As a Landlord, Should You Use Month-to-Month or Term Leases?

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One of the largest expenses you will face as a landlord is tenant turnover. Every time a tenant packs up and moves, they leave a trail of dollar bills owing from your bank account. Therefore, we landlords want our tenants to stay forever. Sadly, that’s not going to happen, but we can have some influence over how long the tenant stays by signing the right kind of lease. However, does that mean you should put all tenants immediately on a long-term lease? Maybe not.

Your two choices when it comes to a lease are “term” and “month-to-month.”

  • In a term lease, the tenant is required to stay for a certain length of time. is term is usually one year in length, but some leases are signed for six months or nine months.
  • With a month-to-month rental agreement, the tenant is not required to stay for any length of time, but proper notice (as defined by state-law) must be given before they move out.

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Related: 6 Not-So-Obvious Tips From Experienced Landlords

The Major Disadvantage to Term Leases

It might seem obvious to use a term lease when renting to a tenant, but there is one major disadvantage to doing this: The landlord is also locked in to the lease. If you as the landlord don’t like the tenant, you have to wait until the end of the lease to get rid of them. With a month-to-month tenancy, you can simply give the tenant proper notice (as defined by your state) that you will not be renewing their month-to-month lease anymore, and the tenant has to move. This is a BIG stick to carry around and ensure your tenants are behaving, especially if you are new to landlording.

That said, if you do your screening correctly at the beginning, chances are your tenant is going to be just fine, so this probably won’t be an issue. Therefore, you will probably find it in your best interest to use term leases. For the first eight years of being landlords, we only did month-to-month leases with our tenants because we wanted the ability to ask tenants to leave if needed. Over those years, we’ve had to ask a very small handful to vacate, and most of them probably would have left anyway — with or without a lease. Now that we have mastered our screening techniques and are much more confident in our abilities to screen out the type of tenant who we would want the option to get rid of quickly, we have switched to term leases for most of our properties. Term leases also lower turnover of quality tenants moving elsewhere unexpectedly. If they know they are legally obligated to stay for a certain extended period, they (most likely) will, as opposed to having the freedom to move whenever they would like with a month-to-month lease.

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Related: 5 Smart Ways to Spend More NOW to Save Big LATER as a Landlord

How Long of a Term Should You Sign?

Now, how long of a term should you sign? To answer this, look at the seasons. Certain parts of the year are incredibly difficult for finding tenants, so why not use the lease terms to your advantage and make sure possible vacancies always take place when the market is perfect for a new tenant? Let’s say we needed to fill a unit on December 1st. There is no way we’re going to sign a one-year lease with that tenant because we know twelve months down the road we are going to have a tough time finding a tenant during the holidays. Instead, we’ll sign a six or nine-month lease to make the lease end in the summer or early fall, when units are easier to fill. Then, when the renewal time comes around, we’ll put the tenant on a 12-month lease from that point forward. It’s definitely our goal to make sure all our planned turnovers happen during prime moving season between June and September, so we work our leases around that goal.

[This is an excerpt from Brandon Turner’s The Book on Managing Rental Properties. To get more in-depth tips on property management and landlording, be sure to check out the full book.]

Do you prefer month-to-month or term leases? Why?

Let me know with a comment!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

15 Comments

  1. Gerald K.

    We do exactly as you do – work hard to have all our leases end during prime moving season. We have our leases end when most people are moving – when school is out. There is also more demand then and a larger pool of good tenants to choose from. Most good tenants don’t move in the middle of winter. I have heard landlords like to end their leases in winter because tenants they have don’t like to move then, but if they do, you’ll have the same problem trying to find a good tenant moving then.

  2. Christopher Smith

    Good Article

    I’ve had essentially the same experience, although I started all my rentals with a 1 year term that then went month to month after the first year.

    I now do a 1 year term initially and require all subsequent renewals to be 1 year as well. The only exception is for new leases that need a reset so the lease term ends in the Jul – Aug time frame to avoid (as you note above) year end renewals falling during the Holiday season. Recently did a 15 month lease to get back on the mid year renewal cycle for a property.

    I also do 2 year leases on my out of state properties since I don’t want to have to deal with those at a distance as frequently.

    • Katie Rogers

      If you screen well, a month-to-month is fine. If you are a good landlord that offers a decent home, your tenants will stay long-term, even many years. If you happen to get a bad tenant, a MTM gives you a lot more flexibility.

      Most landlords who insist on leases do so in order to trap the tenants in some fashion.

  3. David Stone

    Wow! Having the leases end around prime leasing times was worth the read right there! I have always signed 12 months as standard and never thought ahead so I will be changing my game plan from here on out. Great info! I have been contemplating starting with month to month. I like the control incase things go south and a lease doesn’t guarantee someone won’t up and move anyways. Plus I wouldn’t have to wait a year to increase rents if needed. Thanks for the insight!

      • David Stone

        I only have 5 units right now but definitely see the benefits in both. I had a unit where the tenant vacated (unwillingly) Dec 31st, I signed a 12-month lease ending Jan 1. Luckily the tenants have been long term, but if I would have thought about it further I would have put them in a 9 or 15 month lease probably to avoid the holidays surrounding a future move. I believe people need housing at all times of the year regardless of the peak season. And, I am only looking for the most qualified tenant, not necessarily the highest call volume on my vacancy.

  4. Deanna Opgenort

    Happy tenants stay until they have to leave (better job elsewhere, family reasons). Unhappy tenants will leave anyhow (and good luck getting any real $ out of them). Biggest reason for month-to-month is that I get to send problem tenants on their merry way with a 30 day notice without having to justify breaking a lease.

    • manuel gonzalez

      I agree happy tenants stay longer plain and simple. my rents are a little below market and I keep tenants longterm. I do 12 month leases and never thought about grouping them closers together around prime leasing time but what about if they all decide to move at same time. Yikes!!

      • David Stone

        Right?? I think staggering the leases to make sure they end far enough away from holidays and other time factors which could affect the length of your vacancies would work but not necessarily grouping all of your leases to end in the same one or two months because its the hot season to move. I’m glad you brought up that point… makes you think of good strategies to use. Thanks!

        • David Stone

          It’s definitely something to consider. The idea is new to me but I have had no problems having leases begin or end anywhere in the year. Many of my tenant’s leases have ended in January, March, December, etc and have had maybe 1-2 days of vacancy to clean the unit and the next tenant is moved in. Life happens and people always have needs, regardless of what time of year it is. And, someone out there has to have a vacancy those other 9 months of the year for those people 🙂

  5. With lower quality renters, a month-to-month lease is an absolute necessity. A longer term lease with a lower quality renter doesn’t mean anything anyway. They move, and you have no recourse as they have no money anyway. And you cannot get rid of them for just being an annoyance.

    In a multi-family, the one tenant could cause tenants to move out, or not want to rent. You need a month-to-month to get rid of them.

      • Chad Hale

        I use MTM for my own, personal, properties and encourage the owners of properties that I manage to allow me to do the same for them. I like the ability to get rid of bad tenants right away. Someone who slipped through the cracks or a long term tenant who has gone bad for whatever reason.

        Also for 1 year leases, all the power resides with the tenants. They can still break the lease and a judge will back them up if it takes too long to rerent, at least in California.

        I have not had any tenants decide to not sign a MTM because they wanted a 1 year lease. I explain and commit to them that I will not raise rent within the first year. That is what they are often concerned with. This also opens the door to set the expectation that there will be a rent increase after one year.

        Treating them fairly and firmly while communicating in a professional manner puts them at ease and makes them comfortable with signing a lease.

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