Is a Month-to-Month Lease Better for Landlords?

If you own a residential property and want to rent it out for a shorter period of time, you may want to consider a month-to-month lease agreement. Most traditional lease agreements last at least 12 months, so choosing to opt for a month-to-month lease can come with a few benefits.

There are various situations in which a month-to-month lease will make more sense, such as planning to sell the property or renting in an area where shorter lease periods are more sought after. We will discuss the pros and cons of opting for a month-to-month lease in this article.

Defining a Month-to-Month Lease

Landlords and residents can continue to renew a lease contract on a month-to-month basis until one of them issues a 30-day notice. Most of the time, this type of lease arrangement is chosen for an indefinite extension of a lease.

A resident may be waiting to move into a new space or a landlord may be waiting for a new buyer to finalize their purchase. It could also be that both parties have agreed on a month-to-month lease arrangement since the beginning of the tenancy.

Reasons to Choose a Month-to-Month Lease

Flexibility is often the main reason why landlords decide on a month-to-month lease. They may also be putting the property on the market and want to immediately hand over the rental to a serious buyer.

For residents, a month-to-month lease can make it easier to move out if they’re planning to relocate or waiting to buy a home of their own. Although month-to-month leases are designed for the short-term needs of the landlord and resident, it can be challenging to earn a steady income since the unit can be vacated on relatively short notice.

Pros of a Month-to-Month Lease

If you want to maintain flexibility, a month-to-month lease can be a good idea. They can also be great if you’re brand new to rental property ownership and want to test the waters. The freedom from a long-term commitment can make it easier to change the cost of rent or the policies you have for your property.

The other upsides to month-to-month leases are outlined below:

Flexible End Date

If you’re selling your property in the next few months, you won’t need to wait for a long tenancy period to end. Sending a 30-day notice will be enough for the resident to find another rental. If you find yourself with a difficult resident, the timeline for asking them to move out and finding a new resident is much shorter than waiting out the rest of a one-year tenancy.

Easier to End a Tenancy

Under a long-term lease, you can end up with a lawsuit if you terminate the contract before the tenancy expires. In contrast, due to the temporary nature of month-to-month leases, landlords are unlikely to be penalized for wanting to stop the tenancy. Renters know that with a month-to-month lease comes the possibility of a 30-day notice to move out at any point.

Residents Might Prefer It

With good residents, you can keep extending a month-to-month lease and earn a solid income until they decide to end the tenancy. You may even be able to attract long-term residents in the first place who prefer the flexibility of a month-to-month lease.

Grand Rapids is a pretty hot rental market right now, and local experts like Compass Property Management can help you find out what the right situation is for you!

Cons of a Month-to-Month Lease

While the pros are worth considering, it is important to learn the cons of adopting a month-to-month leasing arrangement, such as:

Uncertain End Date

The temporary nature of month-to-month leases creates a lot of uncertainty for landlords. No matter if you attract good residents who are reliable, take care of the unit, and pay rent on time, you always have to be ready to handle changes. Your rental property may suddenly be vacant and you need to find new residents on short notice.

However, you can definitely reduce this risk by always being prepared to re-rent the unit with a solid marketing plan.

Short Period to Find New Residents

It can sometimes take longer than 30 days to find new residents so it can be challenging for landlords to fill a vacant unit within that short period. Sometimes, when faced with vacancy periods, landlords are tempted to pick the first interested person to rent their property to, which can lead to issues and stress in the future.

Inconsistent Rental Income

In contrast to a long-term lease, a month-to-month lease can result in inconsistent income. There may be months where you can collect a higher rent during peak months. But on the off-peak periods, you may end up with no residents or income.

The Difference Between a Month-to-Month Lease and a Lease Renewal

Lease renewals are offered by landlords to their existing residents 90 days before the end of tenancy and will generally outline a rental term of six months to a year. Meanwhile, month-to-month leases are ongoing every month and can be an extension to a prior traditional leasing arrangement under a fixed term.

Bottom Line

Understanding the advantages and drawbacks of a month-to-month lease can help you decide what type of lease best suits your situation. Make sure to consider your rental market, since a month-to-month lease can make more sense for some types of properties than others.

If you have questions or aren’t sure which type of lease is best for you, consider working with a local property management company like Compass Property Management. We can help you make informed decisions about your rental property, create lease agreements, and market your rental property. Contact us today to learn more about what we can do for you!