Rental Property Investor · Doylestown, PA · Member since 2019 · 20 posts · 3 votes
I’m renting out one of my five units in a small apartment building. The one prospective tenant wants to pay for a full year of rent up front at once. It’s about $16,000 for the entire year. Sounds good to me initially, but wanted to ask… Any drawbacks here of letting her do this? Thanks in advance!
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
4y
If you accept it be sure to put it in your escrow account with your deposits and only take rent out each month as it is due. Until it is due it isn't your money, it is the tenants.
People on here say it's a red flag. What happens if they break lease, need to be evicted, etc. in the middle. I believe some states have laws about how much rent you can collect at once. Would you be able to evict after you've already accepted the rent later? Does he not pass credit check?
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
4y
If you accept it be sure to put it in your escrow account with your deposits and only take rent out each month as it is due. Until it is due it isn't your money, it is the tenants.
We've had several tenants pay us 3 to 6 months in advance and never had a problem. Change the payment form to cashier checks and deposit one each month. I don't see where it changes the lease or rental agreement in regards to your ability to evict the tenant in case he turns your rental unit into a petting zoo or prostitution business.
Investor · St. Louis, MO · Member since 2019 · 28 posts · 11 votes
4y
I like @Scott M.s note about the escrow account. Checking with a local lawyer or agent would be a good idea and then if you find the escrow situation is good you could set up an auto deposit which would be nice.
Next see if they want to do two or three years at a time! lol. Good luck. let us know what you learn.
Rental Property Investor · Doylestown, PA · Member since 2019 · 20 posts · 3 votes
4y
Thanks for all the input, everyone. To answer the first question, correct - she does not have good credit. The escrow account is a solid idea that we did not think of. Will definitely check with our realtor also if we decide to move forward with her. Not having to worry about monthly payments seems nice. We just need her to take care of the place since we just put good money into it to make it a real nice 1 BR apartment.
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
4y
75% of the time is a hard NO. 25% of the time is yes, with some more language in the lease/contract. Have your attorney look at this and help you how can you protect yourself if you need to evict or terminate the lease for example. Like other said escrow account is a good alternative to protect you from commingling or conversion of funds.
The other side is why do they want to do this? Bad credit happens for a numerous of reason as we know. But why would I take this tenant with poor credit score and willing to put down $16K vs a better qualified tenant with way better credit score and paying rent every month? I don't know the specifics, but a better tenant sounds in fact a better option to me.
I have had several tenants pay up front, each with rents $1,500+ and $500+. They have all been great tenants and each paid for six months to a year in advance.
Investor · Lewisville, TX · Member since 2012 · 106 posts · 103 votes
4y
@Jimmy Jefferson
This is a red flag. Tons of questions. A few obvious ones:
Why are they offering?
Where is the money coming from?
Why would you not pay monthly as is custom?
What are you hiding?
Do all your due diligence and then some. There is almost never a legitimate reason for someone to prepay rent. It is an offer to compensate for a shortcoming that most landlords would not accept. Figure out what the shortcoming is and proceed accordingly.
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
4y
I would do it if they met our criteria. As mentioned above, in some jurisdictions, it's prohibited by law. This year in advance rent is not uncommon and there's a variety of reasons for it. Just don't let them use that carrot to turn your eye. Screening is still vital.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
4y
I dont see how a years rent up front helps you in any way.... if she trashes the house you cant use the money to repair it - I would rethink the price I am listing the unit at if this is the only applicant you have...... while I am not against lower credit scores, they need to have a solid rental history, solid income etc etc.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
4y
I do want to say there are reasons why someone might want to pay a years rent up front - maybe they recd a bonus or a payout of some kind - or an inheritance - and they want to put some of it to rent - this is totally understandable... but you need to read your local laws and never think the prepaid rent is your before its earned... and you would need to give it back if they were to leave.....
