Full year rent upfront

[Bradley Sainsbury]

My new tenants want to pay a full year of rent upfront. Their reasoning is, they are selling their house to move cities for a new job so will be getting cash from that sale and they want to pay upfront so they can work on rebuilding their credit and savings to purchase a new home in the next two years or so. 

Was wondering if anyone has experienced this before and what are the considerations for such a situation?

[Kim Meredith Hampton]

I know it may sound appetizing and those dollar signs can look oh so great, but there are many downsides to collecting all the rent upfront. You also will need to check with your state and or municipality, it could be against the law to collect money beyond the current rental period.

Some of the issues that I have ran into in the past are that the tenant needed to break the lease, we re-rented the property, but the owner wanted to keep all of the rent in escrow. We had no vacancy, no repairs, and the tenant paid our lease fee. There was no out of pocket or loss to the owner, so litigation ensued, eventually (one year later) the owner lost and had to refund the money we had in escrow. Thank god we had the funds in escrow and refused to send them anywhere until litigation ended, or I think the tenants would have been out the money, long spent by the owner.

Some other issues to consider that could and have happened to owners, is that the property could be damaged by a hurricane, flood etc… and they have spent all of the money, which essentially needed to be refunded to the tenant.

The tenant could file bankruptcy, and the owner could be dragged into this because of the upfront rent the tenant paid.

What if the owners get divorced, what happens to the money that was already paid? What if the tenant is in violation of the lease and you need to evict, you may have a real issue when it comes time to evict.

Keep it clean and don't let that carrot/hook cloud your vision when it comes to collecting all the rent up front.