Are you a landlord thinking about making month to month leases available for your properties?
For many renters, month to month leases can be a convenient way to rent an apartment before committing to a longer lease term. But, before you jump on the month to month lease train, it’s important to consider all of the pros and cons that come with making this offer.
Check out this guide to discover everything you need to know about month-to-month leases.
How Does a Month to Month Lease Work?
As the name suggests, a month to month lease typically lasts 30 days. Unlike long-term leases, in which tenants need to give notice that they’d like to renew their lease, month to month leases are typically automatically renewed unless the tenant or landlord notifies otherwise.
While the rules change depending on your state and your own preferences, most month to month lease agreements require that tenants give a 30-day notice to terminate the lease. So, if someone only plans on renting for a month, they’ll need to give their notice the same day they move in.
While month to month leases are certainly different than 12-month leases, they do share some similarities. For month to month leases, you can still:
- Ask for a security deposit
- Implement penalties for late rental payments
- Require renter’s insurance
- Implement a pet policy
Oftentimes, landlords prefer to offer month to month leases to tenants who don’t plan to sign another 12-month lease but want to stay on the property for a bit longer. Month to month leases are also a great option for landlords who want to treat their property like a vacation rental.
Pros of a Month to Month Lease
So, what are the advantages and disadvantages of a month to month lease? Let’s take a look at how these leases affect both landlord and tenant, starting with the pros:
Make More Money
As a landlord, one of the biggest advantages of a month to month lease is that it gives you the opportunity to make more money. Typically, landlords charge more for month to month leases, and tenants expect this.
The reason month to month leases are more costly is because they come with more risk for the landlord, as tenants can move out at any time. Additionally, when there are new tenants coming in and out, landlords have to deal with more paperwork, showings, background checks, and other administrative tasks that come with renting out property.
Because of this extra labor on your end, charging higher rent is the norm.
Flexibility
One of the biggest selling points of a month to month lease is that it offers your tenants flexibility. If their work or life circumstances change, they can easily move out without having to worry about being locked into a year-long lease.
This can be especially beneficial to people who are remote workers, traveling nurses, or seasonal workers. When advertising month to month leases, we suggest targeting these people.
Month to month leases also offer flexibility to the landlord. With this type of lease, you can easily make changes to the property and to the rental rates throughout the year. For example, you could offer month to month leases during the fall, winter, and spring, and then when summer rolls around, you can take the place off the market and spend time sprucing it up for the next set of renters.
Avoid Problem Tenants
One of the biggest things you have to worry about as a landlord is problem tenants. Even if you conduct background checks and interview tenants in person, you can still end up with some bad eggs.
This is why a month to month lease is so desirable. If you end up with subpar tenants, you don’t have to spend a full year dealing with them or trying to terminate their lease. Instead, you can remove the option to renew their lease after one month. Typically, all you need to do is give a 30-day notice letting them know that you won’t be able to renew their lease.
Additionally, if you want to test whether a tenant will be a good long-term fit for your property, a month to month lease is also a good idea. If the person turns out to be a good tenant, you can offer them a longer lease option.
This can also be marketed as an advantage to your tenants. When showing the place, you can let future tenants know that if the property or neighborhood isn’t what they expected, they can leave after 30 days.
Cons of a Month to Month Lease
Month to month leases also come with downsides that you should be aware of. Here are some of the disadvantages of a month to month lease:
Turnover Costs
Turning over a tenant can be expensive. With each rental turnover, you’ll need to deep clean the unit. You may also need to apply a fresh coat of paint, make minor repairs, or install new flooring.
Additionally, you’ll also have to spend time and money marketing and showing the place to new tenants. Plus, you’ll also have to spend time processing background checks and rental applications. You may end up doing all of this work, only to find out that the new tenants want to stay for just one month.
Loss of Income
Another downside to month to month leasing is that it does not provide you with a steady income. While you can’t charge as much for a 12-month lease, at least you’ll know that you have money coming in every month.
With a month-to-month lease, there’s a lot of uncertainty. This is why it’s so important to watch the market and to pay attention to when there’s an influx of renters.
Collecting Rent on a Month to Month Lease
So, if you decide to do a month to month lease, how should you collect rent? It’s important to understand that a month to month lease is still a lease, and therefore, you should use the same rent collection methods that you would with a long-term lease.
Some of your best options include:
Mail-In Rent
With this option, tenants simply place their rent in an envelope (either cash or check) and mail it to you. The nice thing about this is that it means you don’t have to go anywhere to pick up the rent.
If you opt for mail-in rent, we suggest getting a P.O. box. This way, you don’t have to worry about any disgruntled tenants coming to your home.
Just make sure that your tenants know which date you need to receive the rent by. Oftentimes, if rent is due on the first, tenants will mail their rent in on the first thinking that they’re fine.
To account for slow mail, we suggest giving your tenants a five-day grace period. So, you can make rent due on the first, but with the five-day grace period, it’ll be fine if you don’t receive it until the fifth of the month.
Dropbox
If you own a multifamily property, then a rental dropbox is a very convenient option for you and your tenants. With a dropbox, all a tenant needs to do is walk to the front door (or wherever the dropbox is placed) and place their rent inside.
We suggest using a dropbox with an envelope slit and lock, as this will prevent tenants from being able to access the contents of the dropbox. As a landlord, you’ll just need to make one stop to pick up all of the rent.
Online Payments
These days, most tenants expect to be able to pay their rent online. The great thing about paying rent online is that you don’t have to go anywhere to pick it up the rent, and your tenants don’t need to go anywhere to drop off their rent.
Additionally, this means that there’s an easy-to-access paper trail for all rental payments. A lot of landlords also offer automatic withdrawal for rental payments. This way, tenants never have to worry about remembering to pay rent on time.
Raising Rent
One thing that can be sticky with month to month leases is raising the rent. While you certainly can raise the rent on a month to month lease, you need to make sure you give proper notice.
How much of a notice you need to give depends on the state you live in. In some states, you need to give a 30-day notice before you raise the rent, while in other states, you need to give a 60-day notice.
Lease Termination
When it comes to lease termination, you also need to look at your state’s laws.
In most states, you need to give a 30-day notice before terminating a month to month lease, whether you’re the landlord or the tenant. However, in some states, the notice period is shorter.
Are You Ready to Offer Month to Month Leases?
Now that you’ve read this guide on month to month leases, it’s time to decide if they’re right for you.
Of course, month to month leases are a lot easier to execute if you have the right team. Contact us today if you need help setting up your month to month lease.
