Rentor wants to pay a full year, currently on month to month

Investor · Member since 2015 · 10 posts · 1 vote

Hello Everyone,

I am new to BP and currently trying to go through the entire podcast series. I have a single family which I'm renting out through a Month to Month agreement and have had it rented for 1 year so far.

The renters are wanting to pay a full year rent in advance. I wanted to see if this would be a good idea or what the negative impacts could be. I am always looking at the negative implications a and protect my investment.

What would you recommend? My questions are:

1. Should I switch to a 1-year term lease?I like the month to month to prevent non payers.

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Nicole Garner

Real Estate Broker · Houston, TX · Member since 2015 · 86 posts · 22 votes

10y

I'm not an attorney, don't know your state laws and do not suggest that this is legal advice.

If the tenants want to pay a full year of rent in advance, I would suggest requiring that they renew a 1 year lease before accepting payment. This would prevent them from vacating the property prior to the end of the prepaid rent term and the tenant requesting a refund of rent they would claim would be "unused". Again, I am not familiar with what your state laws allow; but I would not leave them on month-to-month to terms and accept rent for a full year. It does leave you open to rent repayment liabilities.

When in doubt, find a good real estate attorney and schedule a consultation.

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Nicole Garner
Real Estate Broker · Houston, TX · Member since 2015 · 86 posts · 22 votes
10y
I'm not an attorney, don't know your state laws and do not suggest that this is legal advice.
If the tenants want to pay a full year of rent in advance, I would suggest requiring that they renew a 1 year lease before accepting payment. This would prevent them from vacating the property prior to the end of the prepaid rent term and the tenant requesting a refund of rent they would claim would be "unused". Again, I am not familiar with what your state laws allow; but I would not leave them on month-to-month to terms and accept rent for a full year. It does leave you open to rent repayment liabilities.
When in doubt, find a good real estate attorney and schedule a consultation.
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Manuel V.
OP
Investor · Member since 2015 · 10 posts · 1 vote
10y
Thank you so much. That was my thoughts exactly.
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Laurie Johnson
Real Estate Broker · Jacksonville, FL · Member since 2015 · 130 posts · 30 votes
10y
My husband and I did this when he was going to have several back surgeries in one year. We also got a great discount. They problem would have been if we wanted to move we would not have been able to get our money back without a fight. The reason I say this is because the owners did not want to refund our security deposit because they spent it. Illegal but they are international and do not care. The other side of it for you would be the tenants feel they can do anything because they paid in full. If you do it put it into a separate account and just take the monthly payments from it. Good Luck
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Kevin Harrison
Investor · Woodbridge, VA · Member since 2015 · 476 posts · 197 votes
10y
Originally posted by @Laurie Johnson:

My husband and I did this when he was going to have several back surgeries in one year. We also got a great discount. They problem would have been if we wanted to move we would not have been able to get our money back without a fight. The reason I say this is because the owners did not want to refund our security deposit because they spent it. Illegal but they are international and do not care. The other side of it for you would be the tenants feel they can do anything because they paid in full. If you do it put it into a separate account and just take the monthly payments from it. Good Luck
Lets start this off with a warning, If you are going to go this route make sure you have an iron-clad lease agreement! Also ensure that your tenant understands that you are going to make sure it is incredibly hard for them to back out of this agreement. But if they are good tenants and pay on time I would consider this.
The upside is,1) you have all the money upfront and don't have to worry about them paying rent on time, still I would keep this money in a separate account, 2) you can earn interest on their money all year while you hold it, 3) You have your monthly profit up front and can use it to invest in other things as long as you don't pull more of it than you can manage if they do somehow back out of the agreement.
Just my coin
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Manuel V.
OP
Investor · Member since 2015 · 10 posts · 1 vote
10y
good point Laurie and thanks so much kevin. Any recommendations on where to park the money at to try to get a littls return for a year?
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Jacqueline Carrington
Investor · Corona, CA · Member since 2014 · 746 posts · 372 votes
10y
Who knows what a year could bring? I wouldn't accept a year up front because what if I decided to sell property or do something else with it. Also if tenant breaks lease and you already have the money up front, too much back and forth about release of funds, what is owed, etc. The most I'd take is 1-2 months in advance.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
10y
If they have signed a lease, I fail to see how you can go wrong. Having someone in the house doesn't prevent you from selling it, it just means the new owner will have to honor the lease and you would have to give them whatever payments remained. Imagine not having to collect payments for a year. And if you have a good lease, you can evict for other reasons besides payment - you would just have to give the remainder back.
BTW, this is not uncommon in some areas - student tenants, for example, or military members. I have a unit right now rented until the summer to 2 college students, where the parents are cosigners, that the parents paid for the entire semester.
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
10y
And when they pay that year in advance , then move in 12 of their relatives , you will have a hard time kicking them out .
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David M.
Investor · Cincinnati, OH · Member since 2014 · 61 posts · 35 votes
10y
Originally posted by @Matthew Paul:

