Pros and Cons of a Month to Month Lease

Month to month leases are always the greatest debate and everyone has their own opinion. There are some landlords who absolutely love these types of leases and other who want nothing to do with a month to month lease. Usually landlords either love them or hate them.

Pros and Cons to Consider When it Comes to a Month to Month Lease

Pros:

• Instant Non-Renewal Ability– You can increase the rent and or provide the tenant notice of non renewal. You can do all of it with 30 days notice. Therefore you are not stuck with any problem tenant for any length of time.
• Short Term– If you only want the lease to last a short period or have the flexibility of moving back into the home then month to month is for you.
• High Revenue Producer– I charge a $300 premium for a month-to-month lease. So this generates increased revenue.

Cons:

• No Security– In most states unless otherwise required a tenant can provide 30 days notice and then they are out. Same with landlords too. Most tenants want the security of a lease. Therefore the likelihood that notice is going to be provided is high.
• Loss of Rent– In the areas I operate there is a definite “moving season”. The time of year where there is a lot of demand for housing and then a specific  slow time. In my areas one can ask for a much higher rate in great demand than in slower times. Therefore it is really important to watch the market or you might have to get less than normal simply because of the time of year you have a vacancy.
• Vacancy– So not only do you have the chance of lost rent but also you have a chance of having an empty house.
• Lack of Ability to Plan– As a landlord I try really hard to “plan” my rentals’ availability dates around my life schedule. So deployments, weddings, vacations, etc. While unpredictable events such as Break leases still happen, the predictable ones are plannable. As Murphy’s law predicts this always happens when you are not ready for it to happen. Therefore put your leases on long time periods when its going to be a stressful time period to prevent this from being an additional stressor.
• Keeping Rent at Market Value– In the areas that I have operated our rent prices have jumped incredibly. Therefore I like leases because the time span of them “coming available” and then closing. This is the perfect time to increase rents to a “reasonable” rate to prevent them from falling below the market over time. Being below market can be a killer.

My Solution:

As mentioned, I put a $300 month to month “clause” in my lease. This allows me to be compensated for any risk and leveraging the advantages of the non predictability. The other effect it has is encouraging the signing of a new lease since no one wants to pay $300 more a month. For me this has been a HUGE bonus and very worthwhile for my month to month lease.