are so tenant friendly in Washington and particularly Seattle.

Landlords often like leases because they assume they can breathe easy that the place is rented for awhile and that they can contol when month tenants move (not near the hoolidays, etc).  But we prefer M2M because we think it gives us more flexibility.  More flexibility to adjust rent amounts, and in most of WA the ability to end the contract with 20 days notice if things aren't working.  Tenants are going to leave whenever they need to leave regardless of the paperwork,so the longer time period benefits tenants more than landlords.

You should research the laws and ensure that Kirkland doesn't fall under Seattle rules and that King County does have more restrictive laws than WA.

@Doris Moore It makes sense to do what others in your market are doing and tenants get used to that. When we had tenants in California we did annual leases. Then we bought properties near Olympia Wa. and rented them through a PM.  We were initially shocked to learn that LL's preferred MTM leases because they favor the LL. 

In the meantime we moved to the Olympia area made additional investments, and all our tenants are MTM. We have learned the length of the lease has no bearing on how long a tenant stays. The tenant knows they can get a notice of non renewal from the LL at any time. Yes they are free to go too, but moving is no picnic and not to be taken lightly. So the advantage is in favor of the LL. We screen very thoroughly but stuff happens and things can change having the flexibility of not being tied to a one year lease is great, and besides our vacancy rates are low-about 1.5% max

@Doris Moore , if you are buying and tenents are on M2M basis, this is actually a good thing since you do not need to wait long time before you can pump the rent up. A lot of landlords go M2M after the first year. If the price is right, and the property is maintained, tenants will stay a long time. 

That said, with Covid, some areas are expected to see rent reductions up to 10% (especially Seattle and Bellevue). This is why I would prefer for now to go with a year contract till things get clearer with Covid, then switch to M2M if you want. I have properties on year and M2M basis. Feel free to call if you wanted to discuss more.

@Doris Moore As others have stated, I prefer purchasing properties where the tenants are either on month to month leases or their current lease will soon be expiring.  Additionally, we use 6 month leases to start with that automatically become month to month following the initial period.  This allows either parties to end tenancy should it be a bad fit.

Additionally, now with COVID and WA State's eviction moratorium many landlords are letting leases revert to month to month. This is being done to provide more flexibility should it be needed once this has been lifted.

John

My understanding with the local COVID eviction moratoriums is that 2 of the only exemptions for getting tenants out is for purposes of a sale and/or a landlord-owner needing to take up occupancy for themselves.  It seems like month-to-month tenants would be more conducive for either of those scenarios.