Month to Month Lease or Yearly Lease?

Question

We have been using yearly leases for our properties (we mostly have single family and a couple duplexes). These are in low income areas. We have had good tenants so far, but I like to prepare as best as I can for the bad ones that are bound to rent from us at some point. I have been intrigued by doing month to month leases instead of yearly so that we can get rid of a tenant if they are not paying, not taking care of the house, etc. But is it actually any easier to evict a tenant after a month to month lease?

The scenario I'm thinking of is that we get a tenant that doesn't pay. On a year lease, we end up having to serve them an eviction notice and the process may take a few months to get them out. On a month to month lease, we end the agreement after the month is up, and then if they don't leave, we still have to go through the eviction process. So how is a month to month lease any better? If the tenant isn't going to leave from the eviction with the yearly lease, there's probably a good chance they won't leave after their month to month lease is terminated, right? Or do you find that they generally do leave peacefully after ending a month to month lease? Also, is the eviction process faster for holdover tenants than it is for tenants under a lease agreement?

Dennis M. · Answer

In lower income areas you should always be month to month . You don’t want to be married to these idiots for years in end . Non payment is the same issue as far as eviction but as others eluded to , you can throw them out quickly without the hassle of an eviction for non lease  offenses . Why limit yourself there is no safety in one year leases , this has been refuted a million times on here . When a tenant wants to go they will just leave regardless so why can’t I have the same privilege? Why box myself in ? It takes a couple months for “ crazy” to show up , and once they do you want to have actionable tools in your toolbox to deal with it . You DONOT want your hands tied behind your back

Stephen J Davis · Answer

The eviction process is the same as I understand it. I always use 1 year leases and get them to sign a new one at the end of the lease every year. I never let people go month to month except in special cases.

Nathan Gesner · Answer

When someone is on a month-to-month, it doesn't do much to help you with non-paying tenants. The benefit comes with tenants that are difficult in other ways, like sneaking in unapproved roommates, noise complaints from neighbors, consistently paying late, failing to maintain the lawn, etc. When a tenant is a pain, but not bad enough to evict through court, the month-to-month lease allows you to give them notice and get rid of them.

Personally, I don't have this problem. I put my tenants on a one-year lease. If they want shorter, I do a 6-month lease at a 20% increase. If they break their lease, they give me 30 days notice and pay a penalty equal to one month of rent which almost always puts more money in my pocket. By using a longer lease, I can better control vacancies and I tend to make more money. With month-to-month, I would never know what to expect and I could get a ton of vacancies in the winter, which would be really bad in my market.

As for problem tenants, I'm quick to hit them with written violations, fines, deadlines for compliance, and inspections. If you screen well and are strong from the beginning, problems are pretty few.

Account Closed · Answer

I only did M2M.  Once in a rare blue moon an applicant would fool me and just use the apartment as a cheap extended stay hotel for a month.

But, I'll just add another reason to do M2M that hasn't already been mentioned with the other great reasons above.  If a tenant wants out of a lease early, they will rarely say so.  What they will do is find reasons to get out of the lease that are habitability reasons that are usually fabricated.  OMG!  There's MOLD in the BATHROOM!!!  OMG!!! There are RATS!!!  OMG!!! There are COCKROACHES!!!  OMG!!!!! The toilets are backing up constantly!!!!  I'm living in SEWAGE WASTE!!!  On and on.

All of a sudden your perfectly maintained unit is requiring constant maintenance calls for pest control and the tenant is demanding toxic mold tests and maybe they're even calling the building department for code violations or the health department for pests.  And you're wondering what the heck is going on!

Whereas, if the tenant could just give 30 days notice there wouldn't have been any issues.

It's always better to just let a tenant go if they want to go.  Use their deposit for any real damage, and write off any other turnover costs.  Get a good review, have tenants who don't do retaliatory damage, etc.

Even if local law says you can't evict without good cause, at least with a M2M all you have to do is document good causes to evict.  But, with a year lease, you will have a way harder time proving a material breach of the contract.

Bjorn Ahlblad · Answer

To some extent it is a matter of going with the flow of the market. When we LL'ed in California 1-2 year leases were the norm; so that was what we offered. Here in Wa State most tenants are MTM, and we have become accustomed to that. Longer leases offer more security to the tenant than they do to the LL. If we buy a new building with 1 year, or longer leases we can't renovate and reposition the asset as we could if the tenants were MTM. We can't raise rents as freely, we can't non renew a tenant on 30 days notice. Yes, a tenant can decide to leave, they do that anyway, and that gives us the opportunity to to refresh the unit and raise the rent.  Both leases have their merits and drawbacks; I like the flexibility MTM offers both parties-especially me. ;))

Jill F. · Answer

I strongly prefer m2m for low income housing. It's way harder to evict paying tenants for other lease violations as @Nathan G. has pointed out. I'm stuck right now with some drug dealers with 6 months on their lease, if they were m2m I could just 30 day them with no reason at all, preferable to me AND them if they're smart. A lease gives the tenant possession of the property for the term so long as they abide by it's terms, if they tell a good enough story and they have a right of possession the judge is way more likely to give them extra time than if they are hold-overs (They still have to pay though). As soon as they don't pay though, they're out.

Terrell Garren · Answer

M2M all day long because of what @Jill F. and @Dennis M. said.  I've found no upside and only downside with long term leases for residential property. This is not marriage, it's a business.

Caitlyn Ulinski · Answer

Thanks everyone! Super good points, I appreciate all the feedback.

Bill B. · Answer

Screen your tennants well and the loner lease is better. In 20 years I’ve had open tenant break a lease and they paid until I filled it. I do 2 year leases at the low end of market, 1 year at the high end of market rates, and mtm (renewals only, never from the start) at high market plus $100/mo.

This is for Las Vegas SFH tenants, they stay 4-7 years on average  if you’re renting out studio or 1/1 condos, you’re going to have turnover regardless  if I had smaller units like that I would try to make my property attractive to seniors who might live in the property the rest of their life. Once someone has lived in your property a couple years it feels like their home, they take better care of it and don’t want to move, IMHO

If your new tenant doesn’t know if they even want to stay more than a year why would you want them? A CHEAP turnover will cost you $50-$100/mo.

Month to Month Lease or Yearly Lease?

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