Rental Property Investor · Member since 2021 · 2 posts · 2 votes
4y
@Bill Crow why does someone have to be hiding something if they want to pay a contract in full, which is essentially what they are doing. People who have saved, travel frequently or are just busy and have enough to worry about are a few ppl I can think of that would do this with good intentions. There is good and bad with every situation, dealer's choice though.
Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes
4y
The worry is always that it's $ from criminal activity. A 650 credit score doesn't usually happen because a person has $ sitting in the bank. That said, I know someone with tenants who have been paying annually for years now. Nothing criminal. They happened to have gotten an inheritance right before they moved in. At the time they were still processing the loss, and didn't want to interact with anyone more than necessary. They still like their privacy, but are friendly enough, and every year they have the next annual payment. Sure a lot less hassle for everyone.
Rental Property Investor · MI · Member since 2019 · 192 posts · 205 votes
4y
Nope! I would not want that burden. If the tenant has a full years of rent, let THEM put it in their own escrow and make the monthly payments. They already have the funds so there shouldn’t be any issues with getting rent paid on time so let’s test their character. I like to see responsibility and good character and paying rent on the first of the month is a start.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
4y
@Account Closed
There are circumstances where people, if they had the cash, would find it convenient to pay up front. I was in such a situation myself, traveled to foreign countries months at a time, would need someone to send checks to the landlord for me. That was some years ago before I can program my checking account to send e-checks monthly or pay on-line. Once I was in Singapore on an important business trip, thought I'll be back by months end, trip got extended, and my landlord posted a notice on my apartment door saying rent is past due.
I had an NOO mortgage on a property, reading through it's provisions, the mortgage does not allow me to collect more than 3 months rent in advance. I read about some investors who's behind on their mortgages, collect rents in advance, then skip town.
I had tenants with legitimate reasons to pay in advance, for instance, a convent was downsizing, renting apartments for member nuns, They need a number of apartments, had the funds, but back in those days, had to process 20 to 30 rent checks a month in their accounts payable department just for rents is too much. Given the limitations set on me by the mortgage, I asked them for 12 post dated checks and they were OK with that. Normally each group of renting nuns had to send a payment request each month to their AP department, and because the nuns often travel, inefficiency in the AP department, I was told getting timely checks would take quite a bit of effort. I was thinking I was in the same situation when I had a traveling job depending on others to send my checks in for me.
BTW, when I spoke to the bank, they advised me I can deposit all of the 12 post dated checks if I want to. And the Catholic diocese had the funds. I deposited by mistake a post dated September check in August, it went through, but the bank told me it doesn't matter, a check is a check, and I can deposit it even post dated.
In these situations, you have to take things on a case by case bases. While 95% of renters out their may be struggling financially on a month to month basis, others out there are not. So paying a year up front is not automatically a red flag.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
4y
While some states may have a law that says your stuck if they prepay this is not the case in most, if not all states. You simply give the money for the unpaid rent back if you need to evict. It is not your money until each months rent comes due therefore you can give prepaid rent back and evict.
Port Saint Lucie, FL · Member since 2016 · 22 posts · 7 votes
4y
Current tenant paid 1 year in full. She does not have good credit. I placed money in an escrow account and draw from it each month. If she breaks the lease the most I can keep is 2 months rent. It is going well so far.
You could try a 6 month or 3 month lease up front. If things workout then you can renew and then get another fat check. If the place is trashed you can move on.
Property Manager · Raleigh, NC · Member since 2014 · 729 posts · 596 votes
4y
@Jimmy Jefferson
It's fine to accept rent as a 1 time payment, but do not use this as a reason to relax your rental requirements. I had a tenant offer this is they had a black, but had cash from sale of property. Instead of rent prepayment, I required a larger deposit. Prepayment will not protect you from bad tenant down the road, but a larger sect deposit will.
Rental Property Investor · Doylestown, PA · Member since 2019 · 20 posts · 3 votes
4y
Thanks to everyone who replied! We ended up finding a very well qualified couple to rent this apartment to. We did not proceed with the lady who wanted to pay for a full year at once. Great discussion though and thanks for all the thoughts.