Tenant Wants to Pay Upfront

9 Replies

Would you rent to a tenant that wants to pay up front? Have not run background/credit check yet but she has mentioned she has terrible credit and is not currently employed. She received money from a "settlement" and wants to pay for a 12 month lease up front. 

Are you going to change your leasing requirements because someone waves a check in your face? 
is that your question?
she will be looking for her next settlement from you.  

That can be a big accounting headache on your part.  You will need to be very specific about what is rent and what is security deposit.  You may also have greater tax liability depending on when you sign her on as a tenant since you may have to claim all the rent in the year you collect it.  If she becomes a problem tenant in other areas, you may have a harder time evicting her and you will have to refund any rent not yet due.  I don't know about North Carolina, but some states also prohibit collecting more than first, last and security.  So it really doesn't make your job any easier.  And I would be suspect of a tenant who got money from a "settlement".  I'm not saying it wasn't total legit, but it is also possible this could be the kind of person who sues at the drop of a hat?

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Don't forget that rent collected in advance is prepaid rent and as such not yours.  It belongs to your tenant and should be in your escrow/trust account until it is due each month.  

For sure, run all your other checks to be sure this is someone you should be renting to. 

Originally posted by @Christian Fowler :

Would you rent to a tenant that wants to pay up front? Have not run background/credit check yet but she has mentioned she has terrible credit and is not currently employed. She received money from a "settlement" and wants to pay for a 12 month lease up front. 

 Two warning signs "terrible credit" and "not currently employed". The settlement could even be a warning sign, because she has an attorney and knows how to use them to get money. Even if you look past all these problems, what happens in 12 months? How do you know she will have a money or employment by then? I wouldn't even encourage her to apply by informing her lack of employment will result in denial. 

Oh, and to add to @Scott M. 's comment, if the funds kept in the escrow account earn interest, you are supposed to pay the tenant that interest (Laws vary from state to state).  And I also agree with @Joe Splitrock that you are trying to find a good tenant who will renew their lease for many years (so you don't have any vacancy).  Being that she is not only un-employed but also has a low credit score, how confident are you that she'll have a job and funds that would qualify her to renew at the end of the year.

@Christian Fowler

Most of our homes are in North Carolina so I believe I can tell you that I am familiar with what the laws are for North Carolina though I am not an attorney and not offering you legal advise. Before Covid We considered some folks with marginal credit reports and in fact in one case accepted some months of pre-payment with a two month security deposit. But I still did a full and complete screening and processing including an online application, credit report, eviction report, t asked to employers, references… and much more.

I don’t think I would go through that process again as the market place is now quite different. None of us knows for a fact if any of these pandemic special treatments that came from state governments or national entities will revisit. None of us know if a local ordinances about affordable housing or other things will surface. I would encourage you to think carefully and if you decide to at least consider this candidate run your full application and screening process just is if you were looking at any of your prospective tenants and make a decision with your eyes wide open. Good luck!

I would take advance (up front) rent payments but not if someone didn't meet our rental criteria. This person wouldn't because they don't have the required income and they wouldn't meet our minimum credit score. Since the covid debacle, we have tightened our standards and are less likely to vary from them.

@Christian Fowler

I am also in NC, where there is a labor shortage and businesses have reduced hours due to a lack of employees. I see now hiring signs all over the place. If she is not employed now it may be from her just not wanting to work.

I’ve received the same offers before l, not too far from where you’re at and it’s always because there are red flags with the applicant.