Renewals: Month to Month or make them sign a year lease?

Question

Hey guys, I was just wondering what you do to insentivize tenants to sign a new year lease after their lease is up.  My thought is to say that rent will stay the same if they sign a year lease but it is subject to go up if they are month to month.  Of course you want to avoid the lease ending in the winter months...any thoughts?  Thanks!

Jon Holdman · Answer

I do nothing but month to month leases, right from the start.  If a tenant decides they need to leave they will leave.  You can cause some problems, but there's really little you can do to stop them.  A long term lease ties your hands much more than theirs.  With a month to month lease you can terminate the lease at any time (with proper notice) for any reason.

Wade Sikkink · Answer

We've started talking about an approach like @Jon Holdman and put everybody on month to month.  That way you can get rid of anyone within 30 days for any reason.  I think Jon is right that if they want to leave, they are going to leave and the lease does little to protect you from that other than keeping a deposit, which isn't that big of a deal.

Andy Luick · Answer

@Eric Payne - I do the same as Rolanda on both my shared houses and the few single family rentals I am still holding.  I usually leave it as month-to-month notice for either party. I've had tenants remaining in place this way for many years...one is at almost 7 years right now....all month-to-month after a 1 year term.  On our shared housing, we do 6 month term then month-to-month.  We also have a clause in the lease that allows us to raise the rent 3% every 6 months...which we do use once in a blue moon if we've had tax increases or HOA fees:

"AUTOMATICALLY RENEWABLE TERM OF LEASE: At the Anniversary date, and subsequent Anniversary Dates, this Lease shall be automatically renewed on a month-to-month basis unless either party provides the other written notice, at least thirty (30) days prior to the Anniversary date, of their desire not to renew for another month.  Verbal notice is insufficient under any circumstances. Written notice must be made by email or posting on the door to Tenant’s individual room and at least thirty (30) days prior to the Anniversary Date. Rent will never be increased more than once in any 6 month period after the initial anniversary date;"

Annette Hibbler · Answer

My tenants have a year to year lease, no exceptions.

@Joseph Weisenbloom "If you have to raise the rent give them the justification why and tell them about all the expenses you have put into the house. You can ask them if there is any improvements you can do to the house to keep them as a tenant. Overall keeping the price competitive and making sure you are slightly below market will insentivize them the most to stay."

I disagree.  My tenants don't need to know the details of why I am raising the rent.  I simply give them 60 day notice of the rent increase prior to the expiration of their current lease and I keep the increase well within the market rates.  Note, that I do not raise the rent frequently and increases are reasonable.  I have excellent tenants who take good care of the property and are all long term.  It is however, a two way street.  When an issue comes up, I quickly act on it and usually have it resolved within 48 hours.

Kurt K. · Answer

I've had 2 different tenants break their leases and leave early. The new tenants in both apartments got month to month.

Tenants will break them when they want, I want the ability/option to do the same.

Michael S. · Answer

Are most of your properties lower end rentals Jon, or are we talking $2000/ month SFH or condos?

David Krulac · Answer

@Jon Holdman

Had a prospect who wanted a month to month and I agreed and wrote it up that either party could terminate the agreement with 30 days written notice without a reason.  The tenant was taken aback and he said that he thought a month to month agreement only gave him the right to terminate, not a bi-lateral right.

Steve Babiak · Answer

See my reply in this other thread, very similar to what you are trying to do.

http://www.biggerpockets.com/forums/52/topics/77245-best-method-of-renewing-leases

Sam Thompson · Answer

Ours is more of a "Disincentive" for NOT signing a renewal..... That works better than an "incentive" FOR signing.....

We tell them rent is going up 5% if they sign a 6 month lease, rent's goign up 10% if they go MTM and their rent stays the same if they sign a 1 or 2 year lease renewal. Most sign.... Some take the hit. Either way, we win :-)

David Krulac · Answer

@Eric Payne

Depends on the situation.  Have a current tenant that moved in in 1984, I don't bother sending renewal leases.  Somebody who moved in in 2013 I send a renewal and it may or may not have an increase.  If costs have gone up and there is justification for an increase we do an increase, usually small for an existing tenant.

Renewals: Month to Month or make them sign a year lease?

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