Month-to-Month vs. Fixed-Term Leases: Which Is Better for Landlords?

By PropsManager Team · Leasing & Marketing · Jun 28, 2025

I've managed rentals using both lease structures for over a decade, and I'll tell you this upfront: there's no universal right answer. The landlord with a single-family home in a college town needs a completely different approach than the one running a 12-unit building in a stable suburban neighborhood.

But here's what I can tell you—choosing the wrong lease type has cost me thousands of dollars. Once, I locked a nightmare tenant into a 12-month lease on a duplex and spent eight months dealing with noise complaints, unpaid utilities, and neighbor threats before I could legally end the arrangement. Another time, I went month-to-month on a property in a hot market and watched three tenants leave within nine months, burning through roughly $4,200 in turnover costs each time.

The lease structure you choose isn't just paperwork. It's a financial strategy. Let's break down both options so you can make the right call for your portfolio.

What Is a Fixed-Term Lease?

A fixed-term lease locks both you and your tenant into a specific rental period—most commonly 12 months, though 6-month, 18-month, and even 2-year leases aren't uncommon. Neither party can terminate the agreement early without consequences (typically an early termination fee or forfeiture of the security deposit) unless there's a lease violation.

The National Apartment Association reports that roughly 75% of all residential leases in the United States are fixed-term agreements, with the 12-month lease being the dominant standard. There's a reason for that popularity: predictability.

Advantages of Fixed-Term Leases

Guaranteed rental income. When a tenant signs a 12-month lease at $1,800/month, you've got $21,600 in projected income you can count on. That matters enormously when you're planning for mortgage payments, property taxes, and maintenance budgets. Banks love it too—if you're applying for a new loan, that signed lease is proof of income.

Lower turnover costs. The real killer in rental property management isn't the monthly mortgage—it's vacancy and turnover. According to Zillow, the average cost of tenant turnover ranges from $1,000 to $5,000 depending on the market, factoring in cleaning, repairs, marketing, and lost rent during the vacancy period. With a fixed-term lease, you're only dealing with that expense once a year at most.

Tenant stability. Tenants who commit to a year tend to treat the property differently than someone who knows they can bounce next month. They're more likely to set up the unit as a real home, maintain the yard, and invest in the neighborhood. I've noticed my fixed-term tenants submit fewer frivolous maintenance requests and take better overall care of the property.

Easier financial planning. When you know your income is locked in for 12 months, budgeting for that new roof or HVAC replacement becomes way simpler. You can plan capital improvements around lease end dates and schedule renovations without worrying about displacing a tenant unexpectedly.

Rent increase structure. You can bake annual rent increases right into the lease terms. A clause stating rent increases to $1,875 upon renewal gives the tenant fair warning and gives you a built-in raise without awkward negotiations.

Disadvantages of Fixed-Term Leases

You're stuck with bad tenants. This is the big one. If a tenant pays rent on time but is otherwise a nightmare—loud music at 2 AM, hostile to neighbors, letting the yard turn into a jungle—you can't just end the lease. You'll need to document specific lease violations and potentially go through the eviction process, which can take 30 to 90 days depending on your state and cost $3,500 or more in legal fees.

Reduced flexibility for property sales. If you decide to sell and your tenant has seven months left on their lease, most buyers who want to occupy the property won't want to wait. You'll either need to negotiate an early termination (often costing you a month or two of rent as a buyout) or limit your buyer pool to investors.

Market rate risk. Lock in a 12-month lease at $1,600/month in January, and by June the comparable units on your street are going for $1,850? Too bad. You're leaving $250/month on the table until that lease expires. In rapidly appreciating markets, this can add up to serious money.

Harder to adjust terms. Want to update your pet policy, change the landscaping responsibilities, or add a clause about short-term subletting? You'll have to wait until renewal time.

What Is a Month-to-Month Lease?

A month-to-month lease (sometimes called a periodic tenancy) automatically renews each month unless either party gives notice—typically 30 days, though some states require 60 or even 90 days for landlord-initiated terminations. It offers maximum flexibility for both sides.

