Month To Month Tenancy Or Annual Leases? Why?

Question

I am considering not renewing any leases as they expire. I feel one of the main benefits to a month to month tenancy is being able to adjust rents if a property has continuing issues that cost more cash out of pocket. Granted, a tenant could get mad and simply walk. I know there are some posters on BP that expressly operate using month to month. What do you think? What are the positives...and what are the negatives.

Marcia Maynard · Answer

We favor MTM. We have no problem with tenants staying long term on MTM leases. In fact half of our tenants have been with us more than 5 yrs, a few more than 10 years and two more than 20 years. If a tenant wants to move, they will, whether on a MTM rental agreement or a 12 month lease.

On rare occasion we have a tenant who stays less than one year, and if so it is usually because our place is not a good fit for them. Better to see a non-performing tenant leave voluntarily than trying to force them to comply with the terms of the rental agreement and/or proceeding with an eviction through the courts.

One of the greatest advantages of a MTM rental agreement is the ability to change the terms of the agreement as necessary. We rarely raise rent, but we do find the need to modify other terms of our rental agreement from time to time. High maintenance tenants may see a rent raise more frequently than others.

In our jurisdiction, we can also use a 20-day no cause "Notice to Terminate" if a tenant gives us trouble, without needing to prove anything in court. We can still serve 3-day "Pay Rent or Quit" or 10-day "Cure or Quit", if necessary.

With the MTM rental agreement, the terms automatically renew, so we don't need to deal with a lease renewal process. We also don't need to deal with tenant's wanting to break their lease. So continuance of the rental agreement or termination is much easier for all parties involved.

Tyson Luthy · Answer

We do a one-year lease, that automatically goes month-to-month afterwards. Then they get charged a month-to-month fee, which is to encourage a renewal.

The biggest reason we stick with a year lease is because of our climate. In the winter time, the rental market declines quite a bit and you can't get as much rent, and vacancies last much longer. We always target our leases to end in the spring/summer when the market is really strong.

Matthew Locke · Answer

I agree with @Jd Martin. @John Thedford as you know, Seasonal rates in SWFL are close to double the annual rate.  You need to guard against seasonal residence taking advantage of the MTM.  Starting new tenants out on an annual then transferring to MTM after one year would keep the seasonal residence from taking advantage of you while allowing you the perks of the MTM with loyal tenants.

JD Martin · Answer

I think it makes sense to start a new tenant with a 12 month lease and then going month to month beyond that point. It takes time to get any place ready for rent, and you want to have at least some level of commitment from the tenant on the front end, especially if you have a place that's fairly desirable. We are a college town and I would not want someone to flake out and leave in November, leaving me with 2 or 3 difficult months to rent, and pay additional heating bills, etc. Once someone has proven some level of commitment (my rents are low compared to similar houses), I have no problem going month to month.

John Thedford · Answer

I am going to try starting with 7 month leases and then convert to month to month. In FL, leases less than 6 months and 1 day are subject to sales tax and I don't want that headache. After 7 months I will have a great idea if I can work with a new tenant and if we work well together.  It may result in more turnover until I find the right tenants, but will give me some flexibility to raise rents, etc and also to get poor tenants out quicker. Thanks all. At some point I am sure I will post whether I feel like I made the right move or not.

Roy N. · Answer

Similar to @Marcia Maynard we tend to prefer month-to-month with the exception of our student houses.  Due to a combination of lease-up cycles on student housing and the "transient" nature of the social cohesion of student housemates, we have found using academic year or annual leases provides more stability when leasing a house (or 3-4 bdrm flat) to a group of students.

Bryan N. · Answer

We do 12 month or longer leases.  It makes us feel better.  I'm pretty tough on screening, so we usually get pretty good tenants.  A bad apple may slip through cracks one day and make me regret it, but for now it works.

Bryan C. · Answer

I like to start out a new tenant on 12 month lease....then if all goes well month to month is fine unless there is a reason i need or want to lock the tenant up for longer.  if i have a tenant that wants less than 12 months initially then the rent is slightly higher for shorter lease.

Steve B. · Answer

I prefer month to month, it makes it easier for me to get rid of undesirable renters faster, and I don't mind people leaving with 30 day notice if they don't want to be there as they may become a disgruntled indentured tenant.

However yearly leases may make more sense in seasonal markets, areas of low demand, and when your rent is at or above market.

Steve Vaughan · Answer

The risk level of the tenant helps me determine which way to go in the beginning.  Is this a newer, first time to area, job or first time renting?  Are they recovering from past mistakes?  If so, they get a MTM, and a portion of the deposit is forfeited if they vacate voluntarily within a few months.     With 'perfect' credit, criminal, job history, etc we are more inclined to offer longer terms.  In my area it is normal for a tenancy to automatically convert to MTM after lease term expires.  No renewals.

Month To Month Tenancy Or Annual Leases? Why?

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