Month-to-month rental leases offer a lot of flexibility for both investors and residents. From a property manager’s perspective, month-to-month rental leases can have both advantages and disadvantages in terms of rent renewal and resident satisfaction. In this blog, we’ll take a closer look at the pros and cons of month-to-month leasing.
Pros of Month-To-Month Rental Leases:
Month-to-month rent leases offer great flexibility to both property managers and residents. Residents can leave at any time without being locked into a long-term commitment, while property managers can adjust the rent or terminate the lease if they need to.
Most of the time there is a 60-90 day notice needed from the resident when they plan on moving out but this still offers more flexibility compared to 6 month or year-long lease.
This type of lease is perfect for people who are unsure of how long they will need to rent a property. It gives them the option to leave shortly after moving in if their circumstances change or if their career has them traveling more frequently. Although this can be beneficial to property managers, it can also be a disadvantage when it comes to resident lease renewal and vacancy as you frequently turn over to new residents.
Easier to Terminate
These agreements are easier to terminate, which means each party can end the lease agreement quickly if they need to with minimal or no penalties attached. This can be in the best interest of the investor because if a resident doesn’t pay rent or violates the terms of the lease, property managers can give a 30-day notice to vacate, which is much shorter than the notice period for a long-term lease.
Variable Rent Increases
With a month-to-month lease, the investor may be able to collect a higher rent than what is allowable under a long-term lease since the resident is not locked into a long-term commitment. This can be beneficial to constantly review and adjust rents to ensure they remain competitive in the market.
This can come at a cost though if you start to raise rent costs too often. You’ll start to lose out on quality residents and likely be given not-so-great reviews which can impact how potential residents view your property before even personally interacting with you.
Cons of Month-To-Month Rental Leases:
Lower Resident Security
On the other hand, month-to-month leases can also create more work for the property manager. Without the security of a long-term lease, property managers must continually monitor the resident and be prepared to find a new resident if the current one decides to leave. Residents may have to move frequently, and property managers may have to find new residents regularly.
A way to help this issue may be to increase advertising or ask for referrals/recommendations from current residents – including the ones that are deciding to move. Other than that, it is beneficial to put effort into maintaining good relationships with your residents and increasing efforts to find world-class residents.
Less Stable Rent Income
While having good residents is usually a plus, maintaining them on a short-term basis is not as beneficial as a long-term lease renewal. Rent revenue is less reliable when renting from month to month because of this unpredictability. In order to prepare for this inevitable issue, investors should make sure they have a financial backup plan to compensate for lost income.
Short Notice to Find New Residents
It can be difficult to find new residents with only 30 days’ notice. You are under additional pressure to find residents when you are pressed for time, especially as the date of a vacancy approaches. Due to time constraints, it may be difficult to thoroughly and quickly get through the screening process. It is critical to maintain your standards in order to find quality residents rather than just rent to fill vacancies.
There are different seasons that may reap more vacancies than others (i.e. more people tend to move in the summer months), but if you start to notice an unusual amount of vacancies, you or the property may be the problem. It might be a good idea for the property manager to send out surveys for people moving in or out to ask for their reasoning for moving (mainly to see if it is related to the property/property owner or not). Additionally, you can offer promotional offers for different seasons.
Keeping residents in a month-to-month rental agreement may be beneficial to you and your property, depending on how well you can handle resident turnaround times, unexpected move-outs, and potentially rotating vacancies.
Offering month-to-month leases to good residents who aren’t ready to sign or renew a fixed-term lease is a great way to keep them in the property until they either sign another fixed-term lease or leave. In fact, 60 to 70% of your current residents are more likely to renew their lease if asked.
Performance Asset Management is Milwaukee’s leading property management company and can help tackle the various demands that come with running top-quality properties. As experienced investors, we know the ins and outs of the industry. Contact us today to see how we can help.