Rental property owners have a lot to handle every time a lease agreement ends, and another one begins. They must make sure the renters move out, assess damages, make repairs or do maintenance, and find new renters, which includes reviewing rental applications before placing new tenants.
However, the month-to-month lease agreement is one of the many options available to property owners dealing with vacancy issues or helping tenants at the end of a fixed-term lease. Learning about it and understanding its value with insights from Seattle property management experts can help you make good choices for your rentals.
What Is a Month-to-Month Lease Agreement?
A month-to-month lease is very much what it sounds like: unlike a standard lease agreement where you commit to housing renters for a certain amount of time (like a year), the lease instead auto-renews each month. However, either party can cancel with enough notice.
Many landlords often offer a monthly agreement after a 12-month residential lease agreement ends. If a renter is on the fence about signing a new lease and they've been a model citizen, offering a month-to-month lease to keep that great renter a while longer can be good for your bottom line.
A month-to-month rental agreement can also be beneficial when offering rental units for short-term stays or for tenants that need more flexibility than a long-term lease offers. Of course, these are just two scenarios where these leases could be helpful, but let's explore more about how using them often can benefit and challenge a residential property owner.
Benefits of a Month-to-Month Lease Agreement
Month-to-month leases can be helpful if you've found that rents in your area are rising at a rapid rate, and you worry that locking in a single rate for twelve months could reduce your potential income in that timeframe. Month-to-month leases can also allow you to do short-term rentals during high-demand seasons when vacations are popular or if the property's location is a prime spot to rent to students or other short-term tenants.
Seattle has plenty of neighborhoods with demand for month-to-month rentals, such as university neighborhoods. In addition, a student may be more likely to rent from you if they aren't locked into a long-term agreement. Business travelers also make good use of monthly rent agreements when in the area for short-term work engagements.
In general, these optimistic scenarios leave you with more of a chance to maximize, adjust, and improve rental rates throughout the year, which can often lead to better returns on your investment in this property. In addition, monthly agreements also give you the flexibility to end the lease after 30 days if a renter violates the lease or proves to be an unwanted tenant.
However, this flexibility comes at the expense of a "sure thing" in terms of consistent monthly rental income and occupancy. Property managers can tell you that with monthly agreements, owners often put in more legwork to keep renters in the rental unit than if you work to get one renter per year to commit for the whole year.
Drawbacks and Challenges With Month-to-Month Rental Agreements
When working to keep a month-to-month rental profitable, you might find that you experience more financial benefits from longer-term fixed-term leases.
With monthly terms, your renter also has the freedom to leave with only 30 days' notice, which could mean you have to find new renters more often, and with short notice. For example, if you rent a property to tenants who are also shopping for a house to buy, a month-to-month agreement means that they'll give notice as soon as they find their new home and leave you with a vacant rental unit until you find new renters.
While that situation is not as sudden as when a renter abandons your property with no notice, you still need to quickly find another renter to maintain cash flow and ROI.
While many owners of month-to-month rentals charge higher rent amounts for the privilege of flexibility, it's also crucial to keep your eye on competitive market rental rates. Many renters won't value the ability to leave the lease quickly to justify paying a lot more for your property. As a result, you can sometimes find higher vacancies, leading to income loss.
Work with Seattle Property Management Experts to Choose the Ideal Lease Agreement
One of the helpful things about working with Real Property Associates is that we bring years of experience with the Seattle rental market to the process of deciding between a standard residential lease agreement and a month-to-month lease agreement. We understand each neighborhood and what renters want to help property owners determine the best way to rent and manage properties for maximum returns! Reach out soon to learn how our property management services and experience can help you generate more long-term income.
Learn more about rental agreements in our free guide, "How to Create a Custom Lease Agreement."