A month-to-month lease is a type of a short-term lease agreement between a landlord and a tenant. It establishes occupancy without a specific end date. It runs each month until either party terminates it by giving the other party a 30 days’ notice.
Generally speaking, most landlords use month-to-month leases when looking to extend an existing lease. However, it’s also possible for both the landlord and the tenant to use it right from the beginning.
In today’s article, we’re going to look at the pros and cons of using a month-to-month lease agreement.
Let’s get into it!
Pros of Using a Month-to-Month Lease Agreement?
Do you want a lease that’s flexible? If so, a month-to-month lease could be ideal for you. It could be the perfect option if, for instance, you’re looking to sell your property soon or a tenant is just seeking a temporary place to stay.
In these cases, you’ll be able to earn a rental income without any long-term commitments.
The following are some of the benefits that come with using a month-to-month lease.
1. You may be able to retain a quality tenant.
As a landlord, retaining quality tenants is key to a healthy investment. Quality tenants will care for your property, notify you of issues, and pay rent on time. So, if you have a great tenant and they are asking that their lease be extended for a short-term, then a month-to-month lease is ideal.
2. There is no penalty for breaking it.
Unlike a fixed-term lease, breaking a month-to-month lease doesn’t have any penalties. The only thing you need to do prior to terminating it is notify the tenant.
With short-term leases, it’s usually expected that either party will break it at some point.
As a landlord, you can choose to end it at any time you feel like. That said, it’s usually ideal to do so during the summer months when the rental demand tends to be high.
3. You may be able to increase the rent price.
With a fixed-term lease agreement, you have to wait until the year ends to be able to raise rent. But with a month-to-month agreement, you may be able to do it more often.
That said, don’t overcharge your tenants as you risk long vacancy periods. And as you probably know, vacancies are profit killers. So, before you raise the rent price, make sure you do a comparative analysis to determine the perfect rent amount.
4. The end date is flexible.
This is another good reason to opt for a month-to-month lease agreement as opposed to a yearly lease. All you need to do to end a monthly agreement is to notify the tenant using a proper notice.
While a long-term lease guarantees a tenant for a certain duration of time, a monthly lease gives you control over who is renting your property. In addition, you’ll also be able to accommodate a tenant who’s looking to move out quickly.
A short-term lease is also ideal for new landlords. It can enable you test the waters and see what works best for you. For example, you can use this time to solidify your screening process.
Cons of Using a Month-to-Month Lease Agreement?
Sure, a month-to-month lease agreement offers a myriad of benefits. However, as with all things, it comes with its fair share of cons as well. The following are some reasons why a month-to-month lease may not be the best option for you.
1. The end date is uncertain.
A flexible end date may be ideal under certain situations. But in general, this flexibility comes with a lot of uncertainty that may hamper any long-term plans you may have.
As a landlord, your #1 goal is to maximize your rental income. However, you may not be able to do so if you have to constantly find a new tenant to fill a vacancy.
2. The notice period is short.
In a short-term lease, you only receive a 30-days’ notice. This can be stressful and put immense pressure on you to find a replacement tenant. And this time crunch might have an impact on how well you screen prospective tenants.
3. Your rental income isn’t stable.
Keeping a good tenant is always a win for a landlord. However, the instability that comes with renting month-to-month also means your rental income is less stable, as well.
Commonly Asked Questions about Month-to-Month Leases
How is a month-to-month lease different from a lease agreement?
Unlike a month-to-month agreement, a lease typically runs long-term – usually lasting from 6 months to a year. Although long-term leases bring with you more consistent income, they are less flexible compared to monthly agreements.
Does a month-to-month agreement need to be signed by both parties?
Regardless of the lease you’re operating, all leases should be signed by both the landlord and tenant. This helps make sure the agreement is legally binding in case of issues down the line.
What does the 30-days’ notice mean?
When one party wishes to terminate the lease, they must provide a 30 days’ notice to the other party. This is the minimum amount of notice that either party can provide to end a month-to-month lease.
So, is a month lease better for landlords? As with many things in life, there is no straightforward answer. Examine both the pros and cons of each option to see what will work best for you.
Whether you choose a month-to-month lease or a fixed-term agreement, it’s important to do it right. If you need help with this or any other aspect of property management, Pinnacle Property Management can help! Contact us today!