Should I let my tenants go month-to-month?

[Bearded Man]

The tenants who I lease my paid off single family house to will be up for renewal in a month. They've lived there for 2 years now, and I've renewed their lease each year. I am reasonably certain they are planning on staying another year.

I'm wondering if I should let them go month-to-month or have them sign another lease. It seems to me at this point, they are more likely to stay regardless of the rental terms, but it is to my advantage and gives me more options to let them go on a per month basis. Since it's a paid off house, if I ever need to I can give 30 days notice to vacate and move into it myself. The lease on the other hand, can be broken anyway, they just have to pay a $200 fee and pay the rent until I find a new tenant. With a lease, it's much harder to get the house back to myself if needed.

[Neustache]

No Nonsense Landlord is a big fan of month to month.  Maybe he'll chime in here.  If I remember, I'll try to find a good post on his blog for you about it. 

[Bearded Man]

This the article? Thanks!

http://www.nononsenselandlord.com/2014/11/month-to-month-vs-annual-lease/

ETA: Yeah, those are the same reasons I'm thinking of going M2M with my tenants. The longer I am in the rental business, the more I realize M2M protects me and is to MY advantage, while a lease is to THEIR advantage.

[Another Reader]

Some tenants like the security of a lease and will move if they don't have that contractual guarantee.  Look at it from the tenant's perspective.  It's stressful to know you may be asked to move in 30 days at any time.  It might be helpful to discuss the idea with them before you make the decision.

[lise]

I have let tenants go month to month when they asked (they were trying to buy a house) but with a 2 month notice clause by either party and rental price reviews every 12 months. They left before 12 months but I didn't want the month to month to drag for years with no rental increase.

[Bearded Man]

Some tenants like the security of a lease and will move if they don't have that contractual guarantee.  Look at it from the tenant's perspective.  It's stressful to know you may be asked to move in 30 days at any time.  It might be helpful to discuss the idea with them before you make the decision.

A good perspective and point, thank you.

[Fishingmn]

I ALWAYS do yearly renewals but I have good reasons.

- I'm a realtor and let tenants cancel their lease early if they use me to buy a home. Therefore, I'd prefer to have them use me vs. make it easy to find another agent.
- I live in Minnesota and it's a huge disadvantage to have a lease that ends in the winter. If you go month to month you can't control that as well
- I like the control involved with knowing when leases can expire and not be at the whims of a tenant moving out. This way I can research their renewal once a year and work with them to renew or move out. The vast majority have stayed.

Now, given your reasons about moving into the property I can certainly see the opposite argument. If I was trying to sell my units I would probably do the same.

[SUP]

If it's in a winter area then keeping your move outs in spring and summer can cut vacancies in half. I allow month to month for $65 monthly charge, but if you renew now your rent only increases $15. It's built into the lease.

If I do have a winter vacancy I do an18 month to get it back on target. Spring and summer vacancies rent for more and faster in most areas. This is called lease targeting. You are controlling when you have turnover.

But if it's a condo in Florida it probably does not matter ;-)

[Bearded Man]

If it's in a winter area then keeping your move outs in spring and summer can cut vacancies in half. I allow month to month for $65 monthly charge, but if you renew now your rent only increases $15. It's built into the lease.

If I do have a winter vacancy I do an18 month to get it back on target. Spring and summer vacancies rent for more and faster in most areas. This is called lease targeting. You are controlling when you have turnover.

But if it's a condo in Florida it probably does not matter ;-)

Funny you mention that, because I've considered that in the past to be an advantage of having a lease. All of my leases are set to end in the summer because that's when I rented them out. I guess with the existing tenants I have, it might be best to keep them on a lease, while others from now on, I might do month to month. For new tenants I think it's worth the loss of summer vacancies to have the option to kick someone who just isn't working out merely by sending them a 30 day notice to vacate.

[NoNonsenseLandlord]

This the article? Thanks!

http://www.nononsenselandlord.com/2014/11/month-to-month-vs-annual-lease/

ETA: Yeah, those are the same reasons I'm thinking of going M2M with my tenants. The longer I am in the rental business, the more I realize M2M protects me and is to MY advantage, while a lease is to THEIR advantage.

Thanks for the mention.  I do both.  I do not think there is a difference in regards to tenant commitment with a 12-month lease or month-to-month.  I have even done 24-month leases, but only to very solid tenants. 

With a M2M, I figure a tenant who get pissed off about something you have no control over, might wait it out a month to see if the  situation improves.  If they have to sign an annual lease, they might bail as they can't stand the situation for another year.

[anotherAlias]

I was a landlord for 6yrs.  I always had my tenants on month to month leases.  My reasoning is that I didn't want anyone living in my property that didn't want to be there since they'd be less likely to take care of things.  Plus shit happens.  People lose or change jobs and need to move.  I rented long enough to know that I'd rather be a flexible landlord. It was a huge selling point. I never had my unit empty for more than a week except for the first time when I was doing some renovations. I always told my prospective tenants that it kept everyone on their best behavior.  If they didn't like what I was doing they could leave and if I didn't like their behavior I'd ask them to leave.  It worked really well.  All but one of my tenants stayed for 2ish years.  The one who didn't was a nut job and I was glad she left after a month. My theory is that people like the idea of flexibility more than the actual flexibility itself. 

[monarda]

We don't like month to month but we are flexible. We've broken a lot of leases when our tenants bought their own house or moved out of the area. We just made it clear to them that they would be responsible until we found another renter, and nobody ever had to pay extra more than a few weeks.  We tell them that we don't like to have to fill a place in the winter here in Wisconsin, as it's more difficult to find new tenants then. It's worked out that they just end up needing one or two extra months from their original Aug1 end date, which is no problem.

[totoro]

I prefer a lease in most situations for the same reason as others have mentioned: I want the term to end in summer if possible.  If I knew I might sell a home or want to move in I would only offer month to month.

[arebelspy]

If they're good tenants, I want them on a year lease to keep good cash flow for longer. I often offer incentives for this (i.e. no rent increase if they sign a new lease, or even re-signing incentives, depending on the circumstance).

I will only go M2M if they won't sign a year, because I'd rather keep them as long as possible to minimize turnover and other expenses.  (And I'd had tenants who went month to month stay for a LONG time--and even sign year leases later.)

If they aren't, I ask them to move out.

But all of my rentals are straight up investments.  If you think you might need to move in, realistically, then it might be a different scenario.  I'd still probably try to keep them though, if it's unlikely, and then if it does happen just look for a place to rent yourself short term, until their lease is up.

[Bearded Man]

Decisions, decisions. A lot of good responses, thanks to all. I am leaning toward sticking to leases with the current rental tenants since they are good tenants. Maybe I need to look for another alternative, such as putting something in the lease that gives me a similar easy out. Heck, there may already be something in there, I need to review again, it's been a while...

[powskier]

If your lease is bomb proof it is pretty easy to get someone to leave for breaking the terms of the lease, so I don't really see that as any reason for a lease.
I am also in a deep winter area and prefer year long for that reason. I have done a 6 month for an unexpected move out ( military transfer) that happened in December.