Month-to-Month Premium?

Question

My SFR tenant of one year is wanting to renew and has asked what I would charge for him to go for another full year vs. month-to-month. I have read one post on the premium people charge for M2M (that post suggested 8%). Does anyone else have a rule of thumb for a good tenant to stay on?

Also, I usually keep rents level for 2-3 years (I don't want to pay for the turnover). In this case the house has required more maintenance than I had originally anticipated. I think the market would bear a 2-3% increase on the original rent (about $50). Any reason not to ask for this premium as part of the renewal?

Account Closed · Answer

I just had a thought.  Why don't you ask the tenant what it would be worth to them to go MTM?  If they come up with an amount, they'd sure be on board with it.  That way they voluntarily pay you more money, in an amount of their own choosing - assuming it would be acceptable to you.

Account Closed · Answer

What will your tenant find on Craigslist?  And will it still be worth staying in your rental instead, and pay $50 more per month?

If your tenant is asking about month-to-month, they're thinking of moving.  Why push them out the door?

I'd give them the month-to-month agreement and keep the rent the same.  They may stay longer than they intended to that way.

Then, when they do finally move out, adjust the rent to market at that time.

Tamara R. · Answer

I charge an $85 a month premium for month  to month. Most of my tenants opt to sign at least another year lease instead. If they asking about month to month they are thinking of leaving anyway.  Might as well get extra money for the upcoming vacancy.

Account Closed · Answer

I had really good experiences with M2M agreements.  I think tenants will stay as long as they want no matter what the lease says, for the most part.  If they want out before the end of the lease, they will just start having mold issues or pest issues or whatever they can think of to get out of the lease, which ends up costing a lot of time and potentially more in the way of mold tests and pest guys coming out looking for bed bugs, just on and on.

And it's really nice when the tenant who looked great until they moved in can be kicked out with just 30 days notice.

In nearly 10 years of M2M agreements I had less than a handful take advantage and just use the apartment as a cheap extended stay hotel for a month.

But, everyone has to make their own decisions.  I was originally against M2M which is what the owner I worked for said he would only use, but he convinced me of their beauty.

Eric Mayer · Answer

I charged an extra $50/mo the one time I agreed to do this. I ended up evicting that tenant, but not over the $50.

Since then I have just asked tenants to do a 6 month lease instead and they have agreed. I feel uneasy in general having m2m leases.

David Campbell · Answer

@Jason Stone

I hate turnover because I self manage my properties so I do 2x the rent for month to month. Most obviously don’t take it but I don’t want month to month either

Chanda Wa · Answer

@Bob B. Can you share how you’ve gone about doing this?

Stan Butler · Answer

I usually charge 10% premium for month-to-month and it is stated in the original lease that they sign.  I want to highly encourage my tenant to either sign a new lease or leave.  I do not want to be getting the property back in November and risk 3 to 4 months of vacancy during the off peak period.  I take the same approach as Bob B. proposes, this is a great idea but state law for Tenant-at-Will would govern this situation.

Steve Babiak · Answer

Remember that the m2m premium is over and above what the annual lease rent would be, so if you raise the annual rent lease by $50 per month, then you would have to first add that to the rent and then work out the extra 8% (unless your existing lease says something about what the renewal rent would be). But if your goal is tenant retention, then you are best served by first conducting a rent survey to see what your local competition is offering for units that are on the market now; there could be a desperate landlord willing to drop rent below market, and your tenant could jump at that.

Now, when I offer a renewal, since my lease has a rent escalator clause that bumps by 8% and goes m2m by default, I offer tenant two cr more choices; one being the default, two being a year renewal with a lower increase or no increase; and I might also offer to add a feature to the unit for one year renewal but at an even higher rent increase, when the tenant has requested some feature. And I let the tenant pick what works best for them.

Ken A. · Answer

$50-$75 is fine.  Ask him what his long term plans are?

Month-to-Month Premium?

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