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Real Estate Investment 101: Pros & Cons of Month-to-Month Leases

A month-to-month lease agreement is a recurring 30 day tenancy contract where renewal is subject to tenant and landlord approval. As a landlord, you need to understand the pros and cons of this lease structure, and whether it’s suitable for your real estate investing strategy.
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A lease agreement is a legally binding contract between a property owner and a tenant. Conventional lease agreements set out the terms of service between landlord and tenant, including the amount of rent the tenant must pay, and the length of time the tenant can legally live in the property. While a conventional lease usually specifies a 6 to 12-month occupation term, some tenants prefer the flexibility of a month-to-month lease option.

What is a Month-to-Month Lease?

As the name suggests, a month-to-month lease is a type of tenancy agreement that permits the continuation of a lease on a month-to-month basis. A month-to-month lease is automatically renewed every 30 days until either the tenant or landlord files an end of tenancy notice. Month-to-month leases usually come into effect when a conventional rental lease expires. However, if you are looking for a short-term tenant, you can often arrange a standalone month-to-month lease agreement.

Advantages of Month-to-Month Leases

More Flexible Lease Structure

Offering a month-to-month lease can be more convenient for both tenant and landlord. We’ve listed three ways a month-to-month lease can benefit property owners:

  • It’s easier to transition from a month-to-month lease into a long-term lease.
  • Operating within a 30-day notice period ensures that non-renewal communication is quick and efficient.
  • Opting to end a month-to-month lease agreement is a highly enforceable legal action. This can be especially valuable if lease disputes in your state tend to favor tenants over landlords.

Rent Price Update

If your tenant requests a month-to-month lease agreement, you are within your rights to renegotiate a more appropriate rental price. Tenants appreciate the flexibility of a month-to-month lease and will often pay a premium for the convenience. Remember, if your property is located in a district with rent control laws, make sure to consult the appropriate state regulations before updating your rent price.

Retain Quality Tenants

Real estate investors will go to great lengths to keep tenants who take care of your property and pay rent on time. When a conventional lease expires, having a month-to-month lease option will help retain tenants who are indecisive about immediately renewing a long-term lease.

Drawbacks of Month-to-Month Leases

Loss in Month-to-Month Security

As month-to-month leases have no fixed end date, tenants can file a 30-day notice at any time. Without the security of a year-long lease, you have no way of knowing when you will have to fill vacancies and cover lost rental income.

Irregular Rental Income

Without a guarantee of long-term rental occupation, you can suffer significant losses in rental income if a tenant terminates the lease during a period of low rental demand. Even if you are able to fill tenant spaces quickly, the interim vacancy can still impact your annual rental income.

Filling Vacancies

Month-to-month lease agreements usually result in a higher number of tenants per year. This means more time spent vetting and organizing potential tenants. We’ve listed four of the most time-consuming responsibilities for landlords filling a vacancy:

  • Marketing the property through a real estate agent or independent platform.
  • Inspecting the property condition and following up on any maintenance issues.
  • Reviewing tenant applications.
  • Arranging to meet and sign the lease with tenants.

If you have a particularly demanding personal or professional routine, you can outsource these tasks to a third-party company or real estate agency.

Need More Information? Contact a Local Real Estate Agent!

If you’re thinking of purchasing an investment property, consider contacting a local Clever Partner Agent who specializes in real estate investing. A good agent will not only help you structure lease agreements – they’ll direct you towards real estate opportunities that suit your personal circumstances and financial goals. Contact Clever to connect with a full-service agent that works in your target market. Agents in the Clever Partner Network work for top-rated real estate companies and regional brokerages (e.g. Century 21, Keller Williams, RE/MAX).

 

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Reuven Shechter
Reuven Shechter

Reuven Shechter is the Outreach Coordinator at Clever Real Estate, the free online service that connects you with top real estate agents to help save on commission. He spreads the word about Clever, disseminating studies to journalists and developing relationships with media outlets. Reuven is passionate about investing in real estate and creating lasting success for families. His writing has been featured in Max Real Estate Exposure, Leverage Marketing, and more.

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