Wednesday, January 8, 2014

Renter has agreed to month to month until June

I have to admit I was getting worried. My renter had not responded about wanting to stay and resign their lease. They had been flip flopping from 6 month leases to a month-to-month and back to 6 months. They kept saying they want to find a bigger place and their current lease was due at the end of January.

Procrastination is usually a bad thing but its the ally of the landlord. My renter had waited too long that they now had a problem.
Come to an agreement and resign the lease or find another place and move out in the next 23 days.
I now have an agreement to go month to month for the next 6 months. In June I'm done and I'm not going to do this anymore. They will sign a year lease or they are out.

Now it might seem odd that I would kick out a person wanting to pay me to stay there. Isn't that the point of being a landlord? Well there is a seasonality issue involved with renting. How many people do you know of that like to move in the winter, in the middle of a school year? Let me tell you its not many. Spring and summer are when people move. The one thing I have learned is that you do not want a vacancy. It is killer.

Let's assume you have a 10% cap rate, or 10% profit margin. After you set aside money for taxes, paying a property manager, paying the mortgage, and saving for future repairs you make 10%. Many REITs I follow have a 8%-12% cap rate so even professional real estate companies have a hard time getting much more.
For the landlord, one single month of vacancy is 8.3% of your income. Add in fess and costs for relisting your place and doing background checks etc you've lost 10% of your yearly income and you have lost an entire year's of progress.
Which is exactly why I calculate a 10% vacancy rate into my budget.

For me specifically if I have a lease due in January and they decide to move out... I could quite easily see the next four months of vacancy until spring. Thats $3,800 I lose out on but I still have a mortgage, insurance, and HOA fees to pay. My investing deposits would have to be cut to make up for it.

For now I am good for the next half year. Given this renter's history they will wait until the last minute and we may have to have an uncomfortable talk. I'll be fair and bring it up for discussion a couple months early to give them plenty of time. We will see what happens in June.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.


  1. One of my properties is within the boundaries of a highly desired school district. Its also in a rural area where land is not available for development etc. This makes it very easy to rent before school starts but very difficult afterwards.

    How much are your HOA fees might I ask, I have been looking into condos as a way to diversify my real estate portfolio but have no clue how much fees really are. There simply aren't condos in east texas where I live, for me to check out locally.

    1. This year the fees will be $175/month.
      However it includes the following....
      Roofing, landscaping, trash (big dumpsters), paving of the streets, gated community, painting of the exterior, and a city police car sitting inside the gates when not out on patrol or responding to a call. I am sure the city could use the money and there are no loud parties or disturbances lol.
      Its a lot of money but it removes stress from my life of having to worry about things.

  2. I live in Canada. Basically when a tenant moves in they have to sign a yearly lease in most provinces hear in Canada. Some have 6 month leases also.

    One province I lived in, it was a yearly lease to start. If had to give 3 months notice to go month to month or the lease gets renewed automatically. When on month to month, you get to stay on it for as long as you want. Some landlords, when they raise the rent, will tell you if you go year to year it would be a little cheaper.

    Another province I lived in, I signed a 6month lease. I contacted the landlord and to find out if I have to give notice or not. They told me I get automatically converted to a month to month lease. Up here in the 2 provinces I lived in you had to give a month's notice that you will be moving out.

    1. It is interesting how each state and province will have its own laws. Some states are very favorable to the renter while other ones favor the landlord.

  3. Renting is something that was a good idea at one time but not so much today. Whats the average rent for a 600 square foot one bedroom apartmant. I think its around 700 dollars a month thats about average nation wide.

    1. Why is it not a good idea anymore? Why is $700 for a 600 sq' apartment a bad thing?
      It depends entirely on your costs.