Advantages of Month-to-Month Leases

Ultimate flexibility. Got a great offer on the property? Planning major renovations? Need to move a family member in? With proper notice (usually 30 days), you can end the tenancy without breaking any agreement. That flexibility has real dollar value, especially in volatile or rapidly changing markets.

Easier removal of problem tenants. In most states, you can terminate a month-to-month tenancy for any legal reason—or no reason at all—with proper notice. No need to document lease violations or file for eviction. You just give notice and the tenant has 30 days to leave. This is enormously valuable when you've got a tenant who isn't technically violating the lease but is making life miserable for everyone around them.

Real-time market rate adjustments. Rents in your area jumped 8% since last quarter? With proper notice (typically 30 days, but check your state laws), you can adjust rent to match current market rates. This keeps your income optimized without waiting for an annual renewal.

Premium pricing. Here's something many new landlords don't realize: you can—and should—charge a premium for month-to-month flexibility. Most landlords add $50 to $150/month on top of the standard rate. If your fixed-term rate is $1,800, charging $1,900 or even $1,950 for month-to-month is completely standard and accounts for the increased risk of sudden vacancy.

Quick policy changes. Need to update your lease terms? With proper notice, you can modify the agreement next month. No waiting for an annual renewal cycle.

Disadvantages of Month-to-Month Leases

Income unpredictability. Your tenant could give 30-day notice on December 1st, leaving you scrambling to fill a unit in the dead of winter—historically the worst time to find tenants. The National Multifamily Housing Council data shows vacancy rates spike 15-20% during November through February in most markets.

Higher turnover costs. More flexibility means more moves. Each turnover costs you the cleaning, touch-up painting, marketing, showing time, and typically 2-4 weeks of vacancy. If you're turning over a unit three times a year instead of once, you could easily spend an extra $6,000-$10,000 annually.

Tenant quality concerns. Long-term, stable tenants tend to prefer the security of a fixed lease. Month-to-month arrangements sometimes attract tenants who aren't sure about their plans—job hoppers, people between housing situations, or tenants who've been asked to leave their last place. Not always, but it's a pattern worth noting.

Lender complications. Some mortgage lenders and insurance companies look less favorably on month-to-month arrangements because they represent less predictable income. If you're refinancing or purchasing additional properties, this could affect your application.

Month-to-Month vs. Fixed-Term Lease: Side-by-Side Comparison

The Hybrid Approach: Best of Both Worlds

Here's what most experienced landlords actually do, and it's the approach I recommend to anyone starting out: start with a 12-month fixed-term lease, then automatically convert to month-to-month after the initial term expires.

This hybrid strategy gives you the best of both worlds. You get 12 months of guaranteed income and tenant stability upfront, and then you gain flexibility going forward. Your lease should include language like:

"Upon expiration of the initial 12-month term, this lease shall automatically convert to a month-to-month tenancy under the same terms and conditions, unless either party provides 30 days' written notice of termination or the parties execute a new fixed-term agreement."

About 60% of my tenants end up signing another 12-month lease at renewal—usually because I offer a small incentive like keeping rent flat or a minor upgrade (new faucet, fresh paint in a room they choose). The other 40% roll onto month-to-month, and I adjust their rent upward by $75-$100 to account for the increased flexibility risk.

When to Offer a Lease Renewal vs. Month-to-Month Conversion

Not every tenant deserves the same renewal offer. Here's my framework:

Offer a new 12-month lease when:

• The tenant has paid on time consistently (less than two late payments in 12 months)
• They've maintained the property well
• They communicate respectfully about maintenance issues
• Market rents haven't dramatically outpaced their current rate

Let them convert to month-to-month when:

• You're considering selling the property in the next 6-12 months
• The tenant is okay but not someone you'd go out of your way to keep
• You want the flexibility to bring the unit to market rate quickly
• You're planning renovations and need flexibility on timing

Issue a non-renewal notice when:

• Late payments have been a recurring issue
• Multiple lease violations have been documented
• Neighbor complaints are consistent
• Property condition has deteriorated under their tenancy

Tracking all of this across multiple properties gets complicated fast. PropsManager's lease management features let you set automatic reminders 90 days before lease expirations, track payment history, and log maintenance requests—so when renewal time rolls around, you've got the data to make a smart decision instead of guessing.

