Renting: Month Lease or Year Lease?

Question

Hey guys!

How many of you do month to month leases, verses one year leases? (Renting)

Can you elaborate, and explain why you favor the one you do? :)

Thanks!!!

Kelly N. · Answer

We prefer long term leases (mostly 12 month, sometimes slightly longer or shorter).  This is what most places in our area do, mainly because of the proximity to colleges in my opinion.  We like our leases turning over in the summer since most of our renters either need to move in before the fall school term starts or because they already have a lease ending then.

Typically, we start marketing our summer openings in the spring, and have them all leased well before they are vacant.  We just schedule a bit of time between tenants to make sure the unit is clean and in good repair (some landlords don't bother with that part around here), and if updates are needed we build in time for that too.

Wesley W. · Answer

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.

Wesley W. · Answer

Educate your lender that you actually have more security to protect your (their!) asset with the MTM.  They need to get with the times!  If not, find a new lender.

Chad Hale · Answer

@Patricia Steiner  I have had not had month to month leases not being used in DI calculations for refinancing. FWIW

Bjorn Ahlblad · Answer

Last 5 years it has all been MTM before that longer term. Much prefer the MTM. Tenants have less security and are more respectful. 30 notice of non renewal, or a 30 day notice of rent increase are powerful tools.

Bjorn Ahlblad · Answer

We get asked for one year leases all the time.........we just don't do them anymore. Our business model has been MTM for the past five years. It works really well.

Courtney Walker · Answer

@Wesley W.  I agree for the exact reasons you stated.  Taking someone to court to HOPEFULLY collect the balance owed if they break a one year lease is time consuming and costly in most situations.  MTM gives the landlord more options.  Take care of your property, do proper screening and chances are the tenant/landlord relationship will be beneficial to both parties.  But this is a business so there’s always that chance of getting a problem tenant regardless of what route you take.

Patricia Steiner · Answer

There's another important reason for renting on an annual basis with leases:  you can use that cash flow in obtaining financing.  Month-to-month leases do not qualify in DI calculations for financing.

When purchasing a property with month-to-month tenants, I include the vacant possession clause in the contract and will not close until the tenants are gone. I always want to buy good properties - but not the seller's problems.

Renting: Month Lease or Year Lease?

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