When it comes to lease agreements, six months to a year is the standard for good reason.

Landlords and property managers need to keep vacancies low to guarantee a steady flow of income from a rental property. However, month-to-month renters can provide a host of benefits you may not expect.

If you need greater control over tenant timing, property flexibility, and the amount you charge month to month, shorter lease agreements may be the perfect tool.

Here, we'll explore when you might want month-to-month tenants, when you might not, and the legal concerns you'll need to think about.

When Should I Offer Month-to-Month Leases?

Month-to-month leases enable renters and landlords to minimize the time frame in which they commit to a relationship. This can go on indefinitely, or you can offer such leases until a designated point in time. This makes it possible for tenants to give a 30-day’s notice of departure virtually whenever and initiate tenant turnover.

You should offer these leases in instances in which you were unsure about the direction you want to take the property, or if you would simply like the flexibility to set rental prices and vet tenants.

This means that if you plan to retire to the property at an unspecified time or perhaps just want to use the property while you're in town, month-to-month leases give you the flexibility to do just that. You'll be able to adjust your schedule to fit your needs without having to wait for the end of a lengthy lease term.

Additionally, month-to-month leases give you greater control over your immediate cash flow.

For example, in a market in which price points are rapidly on the rise, a month-to-month lease can allow you to adjust your rent price to match the fair market value in your location. In turn, this can give you the potential to maximize your returns on your real estate investment —  but only if you are able to keep vacancies at a minimum and charge a high enough premium to make up for turnover wear-and-tear.

This brings us to your next consideration: when to not offer month-to-month leases.

When Should I Not?

There are times that offering month-to-month leases could be beneficial to any property manager in a given market. Correspondingly, there are times when it's best to not take the risks inherent in short-term leases. This includes when high rental vacancy rates make finding a new tenant uncertain or in markets in which property values are quickly falling.

Because month-to-month leases are so short, offering these options in a poorly-performing market could mean that you’re left suddenly struggling to find a new tenant if a month-to-month renter decides to up and leave. The resulting lack of cash flow can eat into your necessary income. 

The coronavirus pandemic showed us how quickly certain real estate markets can change. Offering a month-to-month lease in a market that is shifting quickly can set you up for lost revenues you might have had from a consistent rent agreement. In times of uncertainty, you may value the stability of a longer lease more than the flexibility of a short one. 

That said, month-to-month leases could also give you a competitive edge for renters searching for such flexibility amidst uncertain times. Regardless of the lease duration you decide to offer your tenants, you'll need to factor in your legal obligations.

Legal Considerations of Month-to-Month Rentals

With short-term rentals, you may face less risk from having to deal with lengthy eviction procedures, should tenants misbehave. Some states allow landlords to terminate even a month-to-month lease and get the renter out in as few as three to five days if they break the stipulations of the lease agreement. At most, you will only need to wait 30 days, with the proper notice, for a chance at tenant turnover. 

However, be aware that in most locations it is against the law for landlords to end a month-to-month lease out of retaliation for tenant complaints. This means that you can't decide to discontinue lease renewal simply because a tenant asked you to fix something broken in the unit.

Certain locations will have different time requirements on the notice you give to your tenants (and vice versa) when needing to discontinue the lease. Additionally, your city or state may require you to deliver notices in a certain format. Consistently consult a legal professional to keep up-to-date on the property management laws in your area.

Bottom Line

Month-to-month rentals can offer exceptional levels of flexibility that may just allow you to boost your revenue stream. With the premiums you can offer on month-to-month rentals, plus fair market value, you can grow your ROI. However, be careful, know your laws, and shoot for longer leases if you're uncomfortable with some uncertainty.

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