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Which Lease Type Is Better? Month-To-Month vs. Fixed Term

Which Lease Type Is Better? Month-To-Month vs. Fixed Term

Are you planning on renting an apartment or house for the first time? Are you wondering about the benefits of month-to-month vs fixed-term leases?

Becoming a landlord gives you a wonderful opportunity to earn passive income. You will be gaining equity and acting as your own boss. Yet, there are different leases available, and you should know which one is right for you and your property.

What is a month-to-month lease, and how does it compare to a fixed-term option?

Let's take a look.

What Is A Month-To-Month Lease?

In short, a month-to-month lease agreement allows you to alternate or terminate the lease each month. Your tenant will usually need to give 30 days of notice before they make a change.

Month-to-month leases are popular among tenants who aren't sure how long they wish to stay in a certain neighborhood. Your renters won't incur any penalty fees if they decide to pick up and move after a month.

Likewise, you as a landlord aren't bound to keep your rental price the same for six months or a year. You can also change the terms of your lease with each new tenant.

What Is A Fixed-Term Lease

By contrast, a fixed-term lease occurs when your tenant agrees to rent an apartment until a specific date. They will be responsible for paying rent during this entire amount of time.

If your tenant decides to terminate a fixed-lease agreement early, they may be required to pay rent until your landlord can find another tenant.  Or they can get asked to reimburse you for the cost of advertising the vacant property.

Moreover, you won't be able to change the rent or terms of the rental agreement throughout the life of the lease.

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Pros Of A Month-To-Month Lease

A month-to-month lease is also beneficial for landlords because they can raise their rent prices without losing tenants. It will also provide great control over whether or not you want to keep your tenants in a rental. You can simply choose to terminate their lease the next month if you are unhappy with them.

Month-to-month leases are more difficult for tenants to find, so you may be able to charge more or be more selective with the application process. It's also possible to change your lease terms from month to month.

For example, you may want to have a new "no pet" rule because of some unfortunate instances that occurred on your property. With a month-to-month lease, you can simply require tenants to abide by this rule starting the next month.

Cons Of A Month-To-Month Lease

On the other hand, offering month-to-month leases could mean that you're looking for new tenants every month. This can cost you a great deal of time as well as advertising money. The tenant screening process can also be stressful.

You will also deal with a less stable income with monthly rentals as there is no guarantee that your apartment will be occupied for the duration of a year.

Pros of a Fixed-Term Lease

Fixed-term leases give landlords a little more security. They will have guaranteed occupancy and income during the course of the lease, which is usually around 6 months to a year. In addition, you won't need to go through the hassle of finding a new tenant every time someone moves out.

Cons of a Fixed-Term Lease

Landlords will be unable to raise their rents during a fixed-term lease. If their utility expenses or taxes go up, they will have to wait until the end of the term to change rental rates.

In addition, you won't be able to change the terms of your lease or find new tenants until the fixed-term period has ended.

Month-To-Month Vs. Fixed Term

The types of leases you offer your tenants will depend upon your needs as a landlord. If, for example, you're simply looking for a dependable source of income, you may want to stick with a fixed-term situation. This is also particularly beneficial if you tend to have a difficult time finding quality tenants.

However, some landlords take advantage of the plethora of fixed-term options on the market and choose to offer month-to-month leases. They can charge more because they're offering extra convenience to renters. And they can be a bit more particular as to the terms of their leases.

Tips For Landlords

If you're a new landlord, you can talk your leasing plans over with a property management company or lawyer before making an educated decision. They can also help to ensure that your documents are legally sound.

It's important to be insured and to treat your property rental as a business. Smoke and carbon dioxide detectors should be installed. And all leaks and small repairs should be quickly attended to.

If you're handy, know that you will likely get called on at inconvenient hours to fix a pipe or a circuit breaker. If you hire a property management company, these things can be managed for you. In addition, your company can help you set and collect rents.

Make sure to perform credit and background checks on all prospective renters. And you'll need to set clear rules that you enforce. With a little organization, you will be on your way to a well-run property you can count on.

Moving In

Choosing between a month-to-month lease and a fixed-term agreement will depend upon your needs as a property owner. With a little research and the right tenants, you could be content in your renting situation before you know it.

Don't stop getting smart about renting now. For more great advice on leasing well, contact us today.