I've had an interested party request paying for a years lease up front. He did tell me that the reason was that he had his identity stolen and his credit ruined. I told him I hadn't done that before and I had to check if there were legal issues involved to buy time. I'm thinking if he is paying up front I can overlook his credit if his background check and referrals check out but I'm wondering what you guys think. I also am wondering if there are any legal issues with this in California. We do have some pretty messed up laws. If he pays up front it probably would be harder to evict should I need to but non payment wont be an issue for at least a year. I would keep the rent in the bank and pay myself out of it monthly in case he decides to break the lease. What are your thoughts?
The simplest way to do this and avoid the legal issues is to have him write you 12 checks with 12 different dates on them (01-01-18, 02-01-18 etc...) and you deposit them on the first of each month. If he's good for the full year's rent today then he should be good for the monthly rent every 1st.
If you're doing background and credit checks as part of your tenant screening then you're doing them for a reason. Why break your own process for this tenant? I could see an unscrupulous tenant waving the full year's rent in front of you to distract from their negatives. Some tenants are so bad at budgeting that they'll use their tax return or 'found money' to pay their rent.
I would check state laws. In FL for example, if rent is paid a year in advance it must be held in escrow and only pulled from the account as each payment period arrives. It is a LIABILITY in my opinion. If forced to evict, you could be forced to return rents not used.
Find another tenant.
There are more detriments than benefits to taking 12 months upfront, it's harder to evict like you said. You won't be able to spend any of the money, so you get no real benefit, and you're still left with a tenant who has admittedly bad credit.
if you take 12 post dated checks, you have no future recourse because post dated checks have no actual value and now you have a regular tenant, but with no credit decision.
If you want to do credit checks on tenants, which I highly recommend, then stick to it. Skip this guy, don't volunteer to a headache. If he wants to use your standard screening and passes, then fine, treat him like a regular tenant buy you're making special accommodation for someone who can't pass standard credit check. HARD PASS
Well I talked to him and explained why its not worth it for me to take rent up front. Then we discussed his credit score and it sounds like it might not be as bad as he thinks. He is going to check and if he is above my cutoff we will meet at the property.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing