Key Takeaways
- Compare expected vacancy and turnover costs against the flexibility a month-to-month lease gives you before choosing this structure for your rental property.
- Review your investment timeline and consider a month-to-month arrangement when a sale, renovation, or change in property strategy may be approaching.
- Track local rental conditions regularly so any proposed rent adjustment reflects current market factors, operating costs, and applicable requirements.
- Build turnover expenses into your financial projections because greater leasing flexibility can also create more frequent opportunities for vacancy and re-leasing costs.
As a landlord, you have a lot of choices to consider. However, one of the choices that is going to influence the daily operation of your property like no other is determining the structure of your lease.
While a typical fixed-term lease guarantees you have predictable residents and cash flow, a month-to-month property lease gives you the advantage of flexibility.
This flexibility can be favorable for landlords, as it allows them to react quickly to the ever-changing market, modify lease terms whenever necessary, and take back the property whenever they wish without having to wait for the end of the rental period.
Although this condition helps landlords gain an advantage, it brings uncertainty as the residents also have the ability to vacate the building at any point in time. In this article, Rent Easy will go over the pros and cons of a month-to-month lease.
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What is a Month-to-Month Lease?
A month-to-month lease continues on a rolling basis till either the landlord or resident ends the agreement by serving notice.
The specifics of notice provisions, rent-change provisions, and termination provisions differ from state to state and locality to locality. Therefore, landlords need to familiarize themselves with the relevant statutes rather than assume that a blanket notice period applies to all.
A fixed-term lease offers you a lot of certainty over the specified time period. A month-to-month lease allows you more flexibility to go in a different direction. That difference can be a plus for some landlords and a negative for others.
Flexibility
Typically, a landlord planning to sell, renovate, change the use of the property, or make a large investment will not want to lock up the home in a long fixed term.
A month-to-month lease offers the ability to plan around those scenarios based on applicable notice provisions and landlord-resident laws.
A landlord may have the capacity to increase rent with the proper notice and therefore does not have to wait for the lease to run its course. This can be very beneficial for property owners in a fluctuating rental market.
However, flexibility should not be mistaken for unlimited power. A month-to-month lease cannot allow landlords to simply forget the law or change the terms of the agreement whenever they want to.
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More Flexibility Could Mean Less Certainty
The very aspect that was an advantage for the landlord could come back to haunt the landlord as well. A resident having no obligations under the shorter lease may decide to vacate, with varying amounts of notice depending on the specific lease terms and applicable laws.
The landlord might have thought that their rental income would continue for months, but then it turns out that they need to start looking for a new resident.
This means the owner has to go through cleaning, repairs, advertising, showing the apartment, screening, and all the paperwork, and all this time he is without rental money.
Turnover Can Be Costly
Frequent turnover may lead to loss of income and many additional expenses, as well. Every vacancy may mean the need to inspect and clean the apartment, perform repair work, market the unit, arrange showings, process applications, screen residents, etc.
If a property manager handles administrative work, it will not affect the costs of turnover. Professional property management can help ease some of the administrative overhead, but it doesn’t make the actual costs of turnover go away.
This is why you should analyze a month-to-month rental along the lines of total operating performance instead of just the rental sums collected for the months of occupancy.
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Long-Term Market Positioning
One possible benefit of a month-to-month agreement is responsiveness to any kind of market conditions with a higher frequency. Rental markets can change due to employment situations, new housing stock, population shifts, seasonal demand, or broader economic conditions.
A property owner who has a lease agreement cannot change the rent under the same lease duration as easily as the owner of the property on a month-to-month agreement; this provides the opportunity to make changes dictated by the law.
A sensible landlord should consider the resident’s worth, market situation, costs of vacancy, and long-term plans before any rent change. In some cases, keeping a good resident at an agreed price may have more value than striving for every possible price increment.
Compare it With a Fixed-Term Lease
Before choosing a month-to-month lease, landlords should compare both types across various aspects.
- Income assurance: Fixed-term leases typically assure more certain income, while month-to-month leases involve many uncertainties regarding vacancies.
- Flexibility: Month-to-month leases are usually more flexible, making it easier to make modifications, provided there is compliance with laws.
- Turnover: Month-to-month leases open up opportunities to lease your property again sooner, with the potential for incurring related expenses.
- Retention of residents: Fixed-term leasing may motivate a resident to remain, and month-to-month leases usually encourage rushing to move out.
- Market sensitivity: Month-to-month leases give chances to react to price changes once the law permits.
Final Thoughts
A month-to-month contract may allow landlords to control when and how quickly they make their next decisions in the future and respond to changes. This is especially helpful for short-term leases with properties that are changing or when the owner needs flexibility more than stability.
TResidents can also move from their apartments and create vacancies, turnover costs, and added management costs. Surveys consistently identify flexibility as a major benefit while pointing out that it typically means reduced income and occupancy predictability.
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Frequently Asked Questions
Can A Landlord Change The Rent On A Month-To-Month Lease In Virginia?
Virginia law generally permits a month-to-month tenancy to be terminated with written notice at least 30 days before the next rent due date, unless the rental agreement establishes a different notice period.
Virginia law also provides rules for changing the rent in a continuing month-to-month tenancy. Because the requirements can depend on the agreement and circumstances, owners should verify the current rules before sending a notice.
What Should Landlords Review Before Switching To Month-To-Month Leasing?
Start with the property's investment plan, current lease terms, expected turnover expenses, and tolerance for income variability. Consider whether flexibility would actually benefit the property or simply create additional administrative work.
Owners should also review the written rental agreement to understand its notice provisions and other terms before making a change.
Does Chesapeake's Rental Market Make Month-To-Month Leasing A Better Choice?
Chesapeake's market conditions can be one factor in deciding whether flexibility is worth the added uncertainty, but there is no single lease structure that is best for every property.
Owners should evaluate comparable rentals, property characteristics, vacancy costs, and their investment objectives before choosing a lease structure.
How Should Investors Calculate The Cost Of A Month-To-Month Lease?
Your calculation can include potential vacancy, cleaning, repairs, marketing, showing, leasing, and administrative expenses associated with preparing the property for a new occupant. Then compare those potential costs with the value of having greater flexibility over the property.
The right comparison depends on your property's rent, operating expenses, expected turnover frequency, and investment horizon.
When Is A Fixed-Term Lease More Practical For An Investor?
A fixed-term lease may be more practical when predictable occupancy and rental income are more important to an owner's strategy than the ability to make changes quickly.
Investors with longer holding periods may place greater value on reducing the possibility of frequent turnover, while owners anticipating a sale, renovation, or other near-term change may place greater value on flexibility.
