Twelve month leases on each room or month to month, which one actually costs less

Question

I'm still in the reading stage on this, no house yet, and the lease term question keeps stopping me.

Every room-rental owner I've talked to splits into two camps. One camp does twelve month leases per room, staggered so they don't all end in the same week. The argument is stability, fewer turns per year, and you can plan the calendar. The other camp does month to month on every room and prices maybe $40 to $75 higher per room for the flexibility. Their argument is that a room renter who wants out is going to leave anyway, and a signed twelve month lease on a $700 room isn't worth chasing, so you may as well get paid for the option.

The part I can't settle is turnover cost. If a room turn is a clean, a paint touch-up, and two weeks of ads, that's small enough that month to month at a premium might win outright. If a turn actually runs a few hundred dollars plus three weeks empty, the annual lease looks better even at a lower rent.

I also don't know how much the term affects who applies. Does a fixed twelve month term filter toward steadier people, or does it just shrink your applicant pool in a market where the whole appeal is flexibility?

Case for either side welcome. I'd rather hear the version where the choice went badly.

kevin_lombard · Answer

I read your post twice and I still don't know which way I'd vote, so I'll just ask the thing I got stuck on. When people say staggered twelve month leases, does that mean the first tenant signs a shorter term on purpose so the end dates spread out? Because otherwise everyone who moves in the month you open ends up on the same date and you've built the exact problem you were trying to avoid. Also does a room lease name the specific bedroom, or the house with a room assignment attached? I've seen both described and I don't understand which one you want when someone wants to switch rooms.

renee_dubois · Answer

@juniper yes, you offer odd terms on purpose. On my one house that rents by the room I've handed out 7 month and 9 month terms at move-in just to push the end dates apart, and nobody has ever pushed back on it. My leases name the room number and say the assignment can change with written agreement from me, which has saved an argument twice.

On @arbor's actual question, I track it and month to month costs me more than the premium covers. My average room turn is about $310 all in with a cleaner and paint, and my vacancy between room tenants runs 12 to 20 days depending on the month. Two extra turns a year is roughly $620 plus a month of lost rent. A $50 premium across four rooms is $2,400 a year, so on paper flexibility wins, but the premium only works if you can actually get it. In my market I can't, tenants comparison-shop the room rate on the same three sites I list on and $50 is visible.

Summer is the other thing. A room that comes empty in July fills in nine days. A room that comes empty the week before Christmas sat 34 days for me once. Fixed terms let me steer end dates away from the bad months, and I'd give up some rent for that.

brandonlee36 · Answer

Middle answer from me: fixed term for the first term, automatic month to month after. You get the filtering and the calendar control at move-in, and you stop doing renewal paperwork on people who have already proven they pay. What actually converts to month to month varies by state and some notice requirements come with it, so read your state's rules or have someone local read them for you before you write the clause.

The part @cairn is right about and I underweighted for two years is that the season sets your vacancy, not the lease term. My worst room ever sat 41 days in February in a house that fills in a week in August.

Twelve month leases on each room or month to month, which one actually costs less

3 replies