Pros and Cons of Month-to-Month Leases

Posted by Teresa on May 28, 2009 under Landlord Tips, Tenant Screening & Background Checks | Be the First to Comment

Our landlord friend, Marjorie, has a decision to make. She’s been advertising her rental property, and so far, the prospective tenants just aren’t up to her standards. Screening has revealed poor credit histories, previous evictions, and less-than-stellar job histories on most of the applicants; except one, who has a sound job and credit history and raves from former landlords. The only problem? The “perfect tenant” doesn’t want to sign a one-year lease.

Marjorie first thought of a six-month lease, with an option to go month-to-month after. Marjorie knows that a month-to-month lease is a legal contract, and that having it written by a professional is vital in order to provide her the best possible protection. She understands that at the end of any month, the tenant can leave, or she can choose not to renew the lease. If neither side objects, the lease renews at the end of each month.

But Marjorie’s not sure about the pros and cons of a month-to-month lease. Would it be better to compromise for this great tenant, or keep looking for someone who is willing to enter into the one-year agreement Marjorie prefers?

Pros:

• You can attract a larger pool of good tenants who can’t sign longer agreements based on a job situation, house sale, or other legitimate reasons.
• If you are in a college town or popular vacation spot, you can offer short-term leases to vacationers and students.
• If the “perfect tenant” turns out to be noisy, or breaks any other rules, you only have to put up with them for one month.
• You can charge a premium rent for the higher risk and convenience of a month-to-month agreement.
• If the tenant is late paying rent, it’s easier to evict.
• You can catch property damage before it gets out of hand.
• You can raise the rent as you wish.
• If the tenant turns out to be a good fit, you can always renegotiate a longer lease.

Cons:

• The tenant can leave at the end of any month, usually giving a 30-day notice. This can interrupt cash flow and cost you more time and money to replace them.

That’s really it? Only one “con?” Yes—when thinking about the flexibility of a month-to month lease, the only potential problem for the landlord is replacing the tenant after a shorter-than-usual period of time. But remember, most people don’t like to move, so it’s not likely that your new tenant will be doing so right away.

In the end, Marjorie decided to go with the month-to-month lease. She added a guarantee that the rent would not increase for six months, which made her new tenant even happier. Marjorie is one smart landlord!