Month to Month too risky?

Question

Hi everyone- I am a new investor and have an appointment to look at an upper/lower duplex. The numbers appear to workout at there current rent, but both of the current tenants are currently month to month. Is it too risky to purchase a property where both tenants are month to month? Can I require they sign a new 12-month lease or they have to move so I can get a tenant in that will sign a 12-month lease or do I have to let them continue on a month to month basis since that is what they were doing?

Thank you in advance for any/all advice!

Account Closed · Answer

I only did M2M and loved them.  I'd leave it alone.

The thing is, if a tenant really wants out of a lease, they will move or they will make your life miserable until you let them move.

What a lot of them will do, is start complaining about habitability issues, so you have to let them out of the lease.  And a lot of times, they won't first just ask if you will let them out of the lease.  So all of a sudden, you're getting calls about rats and mold and who knows what, and you're thinking what the heck is going on?  Well, they want out of the lease, and they think just asking won't work.

If a tenant wants to move, I think it's better to let them.  And the most important reason for having a M2M agreement, is that you also can just give them 30 days notice to leave, if you don't want them there any longer.

And, with M2M, you only have to give them 30 days notice of a rent increase (check your local laws) or any change in rules you want, too.  You want to change the parking rules, or late fees, or smoking, or anything - 30 days notice.

And, tenants can't hold you hostage ever, knowing you can't kick them out until the end of the lease - or at least without major hassle.  I think it also keeps tenants better behaved, when they know you can kick them out with 30 - 60 days notice.

So, I'd leave it alone.  And send them 30 days notice of any rules you want implemented - in a friendly way, of course :-)

Account Closed · Answer

@Brian Tisler Be sure you get their security deposits, and evidence of their current rent amounts, if you don't get a copy of their leases.  And, if you never end up with the original lease, or the tenants refuse to sign your new one, all you have to do is give them written notice of your terms with 30 days notice.  Just send it with delivery confirmation.  No need to chase them down to sign, if they're being difficult.

I'd also ask them if there are any maintenance issues that need to be addressed and do that in writing, so if there turns out to be damage they should have let you know about, you have proof.

Also, in my opinion, quarterly inspections are too invasive.  I have to deal with quarterly inspections now because I'm in subsidized senior housing and it seems like every time I turn around, I'm getting another notice to enter.  And the maintenance man is too chummy LOL.  I just want him to check what he has to check and get out.  I don't want a relationship with the staff here.  And you just feel like you're under a microscope.  He complimented the painting in my bathroom.  I don't want him inspecting my decorating skills or noticing what I had for breakfast.  It's just creepy and invasive.  I just wanted him to look at my dripping shower!  Ahhhh!  And it happens every frickin' 3 months!

When I managed apartments, we just did inspections every 6 months.  We just checked smoke detectors, changed the batteries, checked carbon monoxide detectors, checked for plumbing leaks, checked for running toilets, leaking a/c unit, and asked if they had anything they needed fixed.  Also, we offered to turn on and off heater (gas) pilot lights, as they can make a room too warm in summer.  We'd be in and out in a matter of minutes, wam bam, 25 units done in no time.

I think quarterly inspections rubs in a tenant's face the fact that you are the lord of the manor.  They need to feel like it's their home, in my opinion.  They won't usually balk at every 6 months, though.

Russell Brazil · Answer

In reality, even when you have a lease...a tenant is really month to month. If they want to move out and break that lease, there is not that much you can really do to stop them.

Michael Noto · Answer

If the tenants are quality tenants leave them be.

The one thing you should never do is go to a year lease before you've gotten a chance to get to know how they are as tenants. Take ownership and feel it out from there.

Kurt Gardner · Answer

I think it's great that you already have cash flow day one of your ownership, congratulations!!

I only use M2M agreements now.

I agree with the previous comments that it is better for both parties to be able to walk away after 30 days.  I explain to the tenant that it's not that I'm considering evicting them or even have plans to make any changes to our agreement (I am willing to covenant with them a price point for a year if they ask).  I usually rent to aspiring home owners and by renting M2M, this gives them the easy opportunity to move quickly if they find something they need to act upon.

For me, if they can't pay rent and I have to evict them, likely I'm not going to get any satisfaction for the rest of my lease agreement, anyway.  It also makes it one step easier to evict them (if that becomes an issue) than with a standard lease agreement.

Regarding your tenants, just have them sign your new rental agreement the moment you take possession.  Lead with a positive (I'm not increasing your rent, I'm a very approachable landlord, I deliver freshly baked cookies when I come to check your smoke detectors, etc...).  Cover ALL the points to your agreement (we have boxes outside all 25 sections and the tenant must initial that they have read these and sign the bottom).

The final good thing about M2M, you have a much better exit strategy for the person whom you might sell the unit to in the future if your tenants don't have the leverage of a lease to support their "squatting" on the property.  You can ask them to leave so you have a couple months to freshen up the place, or sell it with the income from the existing tenants as incentive and also that the new owner can remove them within 30 days.

Considering all the options, I'm not sure why I'd ever use a lease unless I was dealing with very high priced residential/commercial property.

Hope it helps, and blessings.

Preston Jacobson · Answer

Hey @Brian Tisler, great questions. I usually give tenants the options to go MTM for an additional premium over market rates ($25-$150) depending on the rental and the market and how long I think it would take me to lease the units back up. @Alex Cotton made a good point about not rocking the boat if they are quality tenants. Sue K.'s point about them moving out whenever they want is mostly justified. I would add that you should find an attorney for your team to review your contracts sooner than later in your investing career, and they may be able to further explain the ramifications of a tenant not fulfilling their end of the rental agreement. Some states allow partial recovery of the rent from the time it was vacated without notice until you find a new tenant. Her second point about six month inspections is right on as well.

Ian Walsh · Answer

Where I live month to month helps the landlord most of the time.  Not only can you terminate on non payment but you can terminate on term.

Joe Splitrock · Answer

@Brian Tisler term leases are an illusion of security. I have had tenants month to month that have been there 7 years and I have had tenants break a 12 month lease at the 6 month mark. The nice thing about month to month is you are not locked into anything as a landlord. If they are happy they will stay, if they are not they will leave. Several factors play into happiness, including rent amount, location, quality and upkeep of the property. Keeping unhappy people in your property due to a lease term isn't really good for anyone. New investors fear tenants leaving, but after years of it you will stop caring. Just get the next person in quickly but not at the expense of screening them properly.

Ben Leybovich · Answer

How do you know you are going to like the tenants that are there? And if not, month-to-month makes it much easier to give notice of bye-bye :)

Mike Hanneman · Answer

You'll get a copy of the lease agreements once you are under contract. Most landlords won't give these out till then, this way they know you are serious. You can then also ask for the actuals/tax returns to see expenses. Being your first property purchase you are going to miss something, that's how you learn. Make sure to learn from it though! Also keep reading and asking questions on here.

Month to Month too risky?

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