New landlords face this dilemma when they start renting their properties: should they require a year lease, or rent the space month to month? It’s an age-old dilemma for landlords, and ultimately it becomes a matter of the specific renting scenario, personal opinion, and the landlord’s own comfort level.
Here is a listing of the pros and cons of yearlong residential leases vs. month to month arrangements:
Year-Long Residential Leases
Advantages:
Better cash flow. The tenant is “locked” into and committed to tenancy for at least a year. (An additional year lease or month to month terms can be negotiated after the year is up.)
Stability and security. Longer-term tenants give the landlord stability of income for a set period.
Less stress, hassle and cost related to renting. With a yearlong residential lease, there will likely be fewer obligations and turnover costs related to renting the unit over time.
Disadvantages:
Locked into the lease. If the tenant is not a good fit, the terms cannot be changed until the residential lease is up.
Fixed financial terms. Landlords cannot raise rents during the lease period.
Evictions are difficult. In the case of problem tenants, it can be difficult and stressful to evict them. Violations must be proven, and costly legal action is often necessary.
Not an Ironclad guarantee. Just because a tenant signs a lease, there is no guarantee they will actually stay through the entire term.
Month to Month Terms
Advantages:
Low-Commitment Renting. Landlords can end a tenancy easily when proper notice is given. This is a good structure in areas where interested tenants tend to be plentiful.
Flexible Terms. Landlords may change the rental agreement, the rent cost or other terms with notice to the current tenant or between renters.
Disadvantages:
Higher Turnover is Likely. With month to month rental terms, a higher tenant turn-over rate is likely. The tenant can simply give the agreed-upon amount of notice and move.
More stress, hassle and cost related to renting. With a month to month lease, there will likely be more obligations and turnover costs related to renting the unit over time.
Clearly, there are upsides and downsides to both yearly residential leases and monthly rental scenarios. In both options, quality tenant background screeners can help to eliminate potential problem tenants before you rent to them for any amount of time.
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