Tenants Who Pay a Full Year Upfront

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Tenants Who Pay a Full Year Upfront

Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

Are bad news, according to nearly every experienced landlord I've seen chime in on these types of threads. 

However, it seems that many newbie investors (some with even less than my three years experience) like to chime in and talk about how great a deal landlords get when the tenants pay in full upfront. These types of replies got a lot of "votes" in a recent forum thread, implying that the community agrees with that sentiment, while more reserved opinions regarding the matter of accepting large amounts of rent upfront in order to overlook certain applicant weaknesses got much less love.

So, this thread is for experienced landlords. Can anyone relate personal stories, or anecdotes based on REAL EXPERIENCE, regarding tenants that are at least one full year old, regarding accepting rent upfront? 

I'd like to hear them. 

And, it's perfectly fair to say, "I had a tenant pay in full upfront because of X, Y, and Z. That tenant never gave me a problem, and I enjoyed the rent in full upfront, and they still live there problem free today several (more than 1) years later)." That would prove me wrong and the other enthusastic newbies right - that this is a perfectly reasonable way of doing business, with excellent outcomes for all involved.

But I bet not.

This discussion is triggered by another thread, " Would You Rent To This Applicant". A couple of investors with little more experience than myself seem to dismiss the caution of experienced investors that had some wisdom to share and "vote" for replies posted by newer investors that may not have had a full run with accepting a year of rent upfront.

My opinion: I listen to my elders on this one and would refuse basically any instance where a tenant offered to pay a full year upfront. My criteria for income, credit, and criminal background are quite reasonable for the area I operate in, and I am not willing to bend them. Any time a tenant offers to pay a year upfront is a huge red flag, even if they otherwise meet my criteria. 

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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y

I have an experience with this.  My step mom is an immigrant and when she came here and married my Dad they never thought of building her credit.  So when he passed away years later she had literally no credit and wanted to live closer to work, her income did not qualify either but her cash on hand was plenty.  So to convince landlords to take her we offered to pay for the year in advance and I showed them my credit report and offered to cosign.

That was 5 years ago, she still live in the building (condo) but with a different landlord.  Never missed rent   

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  • Kevin Hunter
    Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
    5y

    @Scott Trench, three years and folks still responding.....that is staying power!!!! My first ever tenants, in 2003, SFH in Vegas, paid for a year up front. Property manager thought it was awesome, I thought it was awesome. Turns out they were doing all kinds of immoral, unethical stuff. I will let your imaginations figure it out and I am sure you all will. So after a year, when my sonn-to-be former "property manager" goes to check on the property, it is an absolute disaster. Fortunately, it was 2003 and I fixed it up, sold it (the only property I have ever sold) and moved on. I will never make that mistake again!!

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  • Javier RosalesPro Member
    Los Angeles Ca · Member since 2019 · 107 posts · 15 votes
    5y

    Who wouldn't like cash up front. but that kind of cash is with a motive. @kevin Hunter how much were the repairs and the price you sold it at

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  • Kevin Hunter
    Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
    5y

    @Javier Rosales,  rent was $1000 a month.  Tenants paid the year up front.  Repairs were $6300.  I sold it for double what I bought it for, but remember, that was 2003-2005.  

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  • Javier RosalesPro Member
    Los Angeles Ca · Member since 2019 · 107 posts · 15 votes
    5y

    @Kevin Hunter wow that's a lot of rent for some one not to turn down, I would of took it too. sorry to hear that. well on to the next

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  • Greg Weik
    Member since 2021 · 1 post · 0 votes
    5y

    As others have said, "it depends."  

    The issue is not really whether a year of rent up front is "good" or "bad", you just can't let that take the place of your screening.  In other words, rent upfront should not move the needle on the approval process. 

    Smart tenants won't lock up that much money without earning a return, so any tenant who offers up a year of rent should raise a red flag.  

    As a property manager, I've had this offered numerous times.  In my experience, if a marginal applicant has extra money to put down, the landlord is best served to collect additional funds as a double or triple security deposit, not as future rent.  

    A large security deposit is where the money can most easily be used in the event of default. 

    In no case should additional rent paid upfront open the door to a tenant that would otherwise be rejected. 

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  • Greg WeikBusiness Member
    Property Manager · Denver, CO · Member since 2020 · 263 posts · 327 votes
    5y

    As others have said, "it depends."

    The issue is not really whether a year of rent up front is "good" or "bad", you just can't let that take the place of your screening. In other words, rent upfront should not move the needle on the approval process.

