Published July 28, 2022. Updated March 4, 2024.
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.
A 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.
So, keep reading to learn about monthly agreements and if they're right for your rental properties!
A month-to-month lease is very much what it sounds like: it's a monthly agreement between the property owner and the tenant.
Unlike a standard lease agreement where owners commit to housing renters for a certain amount of time (typically 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 an excellent resident, 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 we'll talk next about how using a monthly agreement can benefit and challenge a residential property owner.
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.
Monthly leases can also allow you to offer 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 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.
When working to keep a month-to-month rental profitable, you might find that you experience more financial benefits from longer 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 and no renter to pay rent unit until you find new renters.
While that situation is not as sudden as when a renter abandons your property without notice, you still need to find another renter to quickly 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.
Ultimately, the best lease agreements for your rental properties are the leases that help you reach your financial goals and protect your investments.
You might find it ideal to offer a mix of leasing options, from a short lease term for some properties to long-term rentals for other investment properties. However, before you put properties or your rental income at risk, it can be wise to consult a property management company to help you walk through the scenarios and the numbers compared to your goals.
There's no need to worry about the best lease agreement for a renter or a property. 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 or a monthly option.
Our property managers 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."