The standard one-year lease is by far the most-used occupancy contract offered by landlords for residential properties, and it’s common to see one-year, two-year, five-year, and even longer leases on commercial properties. Lessor/lessee contracts lasting less than one year—often for six months or one month (including month-to-month), or even for just a week—are considered short-term leases.
Obviously, there aren’t many occasions when short-term commercial property leases make sense for owners or tenants (although situations like political campaigns needing office space and trending concepts like pop-up restaurants are examples of when it would). But should you offer short-term leases for residential rental properties?
As with any investment consideration, the prospect has its pros and cons, and ultimately there’s no single right answer; you need to decide what’s best for you, your situation, and your investment goals. Below are some key things to think about when debating whether or not to offer tenants short-term leases for residential rental properties.
Pros of Short-Term Leases for Residential Rental Properties
- Charge higher rent in exchange for lease flexibility
- Short-term leases afford more opportunities to raise rental rates and adjust terms (e.g., deposit requirements, pet policies, move-out inspection processes, etc.)
- Adapt better to changing costs if you pay the utility bills for your investment properties
- Access different demographics of renters and be more competitive in a crowded rental market
- A short-term lease can function like a trial period with a new tenant
- Possibly avoid eviction hassles if the lease ends soon enough
- Plan leases to end at high-demand times of year
- Retain good tenants longer who might not want to re-sign for a full year
- Have more opportunities to make upgrades and improvements without working around an occupant
- Profit as a vacation rental or home for extended-stay business travelers, which can command higher rates than tenant rent if you’re in the right location
Cons of Short-Term Leases for Residential Investment Properties
- Homes or units are likely to be unoccupied more of the time, losing income
- You’ll have to go through the process of finding new tenants more frequently; this is less of an inconvenience if you use a property manager
- A higher move-in/move-out rate increases the need for maintenance and repairs
- You may lose good tenants more quickly and/or more often
- More tenants over time means more opportunities for negative experiences (e.g., non-payment, late payments, excessive damage, complaints from neighbors, etc.)
- Short-term leases may attract tenants with job insecurity or other potential issues that may not be evident in the vetting process
- Check local and state tax filing requirements; you may be subject to additional licensing requirements, local and state taxes for leases that run less than six months
