Originally published September 2021.
Updated October 1, 2024.
Rental property owners in Norfolk, VA, know it's important to understand how month-to-month lease agreements work. Unlike a long-term lease, a month-to-month agreement is automatically renewed unless either the tenant or landlord provides notice of non-renewal.
Many property investors incorporate a monthly option into their leasing process, but how does this work when thinking about your long-term real estate investment goals and navigating cash flow? Keep reading for insights from the best property management company Norfolk offers!
As the name implies, a month-to-month lease agreement is a periodic tenancy in which the tenant rents from the property owner on a monthly basis. In most cases, these agreements last for 30 days but can be shorter or longer, depending on the situation.
To break it down further, a month-to-month rental agreement typically involves an automatic renewal unless:
The tenant sends written notice to the landlord at least 30 days prior to the end of the lease term that they do not wish to renew.
The landlord sends written notice to the tenant at least 15 days prior to the end of the lease term that they do not wish to renew.
As you can see, there are some key differences between a month-to-month lease and a long-term lease. If you're currently considering adding a monthly lease agreement to your residential property management strategy, it's essential to be aware of these differences and how they could impact your investment goals.
Many property investors choose to offer month-to-month leases as an option after the original lease agreement expires. This gives renters the opportunity to stay on without signing a new long-term lease, which can be helpful if their circumstances have changed or they're not quite sure what they want.
It's also important to note that month-to-month leases can be a great option if you want to increase cash flow or fill a vacancy quickly. However, it's important to be aware of the potential downsides before making this decision.
Month-to-month leases typically don't offer the same level of security as long-term leases. This is because tenants in month-to-month agreements can give notice at any time that they plan to vacate the property. While this flexibility can be helpful for tenants, it can also be a challenge for landlords who are trying to manage their cash flow and keep their property occupied.
Another downside of month-to-month leases is that they typically come with higher rents. This is because property owners take on more risk with these agreements and need to account for the possibility of vacancy.
However, higher monthly rent amounts can discourage renters from staying in your residential properties. When this happens, real estate investors deal with frequent or lengthy vacancies.
Lastly, with frequent tenant turnover, property investors also experience more expenses. When a renter leaves, owners must conduct a thorough make-ready process to clean and repair the property before a new tenant can move in. Doing this a few times a year can add up and work against positive returns.
While month-to-month leases offer flexibility for tenants, they also provide flexibility for landlords. This means that Norfolk rental property owners have the ability to increase rent more frequently than when tied down by a fixed-term lease, which can improve returns and deliver some financial peace of mind.
Another upside of month-to-month leases is that property owners can give notice to tenants at any time. This means that if you need to sell your property, make significant property renovations, or you're dealing with a bad tenant, you're not tied down by a long-term lease agreement that allows tenants to stay through the end of the term.
Should you offer monthly lease terms? It depends.
Property managers can tell you that monthly agreements can be an excellent way to increase cash flow, but you run the risk of unexpected vacancies without a new renter ready to move in—leading to income loss.
However, many investment property owners prefer the flexibility of increasing the rent as-needed, new renters throughout the year, and the option to end the monthly commitment for a renter that violates the lease (without going through the eviction process).
When it comes to managing rental properties, there are pros and cons to consider with every decision you make. Month-to-month lease agreements can be a great option in some situations, but it's important to carefully weigh the benefits vs. potential harm before making a decision.
If you're not sure which leasing options are ideal for your properties and investment goals, a company delivering Norfolk property management services can help! Osprey Property Management experts can help you navigate the details of monthly rental agreements and fixed-term leases depending on your goals and operational preferences. Reach out soon to speak with one of our experts!
Our free resource includes more valuable insights! Download our copy of the “How To Create a Custom Lease Agreement Checklist.”