Tenant paying full year rent in one payment
Involved In Real Estate · Potomac Falls, VA · Member since 2012 · 203 posts · 31 votes
As I recall, this is what Michael Keaton's character did at the beginning of Pacific Heights.
Jon,
I understand you are a new landlord. A lot of people don't trust banks so where is the red flag.
Joe Gore
Joe, have you read any of the other responses? There are plenty of red flags!! I also think you have it backwards. I would imagine newer landlords would have less concerns about a tenant paying up front because they lack the experience. As shown by a number of responses prior, experienced landlords have seen these types of offers before and know how they have played out. Sometimes it works and usually when it doesn't they realized that they shouldhave asked more questions or done a better job in screening the tenant?
Where do you get your information that "most" tenants don't have bank account. Also you state that many people don't trust banks, that may be true with specific services but usually if someone can have a checking and savings account they will do it because it is a heck of a lot easier.
The 3x rent income screening is a stardard baseline so that one can reasonably pay the required rent. Other factors come into play but if you are of the belief that most tenants do not have a bank account, one would assume that a tenant would need around this level of income in order to maintain.
It would really be nice if you could share some of your reasoning behind the vast majority of your statements as they are out of the ordinary to say it nicely and if you have some logic behind them it would be very helpful to the community.
My experience came from being a silent partner in a large complex in Dallas, and we had good and bad tenants, and over 40% said they do not have a bank account the others said they have bank accounts but everyone wanted to pay by money orders, and we never got a bad money order. No matter how hard your screen someone you will still get bad tenants, and we never used a credit score on a credit report we look for evictions and criminal history. Income is the most important factor in renting.
@Account Closed whether tenants have bank account really has a lot to do with how much reserve funds they have or where they are from. Our tenants all write checks. Maybe 1 or 2 students in my experience delivered their rent in cash. They did not have any reserves. The other group I have found that don't have bank accounts are the "old country" folks. They came from somewhere with unstable banks or were challenged by a negative bank experience. If they have reserved they are under the mattress or something similar.
You make a choice on the type of properties you rent and with that usually goes a predominant payment type. I choose not to buy rentals where I have to pick up my rent in cash. I knew when I bought by properties where those were and avoided them. I will hazard a guess if you insisted no cash those would be money order properties. Most of my current tenants have some reserves and pay by check. Last I knew money orders cost more then checks so not having a bank account costs a bit for each money order. You can get a free checking account with like $100.00 these days so no bank account must mean something.
@Andres Piedra I would ask where the money came from. If its plausible and he qualifies otherwise check the laws to be sure you can do it. Yes it could be a red flag but it doesn't have to be. Also consider what the late rent landlord has to say on other topics like how he left the place. If you get the money upfront the tenants respect of property and other tenants would be my next big concern.
We went 2X rent except on any government tenant. The reason I ask where everyone comes up with the 3X rent is never heard of it. However, if the 3X work more power to everyone but don't you think with the 3X you might be shutting out good-paying tenants.
joe, Thanks for the response. I have a hard time expecting someone to make it go with 50% of their income going to rent but then again I deal with duplexes and single family homes so folks have a little more responsibility.
So much info in this thread.
I work two jobs and had at both of them. After being in this house for two years I asked the land owner for a discount. Her offered 10% off for six months and 15% on any thing after that. He did ask why.
I explained to him. I needed to free up money to get caught up on other bills. (clean my credit report) we had done this three times. Always paid up front.
Now his wife owns the property and I am buying it from her. At the agreed every ninety day 10% discount.
meant to say hard at them both. sorry
Joe Gore
@Account Closed
@Account Closed - maybe you missed my earlier post where I explained that the 3x qualifying standard is derived based on HUD Section 8 requirements for tenants to pay 30% of income toward rent; they have far more data on tenants and there's no reason for anybody to try to re-invent the wheel. Also, HUD has a max of 40% of tenant's income that can go toward rent; that translates to monthly income of 2.5x monthly rent at the minimum, and I do allow for that under certain circumstances with applicants.
But when you have a different standard for government tenants as you've stated - I would be concerned that somebody might consider that discriminatory.
What about putting the remaining months rent into an escrow account? Then if you ever had to evict him, it would be an easy process to do so. That or have him sign a lease that says if for any reason you have to evict him (and lay out terms such as police visits to the property, complaints from neighbors, etc.) that he is not entitled to a refund of any rents.
My sister had a similar guy renting from her and all was good until the SWAT Team showed up. Even then he repaired the front door they had kicked and stayed for several more months with no problems. Guy didn't work and always paid cash for his rent, never late either.
My sister had a similar guy renting from her and all was good until the SWAT Team showed up. Even then he repaired the front door they had kicked and stayed for several more months with no problems. Guy didn't work and always paid cash for his rent, never late either.
You can't just say the swat team showed up. You have to give details as to why.
I am a new LL and am so glad I found this forum. I've been reading and learning so much. I believe this thread in particular helped me to avoid a bad situation with people who were willing to pay in advance.