State Laws You Need to Know

Lease structures aren't just a business decision—they're a legal one. State and local laws heavily regulate how both lease types work, and getting this wrong can be expensive.

Notice Requirements Vary Dramatically

• California: Landlords must give 30 days' notice to terminate a month-to-month tenancy (60 days if the tenant has lived there over a year). Rent increases over 10% require 90 days' notice under AB 1482.
• New York: In NYC, landlords must provide 30, 60, or 90 days' notice depending on how long the tenant has occupied the unit.
• Texas: Only 30 days' notice required for month-to-month termination unless the lease specifies otherwise. Much more landlord-friendly.
• Oregon: Requires 90 days' notice for no-cause terminations after the first year of occupancy in most circumstances.

Rent Control Implications

If your property is in a rent-controlled market (parts of California, New York, New Jersey, Oregon, and a growing number of cities), the lease type you choose has massive implications. Rent control ordinances may cap your annual increases to 3-7% regardless of lease structure, and some jurisdictions only allow termination of month-to-month tenancies for "just cause."

Always check your local regulations before deciding on a lease structure. A $200 consultation with a local landlord-tenant attorney can save you $20,000 in mistakes.

Financial Impact: Running the Numbers

Let's compare the two approaches on a $2,000/month rental over three years:

Scenario 1: Fixed-Term Lease (Renewed Annually)

• Year 1: $2,000/month × 12 = $24,000
• Turnover cost: $0 (tenant stays)
• Year 2: $2,060/month × 12 = $24,720 (3% increase)
• Turnover cost: $3,000 (tenant leaves, 3-week vacancy)
• Year 3: $2,150/month × 12 = $25,800 (new tenant, market rate)
• Turnover cost: $0
• Total 3-year income: $74,520 minus $3,000 = $71,520 net

Scenario 2: Month-to-Month Lease

• Months 1-8: $2,100/month × 8 = $16,800 (includes $100 MTM premium)
• Turnover cost: $3,500 (tenant leaves, 4-week vacancy in winter)
• Months 9-20: $2,150/month × 12 = $25,800 (adjusted to market)
• Turnover cost: $2,800 (tenant leaves, 3-week vacancy)
• Months 21-36: $2,250/month × 16 = $36,000 (market rate increase)
• Total 3-year income: $78,600 minus $6,300 = $72,300 net

The month-to-month scenario actually edges out the fixed-term in this example, but notice the higher turnover costs and the added management burden of finding tenants twice. Your time has value too. If you're managing the property yourself, those extra turnovers mean hours spent on showing, screening, and lease execution.

Tools like PropsManager automate much of this—online applications, automated screening, digital lease signing, and rent collection—which significantly reduces the time cost of turnover regardless of which lease structure you choose.

Tips for Managing Either Lease Type Effectively

Whichever structure you choose, these practices will protect your bottom line:

Screen thoroughly every time. Whether it's a 12-month commitment or a month-to-month arrangement, run credit checks, verify employment, check references, and review rental history. A bad tenant costs the same regardless of lease length—the only difference is how quickly you can get rid of them. Learn more about effective tenant screening strategies.

Document everything. Keep records of all communications, maintenance requests, inspections, and payment history. This protects you legally whether you're enforcing a fixed-term lease or terminating a month-to-month tenancy. Proper documentation is also your best legal defense in any landlord-tenant dispute.

Build renewal incentives into your budget. Keeping a good tenant is almost always cheaper than finding a new one. Budget $200-$500 per unit annually for small retention incentives—a professional carpet cleaning, a new kitchen faucet, a fresh coat of paint in the living room. These token gestures go a long way.

