A month-to-month lease is a lease that automatically renews each month until the tenant gives their landlord a 30-day notice. This kind of lease provides more flexibility for both the landlord and the tenant.
For example, if a tenant is only interested in a short stay or the landlord is planning on selling the property while still earning income until a deal can be reached, a month-to-month lease can be a good option to explore.
For a landlord, deciding between a month-to-month lease or a fixed-term lease depends on their needs and personal preferences. Here are some pros and cons of month-to-month leases when compared to fixed-term leases.
How Do Month-to-Month Leases Work?
Month-to-month leases only last for a period of 30 days. They’re mostly called rental agreements due to their short-term nature. Although they may have a different name, month-to-month leases work in the same way as most lease agreements.
Apart from the short duration of the leasing period, one of the most important aspects of a month-to-month lease is that a tenant is required to provide a notice of 30 days to the landlord before vacating the premises.
To some landlords, 30 days may not be enough to find new tenants this could put some pressure on their rental income.
On the other hand, month-to-month are flexible and it’s easy to amend the rental price to the ever-changing market. Either way, figure out what works best for yourself and your rental property.
Month-to-month leases, when compared to other leases, have various advantages and disadvantages. Here are a few to consider when choosing what would work best for you.
Advantages of Month-to-Month Leases
Higher Earning Potential
A month-to-month lease generally has a greater risk than the other types of leases. Leases of such a short term can end in an increase in the turnover rate of tenants. Unlike fixed-term leases where rental payments are almost assured, landlords using month-to-month leases may face the risk of losing rent.
Some landlords choose to increase the rental premiums to account for tenant turnover and the risk of losing rent. However, this decision is not necessarily popular, as there are other ways to increase income without raising the rent.
Whether you charge the same every month or change it freely, choose what’s best for you and make sure to make your tenant aware of any change to the rental premium before they need to give their 30 days’ notice.
Flexibility of the Lease
Despite the high turnover rate and the risks involved, some landlords actually like month-to-month leases because of the flexibility it provides.
Being able to adapt to changes in their local real estate market has its advantages. For example, some might prefer to lease their property as a vacation home. In some instances, landlords simply like having the option of moving into the property themselves.
A flexible lease is also advantageous in a booming real estate market. Markets like these experience continuous increases in rental prices, so it may be necessary for landlords to raise the rents to keep up with comparable properties.
Ease of Lease Termination
A month-to-month lease makes it much easier for landlords to deal with problematic tenants who aren’t paying rent on time or damage the property.
After the landlord provides a notice of 30 days stating that they will not be renewing the lease, the tenant is required to vacate the premises. Some landlords also prefer using month-to-month leases as a sort of test run for new tenants. The landlords try to gauge whether the tenant is a good fit.
If the landlord is happy with the tenant, they may offer a long-term lease. With the ease of termination of month-to-month leases, landlords generally have more control in their choice of tenants for the property.
Disadvantages of Month-to-Month Leases
Loss of Rental Income
Unlike fixed-term leases, month-to-month leases may not provide the landlord with a sense of financial security. The tenant may move out quickly, causing a lot of pressure to find a replacement. This may also compromise the tenant screening process.
Due to the risk of losing rent, a landlord may find it difficult to plan for the future. Renovations that could raise the property’s value may be postponed indefinitely due to the fear of a tenant moving out.
Fixed-term leases provide some sort of predictability and improve a landlord’s chances of accessing credit to make these renovations.
To avoid the loss of rent, our professionals at Bigham & Associates utilize every possible marketing channel to ensure that you have a steady stream of income and maximize your return on investment.
High Costs of Tenant Turnover
Whenever a tenant moves out, there are costs to be able to return the property to its former condition. Such costs may include a fresh coat of paint, some cleaning, and repairs. These costs are referred to as turnover costs.
Whenever a tenant vacates a property, these costs are incurred. The higher rate of tenant turnover, the greater the costs. Turnover costs may also include the cost of advertising the property and finding a new tenant.
With Bigham & Associates, we provide a comprehensive screening process to ensure that the turnover rates are always kept below average.
Month-to-month leases had their advantages and disadvantages. The choice of whether to have a fixed-term lease or a month-to-month lease may be determined by different factors, but it mostly depends on what would work best for you as a landlord.
If you can’t seem to decide, just call us at Bigham & Associates and we’ll help you choose what’s best for you. From our comprehensive screening process to our strategic marketing plan, we aim for a high occupancy rate for all of the properties under our care.
We are determined to protect your investment and increase its value over time. For property investors in Austin TX, reach out to us today for exceptional property management services.