This article will examine month-to-month leases and help you decide how much more these tenants should be charged. I have been managing rental properties for over 15 years and have tried many strategies for managing month-to-month tenants. I have discovered what works and doesn’t and am here to share this knowledge. How much more should you charge for a month-to-month lease?
In most cases, add about 10% to the monthly rent. If you are sure they will stay less than three months, you should charge about 50% of the monthly rent. However, don’t add a charge if they have no definite end date and will likely stay as if they had a regular lease.
It’s prudent for the landlord to hold out for a long-term tenant or to ask for more rent from the short-term tenant. The property will likely have normal wear-and-tear, even over the short term, that the landlord will have to address before getting another tenant. On top of that, the property will likely have at least one vacant month before the next tenant can be found. The difficult question is how much more rent should be charged for a short-term lease, and that number varies based on the circumstance. After reading this article, you will know exactly how much more you should trust in nearly every situation.
Deciding the Amount of the Rent Increase.
Another way to think of this is that a long-term lease comes with a bulk purchase discount, meaning that the tenant is buying many months of housing, and the landlord is receiving many months of rent. As a result, it’s reasonable to offer the tenant a discount for this large purchase. If your standard lease is one-year, your rent amount already includes this discount, and you would be removing it for tenants buying fewer months of occupancy.
There are high turnover costs when a tenant leaves the property. Some damages can be charged to the tenant, and security deposits can be withheld, but the landlord must handle normal wear-and-tear at their own cost. These turnover costs should happen rarely, but with short-term tenants, they are going to happen more often, and the landlord needs to recoup that cost with an increased rent.
In contrast to normal wear-and-tear, which maybe be less for short-term tenants, vacancy length is the same when a tenant leaves. Finding another tenant for the property will take the same time regardless of how long the tenant was there; this is time with no rent being collected. A short-term tenant implies more vacancies than a long-term tenant. Hopefully, your properties will have a low vacancy rate, but with short-term tenants, you are guaranteed more vacancies and should charge more rent accordingly.
You should talk to the tenant and find out why they need a short-term lease. Are they moving away for a new job in six months? Are they buying a house and need two months until the close? Do they just not like being committed to a place long-term? These are essential questions, and you need to get the answers. To the landlord, it shouldn’t matter why they are leaving. You need this information to determine how long they will stay and assess how likely they are to move.
For extremely short-term tenants, such as three months or less, you should add another 50% to the rent. For example, if the standard rent is $1,000 per month, you should charge $1,500. This additional rent will compensate you for the upcoming turn-around and vacancy. It may not cover everything, but there is a chance the tenant will decide to stay and renew the lease.
If you think the tenant will stay more than three months, you should add another 10%-20% to the rent. For example, if the rent is $1,000 per month, you should charge about $1,100-$1,200 rent. This rental increase should be adjusted based on how long you think the tenancy will be. If you think it’s going to be just a little more than three months, add 20%, but if it’s undecided and they may stay nine months or more, drop it to 10%. For periods in between, adjust the rent increase to between 10%-20%.
More on Extremely Short Lease Terms
In some cases, a tenant is looking for a highly short-term lease. Perhaps they are only in town for a month, or they are waiting to close on the purchase of their own home. For extremely short-term leases, such as one month, you should add more than 100% of the rent and change a rate closer to hotels or Airbnb stays. In many cases, it’s better not to agree to a lease when the tenant only stays for one month. This usually brings additional hassle, and many areas are passing restrictive laws on short-term rentals.
When to Not Charge Extra for a Month-To-Month lease
Tenants usually leave when their situation changes, and they don’t wait for the lease to expire. They will move when they can’t afford the rent, get a job far away, or for many other reasons. Recently I have moved some of my properties to month-to-month leases without adding a fee. I do this when the tenant isn’t explicitly asking for a month-to-month lease and is not indicating they will be a short-term renter. I have been doing this for about two years, and the vacancy rates are no higher on these month-to-month rentals when compared with those on the standard one-year lease. The month-to-month lease makes it easier for me, as a landlord, to deal with problem tenants, and I have yet to have a tenant object to a month-to-month lease.
Charging a Short-Term lease Fee
Sometimes, it’s better to charge a monthly lease fee to help cover the added expense. In the past, I have charged a fee of two months’ rent and not increased the monthly rent. The tenant was okay with this because it helped them find a nice place to stay for two months. As a landlord, it covered my 6-week vacancy period and a small painting job to cover furniture marks on the wall. It’s okay to get creative as long as you follow the laws in your area and the tenant agrees with the approach.
What are other names for a month-to-month lease? Short Term Rental Agreement, Month-To-Month tenancy.
Is a month-to-month lease the same as tenancy-at-will? No. A month-to-month lease is a valid lease with a one-month term. Tenancy at will means that there is no lease, or in some cases, a basic lease with no end date.
Does a month-to-month lease need to be in writing? In most areas, oral leases are valid but harder to enforce. A month-to-month lease, or any lease, should always be in writing.
Are month-to-month leases bad? A month-to-month lease is not bad as long as it fits the needs of both parties. With a month-to-month lease, the tenant can leave after one month, and the landlord can raise the rent after one month. Neither party should sign a month-to-month lease if that’s not what they want.
How much more should you charge for a month-to-month lease? Now you know the answer. The first step is to gauge the likely time a tenant will stay. Many renters want the flexibility of a month-to-month lease but may stay much longer. I have found that when I only offer a month-to-month lease, as opposed to the tenant asking for it, the actual length of tenancy is the same as with a one-year lease.
You should add 50% of the rent for an extremely short stay. If it’s unlikely the tenant will leave quickly, don’t add anything to the rent. If it’s somewhere in between, adjust the rent following the guidance in this article.