Congratulations on becoming a rental property owner. If you have done everything well, you’re now on your journey to earning a passive income for many years to come.
Now, to be a successful landlord, there are a couple of things that you have to do. And among them is requiring tenants to sign an agreement prior to moving into your rental property.
There are two types of rental agreements – a month-to-month lease and a fixed-term lease. Each of these options has its list of pros and cons. The focus of this blog post will be on the former.
So, is a month-to-month lease better for landlords? Here is everything you need to know in this regard.
What is a Month-to-Month Lease?
A month-to-month is a short-term lease. Unlike a traditional 12-month lease, it allows landlords to rent out their properties without any long-term commitments.
It legally binds both parties to the lease for 30-days, and continues to run each month until it’s terminated. Either party to the lease can terminate it by serving the other party a notice of at least 30 days.
What are the Pros of Having a Month-to-Month Lease?
Month-to-month leases are ideal for landlords who are looking for some overall flexibility. The flexibility can be either on the kind of tenant you want to rent to, or if you’re only planning to rent out your home for a few months.
You could also consider it if you’re renting out your property on a fixed-term basis and want to extend it until the tenant finds a new apartment.
The following is an exhaustive rundown of the pros of renting your property on a month-to-month basis.
1. The end date is flexible
Either party to the lease can terminate a month-to-month at any point they want to. The only requirement is a proper notice. As per Missouri law (MRS Tit. 29 Ch. 441), the notice must be at least 30 days.
This flexibility can help you get rid of a difficult tenant who constantly pays rent late or causes negligent property damage.
2. You can raise the rent
You can always make changes to the terms of the agreement when renewing it. You can, for instance, raise the rent without losing a tenant.
What’s more, there is no rent control policy in the state of Missouri. This means that you can charge whatever amount you want. By the same token, you can raise it to whatever amount you wish. You are also under no obligation to provide the tenant with an advance notice or any justification for the rent hike.
State law also gives you the right to charge late fees as long as you include it on the lease agreement.
3. Zero penalties for early lease termination
You won’t incur any penalties for terminating their agreement early as long as you provide them with proper notice. Also, with a month-to-month lease, it’s expected that either party will break it at some point.
While you can break it at any point during a tenancy, some landlords prefer to do it during the summer. This is when demand for rentals is at its peak and can charge more rent.
4. You are able to retain great tenants
The goal of every landlord is to rent to quality tenants that pay rent on time, care for their rented premises, and abide by all terms of the lease agreement. Once you have found that tenant, you can continue renewing their lease until they eventually choose to leave.
What are the Cons of Having a Month-to-Month Lease?
There are a number of scenarios where a month-to-month lease isn’t ideal. The following are the downsides to having one.
1. There is uncertainty over the end date
Sure, the end date is flexible with a month-to-month lease, as you can terminate it whenever you want. That being said, that level of uncertainty isn’t desirable in some situations.
A flexible end date means that the tenant can terminate the lease whenever they want. This can mean having short-term tenancies, which can have a detrimental impact on your bottom line.
When you have a quality tenant, it’d be in your best interest to have them for as long as possible. However, this may not be possible when you are renting your property on monthly basis.
2. Finding a new tenant can be stressful
To terminate a month-to-month lease, all a tenant needs to provide you is a 30 days’ notice. This is all the time you’ll have to find a replacement tenant, which can prove to be stressful.
30 days may not be enough for you to make the property rent-ready, create a stunning listing, syndicate the ad extensively, hold showings, and vet prospective applicants.
3. The income may not be consistent
Having quality tenants that pay rent on time and take care of their rented premises is a win. However, only having to keep them temporarily may not give you the income stability you may be yearning for.
What is the Main Difference Between a Month-to-Month Lease and a Fixed-Term Lease?
While a month-to-month lease is short-term, a fixed-term lease is long-term. A fixed-term lease runs anywhere between 6 months and a year. During this time, both parties must abide by the terms of the lease.
Unlike a month-to-month lease, either party cannot terminate it until it runs its due course. An exception to this blanket rule is when a tenant has a legally justified reason to move out, or when evicted through the courts.
Landlords must also wait for the entire term to end to make any changes to the lease, such as raising rent, unless otherwise agreed to in the lease.
So, is a month-to-month lease better for landlords? It depends! Look at your investment goals. If you’re looking for a stable passive income, then you should probably go for a fixed-term lease.
However, if you’re looking for overall flexibility in whom you rent to, or are only renting out your property for several months, then a month-to-month lease would be ideal.
For expert help in managing your rental property, look no further than Pro X Property Management LLC. We’re a top property management company in Southeast Kansas and Southwest Missouri. Get in touch to learn more!