    Smart tenants won't lock up that much money without earning a return, so any tenant who offers up a year of rent should raise a red flag.

    As a property manager, I've had this offered numerous times. In my experience, if a marginal applicant has extra money to put down, the landlord is best served to collect additional funds as a double or triple security deposit, not as future rent.

    A large security deposit is where the money can most easily be used in the event of default.

    In no case should additional rent paid upfront open the door to a tenant that would otherwise be rejected.

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  • Shiva Bhaskar
    Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
    5y

    I will chime in. 

    @James Mercure and I were both rental agents in New York City many years ago. In NYC, you get a lot of rich international college students, United Nations folks, people who moved to the US for a high profile job etc. These people can show several years of rent in bank, employment / school enrollment etc. 

    Many high end landlords would accept a year of rent since they have NO credit score yet. When most of these folks went to rent the next place, they had built some credit, and did not have to provide a whole year upfront again.

    So, this is a very niche situation, but I asked the leasing coordinators, and they indicated these were generally great tenants. I think MOST people paying a year up front do not fall in this bucket though. 

    I should note that they would never take someone with bad credit, rent paid upfront or not. Also, I suspect an American citizen with no credit would have been denied by these guys also. Could be a fair housing issue there. 

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  • Stacee Evans
    Investor · Canoga Park, CA · Member since 2016 · 113 posts · 50 votes
    5y

    I had one tenant pay in full for a year.  It was at the beginning of my real estate investing and I was "winging it" as a landlord.  His mom had recently passed away and he had an inheritance.  When the year was up, he not only moved out, but left the house in beautiful condition.  It was clean and he planted flowers and the yard looked  better than when he left it.  I think I just got lucky.  

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  • Ronald Starusnak
    Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes
    5y

    We had two tenants who were both medical students at University Hospital in Syracuse. They paid a full year up front and I think the unit was cleaner when they left than when they took possession lol. Either way, we did end up switching to only month to month leases both on our properties and for the properties we manage in the Syracuse // Onondaga County area. 

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  • Michael Temple
    Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
    5y

    I am now into my second year with residents paying in full every 6 months. So now I have about 18 months' experience at this and everything is still going great. As a couple of others have also said, they are students, so I think that is why this might work better. Students are often receiving large stipends, payments, scholarships, etc. at the beginning of a year or mid-year so I think pre-paying rent just works for their budget and cash flow. I am not sure how well this would work outside of a student environment.

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  • Alex Abbott
    Property Manager · Seattle, WA · Member since 2021 · 25 posts · 5 votes
    5y

    In a 55+ mobile home park that I managed, there were two gentlemen looking to come into the park who failed screening due to credit. One of them had a large trust named to him, and offered to pay a full year's space rent in advance. We accepted. 

    In the interim between screening and moving into the home they purchased, we received a call from an investigator that they had a friend looking to live with them, and needed our approval. The individual was being released from prison on sexual assault charges on a minor. Since our park is literally a quarter mile from an elementary school, we told them in no uncertain terms that was not going to fly. Turns out after the residents moved in, so did their friend, as well as a number of tweakers who generally trashed their lot and the surrounding communal areas. This happened right before COVID, so despite a number of illegal occupants there with history, the police would not execute the warrants out for their arrest, or remove them from the premises. The park sold and PM changed hands before the situation was resolved. 

    I have another similar story to this as well. Both instances always make a giant red flag go up for me whenever someone doesn't pass screening, and they counter with an offer to pay lump sum rent for X months in advanced. 

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  • Jason Mileshko
    United States · Member since 2021 · 125 posts · 49 votes
    5y
    Originally posted by @Scott Trench:

    Are bad news, according to nearly every experienced landlord I've seen chime in on these types of threads. 

    However, it seems that many newbie investors (some with even less than my three years experience) like to chime in and talk about how great a deal landlords get when the tenants pay in full upfront. These types of replies got a lot of "votes" in a recent forum thread, implying that the community agrees with that sentiment, while more reserved opinions regarding the matter of accepting large amounts of rent upfront in order to overlook certain applicant weaknesses got much less love.

    So, this thread is for experienced landlords. Can anyone relate personal stories, or anecdotes based on REAL EXPERIENCE, regarding tenants that are at least one full year old, regarding accepting rent upfront? 

    I'd like to hear them. 

