August 9, 2021
3 Minute Read
You've got a property to rent, and you're wondering, “Should I consider offering a month-to-month lease instead of the usual year-long one?'
The answer generally depends on the market that you're in, your financial goals, and the amount of effort and expense you want to put into managing a rental property.
Unlike a fixed-term lease, which runs for, say, 12 months, a month-to-month lease runs until either the tenant or the landlord decides to end it. In most states, either party can end the lease by giving 30 days' notice.
To help you decide whether a month-to-month lease is right for your property, let's look at its advantages and disadvantages.
In most states, month-to-month lease lets you raise the rent with a 30-day notice instead of locking you into the same rent for a year — be sure to check your local regulations as some places do require additional notice. If you're in a hot market where rents are increasing rapidly, a month-to-month lease lets you maximize the money you make from your property. Keep in mind, though, raising the rent on short notice can cause you to lose tenants, which can create turnover costs for things like property maintenance. A good tenant who pays on time and takes care of your property may be worth more to you than a higher rent.
Since there's more risk associated with a month-to-month lease, you can charge higher rent than you would for a long-term lease. The risk comes from the fact that you're always 30 days away from an empty property.
If you live in an area where rents increase at certain times of the year — like a beach town or college town — a month-to-month lease lets you charge more for your property during peak season. It also makes it easier for you to lower your rent to make your property more attractive to renters in the off-season.
In many states with a month-to-month rental term, neither the landlord nor tenant are required to provide a specific reason for discontinuing the lease. That means you can give the tenant a 30-day notice to vacate the property, regardless of whether you plan to sell the property, rent to someone else, or simply do not wish to continue leasing to that specific tenant. If you have a tenant that's not working out, despite your efforts to build a good relationship with them, a month-to-month lease may make it easier to move on.
Month-to-month leases may lead to higher turnover in tenants. If tenants are hard on your property for the few months they live there, you may need to deep clean, paint, repair, or even replace carpets or appliances before you can rent the place again. You'll not only be out the cost of the labor and materials for the repairs, but you'll also have to leave the rental empty while the work is done. Empty rental property = money out of your pocket.
With a month-to-month lease, you can't rely on a steady stream of income. You're always 30 days away from someone moving out and leaving you with an empty rental property. This may keep you from being able to plan your finances, which is a problem if you need that rent to make the mortgage payment on the rental property or pay your kid's college tuition. A long-term lease lets you set it and forget it.
In a rental market with low occupancy rates or one that's seasonal, a month-to-month lease can leave you with an unrented property because it makes it too easy for the tenant to leave. And remember, empty rental property = money out of your pocket.
You'll probably spend more time on the business of renting your property if you go with a month-to-month lease. That's because turnover will be higher, so you'll be advertising for tenants, vetting tenants, and cleaning up the place after they move out. You can start to feel like an Airbnb host, which may not be the experience you're looking for as a landlord.
Want to learn more about lease agreements? Read our guide to rental lease agreements here.
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