Benefits of Monthly Leases for Landlords

Benefits of Monthly Leases for Landlords

Renting out a property can be a profitable venture, but landlords must consider the pros and cons of offering leases for different lengths of time. Month-to-month leases, also known as “periodic tenancy”, allow for greater flexibility but have some drawbacks. Here are some positives and negatives of month-to-month leases versus longer lease agreements:

Benefits of Month-to-Month Leases

Flexibility: TheBalanceMoney explains that month-to-month leases offer greater flexibility for both the tenant and the landlord. A tenant may not be certain of their long-term housing needs, or a landlord may have an upcoming event that requires the property to be vacant. With a month-to-month lease, either party can terminate the agreement with only a month’s notice, allowing for substantial flexibility. This is a great option for landlords who are just starting and want to test the waters while developing the skills necessary to find good tenants!

Short-term rentals: If the landlord is looking to rent out the property for a short time, such as during peak vacation season or for temporary business housing, month-to-month leases can be ideal. This can also be a great way to hold onto a great tenant who used to have a year-long lease but is facing uncertainty and is hesitant to sign another year-long contract. Great tenants are hard to find, so this can allow a landlord to keep them for as long as possible, as explained by Apartments.com.

Rent increases: With a month-to-month lease, the landlord can raise the rent more frequently than with a longer lease agreement. According to Advantage Realty Services Inc. this can be beneficial if the rental market is quickly appreciating or the location has a seasonal influx of renters that are willing to pay a higher price due to seasonal demand. The rent can be increased at any time, even while occupied, as long as the tenant is properly notified in advance.

Negatives of Month-to-Month Leases:

Instability: Month-to-month leases offer less stability and can lead to higher turnover rates. A tenant could potentially leave with only a month’s notice, which can be inconvenient for the landlord who has to find a new tenant to occupy the property. Not only is this inconvenient, it has the potential to be costly in the long run. Avail explains that the amount spent on marketing for a new tenant will likely increase in the rush to find a new tenant and it is also possible that the only applicants will be low-quality. Let’s face it, beggars can’t be choosers and a short notice termination leaves the landlord desperate for somebody/anybody to fill in that unit so that they don’t lose income. A landlord might be more lenient in the screening process because he would rather risk adding a difficult tenant over having an empty unit.

Inconsistent rental income: Although renting monthly allows the landlord to charge more, month-to-month leases can lead to inconsistent rental income because tenants come and go easily. It can also be difficult to forecast rental income with only a month-to-month lease agreement and with fluctuating prices.

Higher vacancy rates: As month-to-month leases have shorter terms, landlords may have higher vacancy rates as tenants can leave at any time.

Increased property damage: Unlike long-term leases, short-term tenants don’t develop an emotional connection to the property and it is more likely that the unit will be damaged, according to Apartments.com. Unfortunately, if such damage occurs, the tenant can simply give their notice and move out which leaves the landlord in a pinch to clean up the unit and rent it out again.

Benefits of Longer Lease Agreements:

Predictable rental income: With longer lease agreements, landlords can have a more stable rental income stream as tenants are committed to renting for the length of the agreement. This allows income and expenses to be more predictable which helps the landlord to reach their investment goals.

Lower vacancy rates: Longer lease agreements can help lower vacancy rates as tenants are committed to staying for the agreed-upon term. If a vacancy occurs, the landlord knows that investing time and resources to find great tenants is worth the temporary loss of income because those new tenants will be sticking around.

Reduced work and turnover costs: With longer lease agreements, landlords can save money and time by not having to find new tenants as frequently. With the reduced amount of marketing costs, the reduced costs in fixing up damaged units, the reduced expenses of screening new tenants, and the substantial time saved in processing new tenant paperwork the landlord will have more time to invest in other properties, earn income at another job, or simply enjoy life!

If you are interested in offering short-term leases, especially due to seasonal fluctuations in demand such as vacation properties, condos, and popular tourist destinations, consider purchasing Avery Carl’s book “Short-Term Rental, Long-term Wealth” which outlines the path to success for landlords who wish to conquer the short-term market. It may be tempting to assume that short-term rentals would be the same as long-term rentals, but as you can see based on the facts outlined above, there are some major differences!