Any landlord knows that tenants moving out is one of the most costly parts of owning rental property, so it makes sense that we would want our (good) tenants to stay as long as possible. However, that unfortunately isn’t going to happen with every person. Life happens, things change, and people will eventually need to move out — perhaps much sooner than you would hope.
One thing we can do as landlords is control the length of lease you offer tenants. It might seem obvious that a long-term or annual lease is the best bet versus month-to-month, but that might not always be the case. Let’s give into some of the pros and cons of both month-to-month and longer term leases.
Typically, a term lease will be for one year (or sometimes two years), but some rental property owners will offer short spans like 6- or 9-month leases.
Pros of Term Leases
As a landlord, you’ll be able to rest better knowing stable rental income is guaranteed for the amount of time of your lease (unless the lease is broken). You’ll also not have to worry about spending extra money finding a new tenant and prepping the rental property for a new person.
This is also helpful for tenants, as well, as longer leases often mean lower rent, and they’ll be locked into that price for the duration of the lease.
Cons of Term Leases
This is the big one: you’re stuck with that tenant. So if you happen to not like them because they are a nightmare renter, you’ll have to ride it out until the end of the lease. You’ll also be unable to raise your rent prices until the lease is up.
Month-to-month leases are only applicable for a month at a time and usually renew automatically unless further notice is given to the landlord before leaving. Some renters might go month-to-month in between lease renewals if they are still looking at their options or they want to stay a little longer without signing a year lease. The notice is typically 30 or 60 days.
Pros of Month-to-Month
Shorter leasing agreements can actually be good for some instances, especially in a market where the price of rent continues to rise. Month-to-month agreements can allow you to keep your rates competitive in your area. You’ll also have an easier time of moving away from a bad tenant. Month-to-month also allows the tenant more flexibility.
Cons of Month-to-Month
If you’re experience lower rates of occupancy, month-to-month can hurt more than help because there’s potential for a high rate of turnover. You also won’t have the guaranteed rental income each month/year that comes with a term agreement.
Tenants often prefer longer leases too, since month-to-month prices are often much higher than year leases, and they can change each month.