And when they pay that year in advance , then move in 12 of their relatives , you will have a hard time kicking them out .
Why would this be more difficult than evicting any tenant who violated the lease terms but were current with rent?
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Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
10y
I would start off by asking them why they want to pay a year in advance and go from there.
Why not just have them set up a bank account in their name and you can just run the debit card associated with the account on the first of each month for the monthly rent.
If they were just going to give you the money upfront they should have no problem with that arrangement.
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
10y
Originally posted by @David M.:

Originally posted by @Matthew Paul:
And when they pay that year in advance , then move in 12 of their relatives , you will have a hard time kicking them out .
Why would this be more difficult than evicting any tenant who violated the lease terms but were current with rent?
Evicting someone for non payment is the easiest to prove . Proving additional tenants is difficult , when the tenants claim they are guests .
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David M.
Investor · Cincinnati, OH · Member since 2014 · 61 posts · 35 votes
10y
Originally posted by @Matthew Paul:

Originally posted by @David M.:
Originally posted by @Matthew Paul:

And when they pay that year in advance , then move in 12 of their relatives , you will have a hard time kicking them out .
Why would this be more difficult than evicting any tenant who violated the lease terms but were current with rent?
Evicting someone for non payment is the easiest to prove . Proving additional tenants is difficult , when the tenants claim they are guests .
Right...but assuming they would pay their rent on time if they don't prepay an entire year, what does them having prepaid for an entire year have to do with evicting for additional tenants?
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Manuel V.
OP
Investor · Member since 2015 · 10 posts · 1 vote
10y
Thanks so much for all the feedback. To give a break down, renters have been well so far and I believe the upfront is being directed as an out-of-site type of thing and will likely be whenever they receive their tax refund.
I do not plan on any further issues and am doing research for an iron clad lease agreement now (unless someone has one they wouldn't mind sharing).
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
10y
Originally posted by @David M.:

Originally posted by @Matthew Paul:
Originally posted by @David M.:

Originally posted by @Matthew Paul:
And when they pay that year in advance , then move in 12 of their relatives , you will have a hard time kicking them out .
Why would this be more difficult than evicting any tenant who violated the lease terms but were current with rent?
Evicting someone for non payment is the easiest to prove . Proving additional tenants is difficult , when the tenants claim they are guests .
Right...but assuming they would pay their rent on time if they don't prepay an entire year, what does them having prepaid for an entire year have to do with evicting for additional tenants?
Exactly. What difference does it make if they move in 12 people if they are paid on time and continue to pay on time? If it violates the lease, it violates it at any time, just like anything else. My experience working with the public and recurring charges is that some people prefer to deal with paying once instead of 12 times. Ask your electric provider if you can pay for 12 months in advance and they will say yes. That doesn't mean you now get to start reselling electric to your neighbors or smash the meter base. Paying in advance doesn't give anyone special privileges, it just simplifies the process.
For what it's worth, there are lots of places that require one year prepayment of rent once you get outside the US, especially in Asian countries.
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Skyline Properties
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Matt Clark
Roanoke, VA · Member since 2014 · 404 posts · 203 votes
10y
Just an obscure point of order...
Virginia law requires prepaid rent to be maintained in a separate account akin to security deposits. I don't know how anyone would ever know the difference, or if your state has a similar requirement, but thought it was worth mentioning.
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Kevin Harrison
Investor · Woodbridge, VA · Member since 2015 · 476 posts · 197 votes
10y
To those of you saying that the people will trash the place, I think you are forgetting that these people have already been her tenants in good standing for over a year. I don't think someone would spend a year of living somewhere just to set up to screw a landlord.
@Manuel V., Also remember, just because they paid a year up front you should still do inspections at least every 6 months.
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