Is a Month-to-month Lease Better for Landlords?
The lease agreement between you and your tenant can be either yearly or month-to month.
While long-term lease agreements are still more popular, there are many reasons why a short-term lease may be more rewarding for you as a landlord. It’s important to know the benefits of both in order to make an informed decision.
What are the cons of a month-to-month lease?
Just like every decision, there are both pros and cons to consider before choosing the length of a lease agreement.
One downside of this lease type is that it doesn’t offer much permanence to landlords looking for long-term tenants.
Also, under a month-to month-lease, tenants can give landlords vacating notice as short as 10 days. This lease arrangement may mean less security and added stress for you.
With a short-term lease, it’s generally expected that you and the tenant will break the lease at some point in time. It’s reasonable for tenants to provide a 30-day notice under a short-term agreement, but there’s no way to prevent them from suddenly breaking the lease with short notice.
What are the benefits of a month-to-month lease?
If you consider the cost and time needed to evict an unwanted tenant, perhaps a month-to-month lease is preferable. A year-long lease means the landlord has to wait until the renewal time to evict problem tenants.
If you’re a landlord in a state where eviction laws and regulations can be very tough, you may discover that a month-to-month lease agreement is the better choice.
On the other hand, you may prefer the stability of a long-term lease if you don’t have issues with your tenants.
1. You can update your rent.
There are no fixed end dates with a monthly agreement. This means the lease can continue indefinitely.
You’ll be offering a convenient option to end a month-to-month lease on shorter notice, and tenants will tend to appreciate such flexibility.
If you are offering a month-to-month lease, you can use such an opportunity to update the rent price of the property upon renewal. The amount of notice needed before increasing rent depends on your state laws. In Colorado, proper notice must be given at least ten days before the last day of the rental month.
2. You may have more prospective tenants.
For many tenants, committing to a yearly lease can be daunting. They may feel uncomfortable locking themselves in such a long agreement, and fewer properties offer short-term leases.
Oftentimes, tenants will rent a month-to-month property, giving them a place to live while they look to buy a home. Once they’ve found a home, they can give you proper notice of their intentions to end the lease.
Having a closing date on a new home does not mean the tenant will give you a month’s notice. Sometimes, they will continue to rent and live in your property, while they renovate their own.
3. You can charge higher rent.
Fewer landlords are willing to sign a month-to-month lease with tenants. In situations where there is a limited supply, you will likely be able to charge your tenants more.
The increase in rent can also help you offset the loss of income from vacancies, if you’re unable to find a new tenant after the current one moves out.
4. You won’t have to deal with rude tenants for long.
When you sign a new lease with a tenant, you’re normally dealing with an unknown individual. Even with the proper screening procedures, some good tenants may eventually break the rules and put a strain on your relationship.
With each new tenant, there is always a learning pattern as each party gets used to the other. This means you may have to deal with several maintenance complaints, late payments, and damages.
When you sign a short-term lease, you won’t have to jump through as many hoops in order to get an unwelcome tenant out of your property.
5. It gives you the flexibility to update terms.
In addition to being able to increase rent more easily, you can also change policies and update the lease much easier than with a yearly agreement.
Depending on the type of property, a month-to-month agreement can give you the chance to quickly change other terms of the lease. For instance, you can update the pet policy, the terms for the security deposit, and moving out inspection policy.
These can be done regularly when you sign a new lease with the tenant at the end of each month.
6. It is the perfect option for vacation rentals.
If your rental property is in a relatively popular vacation area, you can take advantage of this market to charge higher rent during the peak seasons.
This benefit is not constant, of course, since you’ll have to lower the rent during the slow seasons.
So, which is the better option?
Making a decision on whether to lease month-to-month or yearly requires taking many factors into account.
The opportunity to charge higher rents during high season, having flexibility with policies, and the chance to increase rent after every few months might make the short lease more attractive to you.
However, a yearly lease will generally provide you with more security, and less stress of finding a new tenant on short-notice if the lease is broken.
It’s important to take all of this into consideration in order to make an informed decision on what kind of agreement you want to sign with your tenants. Neither is better than the other in all cases, so make the decision based on your specific rental property.
Either way, if you’re looking for property management in Colorado, please feel free to contact McGuire Property Management & Sales today.