Set calendar reminders. Whether you're tracking lease expirations for renewals or monitoring month-to-month notice periods, missing a deadline can cost you. Set reminders at 90, 60, and 30 days before every lease expiration.

Review your lease annually. Even if your tenant is renewing, update your lease template every year. Laws change, market conditions shift, and the clause you forgot to include last year might be the one you desperately need this year. Knowing how to handle lease renewals and negotiations can save you from costly mistakes.

Which Lease Type Is Right for You?

Use this quick checklist to guide your decision:

Choose a fixed-term lease if:

• You want predictable, stable monthly income
• You plan to hold the property for 2+ years
• You're in a market with moderate or slow rent growth
• You prefer minimal management involvement
• Your property is in a seasonal market where winter vacancies are brutal

Choose month-to-month if:

• You might sell the property within the next year
• Your market is rapidly appreciating (5%+ annual rent growth)
• You're planning renovations or major capital improvements soon
• You want maximum control over tenant selection
• The property is in a high-demand area with year-round rental demand

Choose the hybrid approach if:

• You want initial stability with long-term flexibility
• You're unsure about your 2-3 year plan for the property
• You want to evaluate tenants before committing to ongoing flexibility
• You manage multiple properties with different strategies

Explore More PropsManager Resources

Looking for the right property management software? Check out our in-depth guides:

• Compare Property Management Software — See how PropsManager stacks up against Buildium, AppFolio, Rent Manager, and Propertyware.
• Software for Small Landlords — Built for landlords managing 1–50 units without the enterprise price tag.
• AI-Powered Property Management — Discover how automation can save you 5–10 hours per week.
• Solutions for Property Managers — Scale from 50 to 500+ units without scaling your costs.

Frequently Asked Questions

Can I switch a tenant from a fixed-term lease to month-to-month mid-lease?

Not unilaterally—both parties have to agree. You'd need to execute a lease amendment or a new agreement. Most landlords handle this by including an automatic conversion clause in the original lease, which kicks in when the fixed term expires. If you want to convert mid-lease, you'll need the tenant's written consent.

How much more should I charge for a month-to-month lease?

The industry standard is $50-$150/month above your fixed-term rate, depending on your market. In high-demand urban areas, you can push that premium higher—I've seen $200/month premiums in San Francisco and Seattle. The premium compensates you for the increased vacancy risk and turnover costs. Just make sure the total rent (base plus premium) is still competitive with comparable units in your area.

Can a tenant break a fixed-term lease without penalty?

Generally, no. However, most states allow tenants to break a lease without penalty in specific situations: active military deployment (under the SCRA), domestic violence (varies by state), uninhabitable conditions caused by the landlord, or illegal lease terms. Outside of those exceptions, you can typically enforce an early termination fee—usually one to two months' rent—or hold the tenant responsible for rent until you find a replacement, depending on your state's mitigation requirements.

Do I need a lawyer to draft my lease agreement?

You don't need one, but I strongly recommend having a local attorney review your lease template at least once. A solid lease template costs $300-$500 from a landlord-tenant attorney and will save you far more than that in avoided disputes. Many property management platforms, including PropsManager, provide legally reviewed lease templates that you can customize for your state and property type.

What happens if a tenant stays past their lease expiration without signing a new agreement?

In most states, the tenancy automatically converts to a month-to-month arrangement under the same terms as the expired lease. This is called a "holdover tenancy." Some states allow landlords to charge a higher holdover rent (often 150-200% of the standard rate) if specified in the original lease. Check your state statutes—the rules vary significantly.

Take Control of Your Lease Management

Whether you run fixed-term leases, month-to-month agreements, or the hybrid approach I recommend, the key to maximizing your rental income is having systems that keep you organized and informed.

PropsManager gives you the tools to track lease expirations, automate renewal reminders, collect rent online, screen tenants, and manage maintenance—all from one dashboard. No more spreadsheets. No more missed deadlines. No more guessing which tenant's lease expires when.

Start your free trial today or request a demo to see how PropsManager simplifies lease management across your entire portfolio.