There's no doubt it's a seller's market in most parts of the country. Housing inventory is low, and thanks to low mortgage rates, buyer demand is surging. That's made finding a house -- especially an affordable one -- harder than ever for some buyers.
For those in the market (or at least hoping to be soon), signing a long-term lease just doesn't make sense. People need the flexibility to move quickly should a suitable house hit the market, and your traditional 12-month agreement doesn't allow for that.
A month-to-month arrangement can be perfect for these hopeful homeowners. Here's what to think about before offering one yourself.
Pros and cons of month-to-month rentals as a landlord
One of the biggest advantages of a month-to-month arrangement is that you can charge more. Because the tenant comes with more risk (you might have a vacancy with very little notice), you can ask for a higher rent to offset that risk.
Month-to-month leases also give you flexibility in terminating them. You're not stuck with a vacancy 12 months down the line (at a potentially bad time to find renters). Instead, you can choose your end date at will, such as terminating the lease in the late spring or early summer, when you know more people may be in the market.
Another huge perk? You also have the opportunity to get rid of a bad tenant fairly quickly. If a renter just isn't working out, you only have to deal with them for a month or two before you can send them on their way.
In summary, the pros of going month to month for landlords include:
- Flexible end dates.
- Potentially commanding a higher rent.
- Getting rid of bad tenants faster.
So what about the downsides? A major one is that you could find yourself with a vacant unit with very little notice. That could make it hard to find a new tenant, and you could end up with financial losses if the vacancy drags on too long.
You'll also have more turnover with monthly renters, and that means more cleaning and repair fees long term. It may also result in more wear and tear to your property.
In summary, the cons of going month to month include:
- No stability.
- Could leave you with an unexpected vacancy at a bad time.
- More turnover.
- More potential for wear and tear.
The bottom line
Demand for month-to-month rentals is up. While offering these arrangements might make it easier to find tenants fast, it does come with risks.
If you do end up with a month-to-month tenant, make sure to charge a higher rent in order to mitigate the risk. This will give you a financial cushion in the event you're hit with a sudden, unexpected vacancy.
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