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Pros and Cons of Month-to-Month Rental Leases

The real estate market is in a particularly unusual state in 2021 as the overall economy seeks to correct itself during an ongoing pandemic. One of the more surprising results of the past year is that while housing prices are going up, the cost to rent is, in many places, going down or stabilizing.

Now is a great time for property owners to analyze the kind of leasing agreements they typically offer. Is month-to-month rental a better solution in the present, or should you stick with long-term leases?

As always, we’re here to provide property owners with the answers you need to navigate the ins and outs of the rental market.

Today, we’re going to talk about month-to-month rental agreements. Read on to learn more about the pros and cons of using the month-to-month system with your future tenants.

What Is a Month-to-Month Lease?

First, let’s take a quick look at what we mean when we talk about month-to-month leasing. A month-to-month lease is a lease that can be easily renewed or ended on a rolling, monthly basis. Some property managers use them from the start of a leasing agreement, while others allow them to kick in when the original long-term lease (usually 10-14 months) expires.

Typically, month-to-month renters do not need to sign a new lease each month. Instead, both tenant and landlord operate on the assumption that the lease is renewed for another month unless otherwise specified by either party. Generally speaking, both parties are required to give a minimum of 30 days’ notice if either party wishes to end the tenancy.

Pros of Month-to-Month Rental

Month-to-month rental can put property managers and landlords in an empowered position. Let’s take a look at some of the perks of month-to-month leasing.

Flexibility for Both Parties

Having the year-round option to give 30 days’ notice of a tenancy’s termination provides flexibility that a long-term lease does not. This is beneficial to both you and potential tenants who are unsure of what the next year might look like for them.

One example of how this might benefit a tenant is if they are waiting to hear back on a job offer in another city that may begin in a few months’ time. An example of how this might benefit you is that you can choose when to end a month-to-month agreement in favor of a long-term agreement–which is especially helpful if you want to start looking for new tenants in the summer when moving rates are highest.

More Room to Change the Cost of Rent

As we mentioned earlier, the cost of rent is at a low in response to the struggling economy. However, we can expect the economy to pick back up in the coming months, which may mean that you will have the desire–and the ability–to raise the cost of rent.

In most states, you cannot legally raise the cost of rent in the middle of a leasing period. If a lease technically ends and renews itself each month, you have the option to change the cost of rent up to 12 times a year.

Ability to Bring In High-Quality Tenants

There are limited scenarios in which a landlord can terminate a lease agreement early. With a month-to-month lease, you’ll have much more wiggle room to terminate a tenancy well before a year is up. This can make it easier to remove problematic tenants in favor of those who, for example, pay their rent on time each month and never break the terms of the lease.

Cons of Month-to-Month Rental

Many of the pros of month-to-month leasing come with a flipside that isn’t quite as positive. Let’s take a look at some of the most important cons of month-to-month leasing that you should consider.

Flexibility Can Lead to Uncertainty

That flexibility we mentioned can work in favor of both you and your tenants. However, it can also create much more uncertainty for you as a landlord. In the worst-case scenario, you could find yourself facing a constant turnover as both bad and good tenants decide to leave after only a few short months.

Short Notice Can Lead to Increased Vacancy Periods

A recent report showed that renters are moving at a slower rate now than ever. This can be very good news for landlords, in that vacancy periods may become more rare. However, it can also lead to increased difficulty filling vacancies as more renters choose to stay where they are.

With such short notice (remember, the minimum is 30 days), a month-to-month agreement can present unique challenges in filling those vacancies. You may have less time to start advertising and showing a property. You may also find yourself trying to rent out a property during the off-season when fewer people are looking for a new place to live.

Month-to-Month Leasing Can Create Lack of Stability

Overall, a month-to-month lease can create a lack of stability for landlords and property managers. If your income is bolstered by several properties, this may not be a huge issue for you. However, if you rely on the rent from just one or a few properties, that lack of stability can take a big financial toll.

Is a Month-to-Month Lease Agreement Right for You?

This is a strange time for property owners and their tenants. Reexamining your current leasing system may be the answer you need to face the challenges of today. We hope our guide to month-to-month rental has helped you determine whether or not this flexible system is right for you.