I experienced what Bill S. and Jon K. described with the offer to prepay prior to even applying and I might have fallen for it had I not read this thread months ago. Just over a month ago I was ready to get tenants in my first SFR and I'd been going back and forth with a woman from Craigslist that was offering to pay double the security deposit and two months' rent in advance due to lack of credit and rental history for herself and her boyfriend. Initially, I didn't see it as a red flag. Of course, I was tempted by the idea of having that money up front. I was excited about the idea of having tenants that could not only pay their rent on time, but could pay in advance because I felt that meant I wouldn't have to chase them down for my money each month. All seemed to be going well until she asked what the application process was like. I thought that it was strange that she would ask that, but now realize why she asked. I told her that I wanted to verify all the info that they provided on the application, so I'd be doing a background, criminal, and credit check. I told her I was less concerned with credit history and more concerned with their income and ability to pay their rent. She never responded to that and I never heard from her again.
I felt there must have been a reason for her not responding, but I didn't really think too much about it and didn't push it. Then not long after she stopped responding to me, I noticed a message very similar to the initial message she posted looking for housing. She was still offering double the security, but increased the amount of rent they were willing to pay per month. She also said they were not interested in paying application fees to have any background checks done and promised they're not criminals. Then there was a third message offering double the security and six months' rent. More than a month later and I'm still seeing posts where they're offering all of this money in advance and swearing they're good tenants even thought they have no references. I'm pretty sure I dodged a bullet with those two and I'll probably not even consider responding to anyone offering money up front. All I could think about was this thread after she didn't respond and when I saw that second post from her. So thank you all for your input on this topic! I believe it saved me a headache.
When I was a student in college I used to pay my rent in advance, but it was usually on for the summer months when I'd go back home to work. I had no rental history when I applied for the apartment, but I did have good credit and had a job that I always went back to during breaks from school. I applied and let them process my application normally. The PM gave me the apartment based off my credit alone. Before I went back home to work for the summer, I'd always give the PM the rent to cover the months that I wouldn't be there because I didn't want to have to deal with mailing checks and being mindful of the rent being due. When I returned, I went back to paying normally.
Just as another data point, I have a tenant who offerred me all 6 months up front. They are an older couple who own a local business, own another home, and were selling their old home to custom-build a new one. I was a little wary since they had no rental history. Being self-employed, there wasn't a company to call to verify income. They were unwilling to give me their whole tax return for example. They did let me talk to people they claimed were the banker and CPA but no one was willing to put anything in writing.
I was able to verify the real estate ownership via the county website. I was able to verify the business ownership through the state. I went ahead and accepted it and I have not had issues. They recently renewed due to delays in construction and paid me another 3 months in advance due to summer travel.
I agree there is a risk, but this one worked out for me so far.
I'm interested in the whole "escrowing prepaid funds" aspect and am wondering how I would know if that applies to my state (Texas). Would that be in the state property code?
Regards,
Dan
I would take it and run with it. Although if you accept a check, I would suggest waiting the full five day period for the check to clear before allowing him to move into the property.
Dan:
Read the Landlord - Tenant statutes for your jurisdiction.
Here we are not permitted to accept payment for {residential} rent beyond the next rental period {i.e. month}, so the only solution with someone who wants to prepay their rent is to have them put it in an escrow account and setup automated payments.
I've done it before as a tenant and got a 10% discount from the landlord (apartment complex).
Here we are not permitted to accept payment for {residential} rent beyond the next rental period {i.e. month}, so the only solution with someone who wants to prepay their rent is to have them put it in an escrow account and setup automated payments.
To work around that, why not just define the rental period as one year?
I spoke to a potential renter today who said she is moving from out of town and planning to do volunteer work for a church for a year, and her husband also is going to pursue his music career. She didn't seem to mind applying and being screened, but she said they did not plan to have paying jobs and would be willing to pay a year's rent up front. She seemed to be willing to pay the rent that way because she anticipated being turned down for lack of employment.
BPers, does this set off the same red flags?
She certainly didn't sound like a drug dealer. :)
It sets off red flags for me, and it doesn't have to be a drug deal either. I would want to see more info including proof of those funds, and I still would do a credit and criminal check. Some people might use the years rent as a rationale that you don't need to do a credit or criminal check because I am paying the years rent up front. Maybe there is something on the credit or criminal that would cause you to decline them?
Here we are not permitted to accept payment for {residential} rent beyond the next rental period {i.e. month}, so the only solution with someone who wants to prepay their rent is to have them put it in an escrow account and setup automated payments.
To work around that, why not just define the rental period as one year?
I spoke to a potential renter today who said she is moving from out of town and planning to do volunteer work for a church for a year, and her husband also is going to pursue his music career. She didn't seem to mind applying and being screened, but she said they did not plan to have paying jobs and would be willing to pay a year's rent up front. She seemed to be willing to pay the rent that way because she anticipated being turned down for lack of employment.
BPers, does this set off the same red flags?
She certainly didn't sound like a drug dealer. :)
Bob,
Principally because you could not legally do so. The permitted payment periods for a residential lease are typically/frequently defined in legislation.
You could do that with a commercial lease, but, of course, the limitations of requiring/accepting rent in advance do not apply to commercial leases.
In my market those are the people that start indoor Pot grows in your property. Good luck if you decide to take it.
Just dug up this old post..all I want to say is yikes! I've been renting for 5 sum years always on time. However I hit a pit-fall with a job 3 years ago, but never let my rent become late. However other things ended up hitting that mark. Since then I've always dealt in full payments or the mind set of if I can't cash it I can't afford it. Was also thinking about doing this on my next rental. My income would very much be verifiable, but like someone else has stated running a business of your own sometimes means erratic income so I prefer the whole full payment.