Are 1 year leases or month to month leases better

14 Replies

My plan is to do a month-to-month lease so I can gradually increase the rent on my tenants and then when I get to the number amount that I like then I would sign a year lease with them at that price? Would this work

@Jayden Hamilton I would advertise your unit(s) for current fair market value to begin with. You should be able to rent them.

Many investors in my area are only signing month to month leases right now not for the reason of raising rents but for a way around the eviction moratorium. If the tenant fails to pay rent they are given a notice of non renewal of lease which currently is an allowed way to get someone out of your unit in New Hampshire.

I’ve got 2 units I’m about to have to rent and will be offering a 1 year lease on one and the other I will probably offer a lease for the amount of time it takes it to come due for June 1, 2022. That unit is needing flooring and some work so it may not be ready till September 1. I’d rather have my leases come due in the summer when it’s convenient for people to move here as opposed to the winter when it’s -15 and snowing.

I agree with Alecia.  Advertise at fair market value instead of this plan to get tenants in then surprise them with increasing amounts of rent.  If you start out cheap you get cheap tenants (and a TON of applicants, likely many you would not want in your rental unit in the first place) and these folks will bail rather than deal with continuous rent increases.

There is nothing wrong with periodic rent increases; these are typically done when it becomes time to renew a yearly lease.

Gail

I'll offer a slight variation on the answers to-date.   

Firstly, the decision will be based upon your local market conditions, tenancy law in the jurisdiction, your own preferences and the property in question.

When vacancy is low, the risk to the landlord of a month-to-month tenancy is mitigated.  One could even argue that in a market where there is upward pressure on rents, an annual lease may be disadvantageous.

Tenancy law in your jurisdiction will also be a factor.  If it is easy for you to terminate a tenancy with a months notice, then month-2-month offers flexibility to both landlord and tenant.  If you are in a jurisdiction where termination of a month-to-month tenancy is not easy (hello Ontario), then you may want to take a closer look at any benefit of an annual lease.

Finally, the unit in question is a factor.  When we rent furnished rooms, or bachelor/1-bedroom apartments, to students we use month-to-month leases as turn-over is generally quick.   We have a couple of larger houses (one student, one for families) for which we use an annual lease as the impact of turnover cannot be justified for a tenancy less than 12-months.

Originally posted by @Jayden Hamilton :

My plan is to do a month-to-month lease so I can gradually increase the rent on my tenants and then when I get to the number amount that I like then I would sign a year lease with them at that price? Would this work


I'm not a fan of incremental changes. It's more likely to cause problems than solve them.

If your rent is currently $700 and you want to get it to $1,000 then it's best to get rid of the current tenants, turn it around, and rent it or $1,000. You may have a short vacancy, but the extra $300 a month will quickly compensate you.

If you start with a $700 renter and bump the rent every three months, there's a good chance the tenant will forget to pay the higher amount, that they will get pi$$ed off at the non-stop increases, or that they'll eventually not be able to afford the rent and just stop paying or cause other problems.

Summer is the best time to find a new tenant and lock them in for a year. Do it now. 

Thanks Roy. How do you find out what your tenancy laws are in your jurisdiction? I'm worried that one of my tenants is going to stop paying and I want to know the laws to get them out of my property without having to pay the expense to evict them. Because they are the type that will try to ride the wave as long as possible without paying rent and living still in my home.

Just an example: currently I'm getting $700 rent a month, say in the next two months I bump up the rent an additional $100 per month and then the tenants say they will pay the extra $100  but then they actually don't.... What would I do in this case scenario

@Jayden Hamilton ,

First--  nearly everything is online, if you can't find the answer, then find a good real estate lawyer.

Secondly, price it correctly when they move in.   How screwed would you feel if you moved somewhere, then the landlord kept increasing it each month right after you moved in!?!   Guaranteed way to have turnover and pissed off tenants.  I would be livid!   I mean it would feel like a scam, bait and switch-- be honest and upfront it's a long term relationship.   If it's worth 1,000-- list it as 1,000 -- regardless if it's M2M or not.     

Just put it on the market for the amount you like from the start.

Nobody is going to go for getting their rent increased every month I dont think. I wouldnt. Not good for your rep, IMO.

What would you do in the scenario when they dont pay? EVICT. But they would probably already be looking for somewhere else to live anyway w/a landlord like you.

@Jayden Hamilton I have done both month to month and one year leases. The one year leases work wonderful in my college close properties and would be harder if month to month. Other properties I would go month to month as it gives me a look at the tenant stability. If they work out and just keep them in same format, but if they are not good tenants, its much easier to give them notice to move them along. A one year lease makes it harder to remove the tenant should they turn ugly. Lastly, I am sure many would disagree with me, but I NEVER raise the rent if the tenant renews their lease for a second year. Namely, its a mental time suck for me to market, show, sign, and do the turnover. I get market rents day 1 and do not need to raise so fast. I value the quality tenant and its too much work to find the next one and know how they will actually turn out. I am pretty careful now when I accept a new tenant and have learned many lessons from my past.

Just another thought.

Not clear if you are starting with a vacant (or nearly vacant) property. If so filling it is a high priority. Having said that, you don't want to water down the qualification process. A tenant that qualifies at $700, may not qualify at $1,000 (nearly 50% increase!).

I would do one year leases and offer the graduated scale up front so you can qualify them based on the top amount, they understand the 'discount' they are getting as a 'move-in special'. They save $1,000 (making it up) in the first year and you get to fill the property more quickly.

Good luck.

Originally posted by @Jayden Hamilton :

Thanks Roy. How do you find out what your tenancy laws are in your jurisdiction? I'm worried that one of my tenants is going to stop paying and I want to know the laws to get them out of my property without having to pay the expense to evict them. Because they are the type that will try to ride the wave as long as possible without paying rent and living still in my home.

 I'd would expect that Illinois has their landlord tenancy law posted on-line.  In the U.S.A. Nolo is a good place to start when looking for landlord-tenancy regulation in any jurisdiction.

dude can you imagine how annoyning this would be if someone did this to you?  why would you do this to someone else?  how can they plan their finances with you rasing rent all the time  forget if this is legal or not just how rude rent it for market value to begin with and be done with it

We prefer 1 year leases and many lenders will require a lease like that to consider the income. ie, they won't consider income if it's a month to month. (doesn't make sense to me but that's their rules)

As far as rental rates, if the tenants are new to the property, it should be rented at market rate whether you do month to month or annual lease. When we inherit month to month tenants at under market rents, we advise them of a rent increase schedule. ie, $30 increase 2 months from now and then 6 months after that another $30 increase. That way there's no surprises.

If you give a tenant a rent increase, they can't choose to not pay it. It would be treated the same as any other non payment issue. ie, start the eviction process.