How to Manage a Month-to-Month Lease: for Landlords
When you get a new tenant for your rental unit(s), you'll most likely offer them a standard lease agreement. With a standard lease agreement, you agree to let a tenant remain in a rental unit for 12 or so months.
But what if you only need a rental unit occupied for a short while? Or what if a tenant needs a short-term rental solution? In both of these cases and more, a month-to-month lease could be the perfect solution.
This guide will break down how to manage a month-to-month lease, when a month-to-month lease is appropriate, and explore more about these unique lease contracts.
What is a Month-to-Month Lease Agreement?
A month-to-month lease is a rental agreement that lasts for, you guessed it, one month. It’s different from most standard rental agreements, which usually last for six months, 12 months, or even possibly longer.
Furthermore, most short-term or month-to-month leases involve automatic renewal clauses. Therefore, the month-to-month lease usually renews automatically at the end of each 30 day period.
Month-to-month lease agreements also include many of the standard clauses, requirements, and other factors that standard leases do. These include:
A requirement for 30 days’ proper notice before a landlord can evict a tenant
Requirements for a security deposit prior to the first month’s lease beginning
Details about how long the lease lasts
Restrictions on when you can order a rent increase
Details about the rent price
The amount of time the apartment lease is good for
On top of that, month-to-month leases can be affected by local state laws. For example, some states or cities have limits on how short or long short-term leases may be for.
When is a Month-to-Month Lease a Good Idea?
Landlords might think that month-to-month leases are good ideas in a variety of circumstances. You might consider using a month-to-month lease when:
You have a great tenant, but they know they will need to move sometime in the near future. If they don’t have an exact move-out date, you can let their current long-term lease expire. Then you can offer them a month-to-month lease until they are ready to move out. That way, your rental unit stays occupied and the tenant doesn’t have to move somewhere else for a short while
You wish to treat your property like a vacation rental. In these circumstances, you use a month-to-month lease when you aren’t in the property. But every six to nine months, you return to the property after the last tenant leaves and enjoy the property for yourself. This is a common arrangement for things like cabins or vacation homes
How to Use a Month-to-Month Lease
While month-to-month leases can be advantageous, you need to know how to leverage them properly. Here are some things to keep in mind, plus some cons of a month-to-month lease.
Offer Month-to-Month Leases in Hot Markets
In a “hot” housing market, which often includes the Boston and Cambridge rental markets, there are plenty of tenants and not enough rental space to go around. In such cases, landlords like yourself may consider offering month-to-month leases to their tenants.
That’s because you know someone else will be willing to move into the property every month. This benefit ties directly into the next advantage…
Charge Rent for Higher than Normal
In a nutshell, because this type of lease is a short-term agreement, you can charge a premium rental price for your unit(s). You can take the standard monthly rate for rental properties in your area, then add a few hundred dollars on top.
In this way, you can earn more money for the same unit by renting it month-to-month than you would by renting it for longer time frames. Just keep in mind that if you charge too high rent, you could price yourself out of the market and accidentally lose money.
Use Month-to-Month Leases to Get Rid of Problematic Tenants
If you’re having issues with problematic tenants, month-to-month leases allow you to get rid of them ASAP. You still have to give them 30 days' notice before evicting them. But month-to-month leases allow you to swap out bad tenants with new ones more quickly than normal.
Use Monthly Leases to Test New Tenants
Alternatively, landlords can use month-to-month leases to test new tenants before offering them long-term leases. For example, if you have a new rental property in a sketchy part of town, you can offer all new tenants a month-long lease to begin.
If there are no problems, you can then make an extended lease offer for a lower monthly rate. This, again, is a great way to weed out potentially problematic tenants who you'd otherwise be stuck with for longer.
Don’t Use Month-to-Month Leases All the Time
That all said, be sure not to make month-to-month leases your standard rental contracts. Month-to-month leases are unattractive for many renters because they are more expensive and less stable by their very nature. You should only use month-to-month rental contracts when it’s appropriate or sparingly, not as replacements for longer-term leases.
Know When to Transition to a Long-Term Lease
On top of that, be sure to know when it’s appropriate to transition the lease to a long-term contract. If you have a stellar tenant who needs long-term living arrangements, you’ll likely make more money in the long run by keeping them happy and lowering their monthly rates with year-long rental contracts.
It costs you money every day your rental units aren’t at full occupancy. It also costs to constantly interview new tenants and to update your renter's insurance. Keep good tenants happy and don’t force month-to-month rental contracts on them without due cause.
How Cambridge Sage Can Help you with a Month-to-Month Lease
Ultimately, month-to-month leases are excellent solutions for short-term rental needs. Whether you want to chase higher profits, make sure your rental units are occupied 24/7, or something else, don’t be afraid to offer short-term rental contracts to your tenants from time to time.
Of course, that means you’ll need great rental properties in your portfolio. Cambridge Sage can help with that. We’re experienced real estate professionals who operate in the Cambridge area. Whether you need to buy a property, rent, or find a place to live in Cambridge, we can help – contact us today!