Landlord talk: Comparing Month-to-Month and Term Leases
If you’re in the business of property rentals, you’re probably familiar with the dilemma: do you offer tenants a month-to-month lease or a term lease? The answer: both have pros and cons, so which is better depends on your situation.
The Pros and Cons of Month-to-Month Leases
Prospective tenants often prefer a month-to-month lease if they are planning a short-term stay. This can be beneficial if the market for short-term stays in your area is larger — in which case a property offering a term lease might be passed over and left unoccupied for a longer time, not generating revenue — but typically it also means more costs for you, the landlord, as tenants come and go more quickly.
Another factor to consider is that month-to-month leases give you more power if the tenant is unsatisfactory. If someone moves in and throws loud parties every night, you can simply give them notice and refuse to renew their lease the following month.
The Pros and Cons of Term Leases
Most landlords gravitate to term leases by default, with the rationale that it decreases tenant turnover. Since the tenant is contractually obligated to pay you for a certain number of months (or face fees to break the lease), it makes it more difficult to pick up and move again, leaving you scrambling to find new tenants and paying associated fees.
The flip side of this is that if they turn out to be poor tenants, you’re stuck with the arrangement as well, and you’ll have to wait until the end of the term before you can be rid of them.
For new landlords who are still getting the lay of the land, month-to-month leases can be an ideal starting point; you’ll get experience screening tenants and managing a property while not being locked into a long contract. Once you have more experience under your belt, term leases are usually the more profitable option. And when you’re ready to build a real estate empire, get in touch with us at Flipside Capital for all your financing needs.