    And, it's perfectly fair to say, "I had a tenant pay in full upfront because of X, Y, and Z. That tenant never gave me a problem, and I enjoyed the rent in full upfront, and they still live there problem free today several (more than 1) years later)." That would prove me wrong and the other enthusastic newbies right - that this is a perfectly reasonable way of doing business, with excellent outcomes for all involved.

    But I bet not.

    This discussion is triggered by another thread, " Would You Rent To This Applicant". A couple of investors with little more experience than myself seem to dismiss the caution of experienced investors that had some wisdom to share and "vote" for replies posted by newer investors that may not have had a full run with accepting a year of rent upfront.

    My opinion: I listen to my elders on this one and would refuse basically any instance where a tenant offered to pay a full year upfront. My criteria for income, credit, and criminal background are quite reasonable for the area I operate in, and I am not willing to bend them. Any time a tenant offers to pay a year upfront is a huge red flag, even if they otherwise meet my criteria. 

     It is smart to take the year up front, why do you think that online subscriptions always offer a discount to people who pay for 12 months instead of month by month? If it costs you $50 to get a client who pays $25 per month on a subscription, isn't it even better if that person pays $240 up front with a small discount? Jason Cohen from WP Engine talks about this concept and how it increases revenue for companies who employ it. The same thing applies in real estate to an extent. By doing this you now have a years worth of revenue upfront which you can now use for other things. If you invested it at 10% across multiple properties you would be increasing your revenue as an investor as well. I don't think that you should consider someone a bad tenant if they pay upfront, this determination should be made off of something else. 

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    4y
    Originally posted by @Scott Trench:

    Are bad news, according to nearly every experienced landlord I've seen chime in on these types of threads. 

    However, it seems that many newbie investors (some with even less than my three years experience) like to chime in and talk about how great a deal landlords get when the tenants pay in full upfront. These types of replies got a lot of "votes" in a recent forum thread, implying that the community agrees with that sentiment, while more reserved opinions regarding the matter of accepting large amounts of rent upfront in order to overlook certain applicant weaknesses got much less love.

    So, this thread is for experienced landlords. Can anyone relate personal stories, or anecdotes based on REAL EXPERIENCE, regarding tenants that are at least one full year old, regarding accepting rent upfront? 

    I'd like to hear them. 

    And, it's perfectly fair to say, "I had a tenant pay in full upfront because of X, Y, and Z. That tenant never gave me a problem, and I enjoyed the rent in full upfront, and they still live there problem free today several (more than 1) years later)." That would prove me wrong and the other enthusastic newbies right - that this is a perfectly reasonable way of doing business, with excellent outcomes for all involved.

    But I bet not.

    This discussion is triggered by another thread, " Would You Rent To This Applicant". A couple of investors with little more experience than myself seem to dismiss the caution of experienced investors that had some wisdom to share and "vote" for replies posted by newer investors that may not have had a full run with accepting a year of rent upfront.

    My opinion: I listen to my elders on this one and would refuse basically any instance where a tenant offered to pay a full year upfront. My criteria for income, credit, and criminal background are quite reasonable for the area I operate in, and I am not willing to bend them. Any time a tenant offers to pay a year upfront is a huge red flag, even if they otherwise meet my criteria. 

    I am a landlord who's hired a property manager to manage the property (a very good one). My PM accepted a full-year rent upfront from the tenant at $1,500/month. No issues and we're 7 months in.

    Could it end up going bad? Possibly. If "I" was the one handling the rents, it may be different, but generalizing it by saying one should never accept a full year's rent is... weird... That's like saying "wholesaling is illegal". While it may be true in one person's situation, it certainly isn't true for everyone.

    My prior industry was Student Housing. Our lease stated, "You owe the entire year, but we are accepting it in monthly payments." If they "break the lease", they owe the entire balance.

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    4y
    Originally posted by @Michael Temple:

    I have *some* experience with this. I have a tenant that paid 6 months in advance and the first 6 months is now over. They have taken great care of the yard and property. Grass is always mowed and they actually planted flowers outside. I have inspected the property twice and it is clean and well kept inside. They don't bother anyone and rarely contact me for anything. I ask each month for the water bill to be reimbursed, per the lease terms, and the payment is sent over within 15 minutes each time via PayPal in full.

    They were both young college students who are receiving financial support from their parents. I did a background check on them, but I didn't find anything on them probably due to their age. I realized I was taking some risk by accepting tenants who were depending on parents for support, but to date it has been a great experience.

    However, to@Scott Trench point if you overlooked stuff in your underwriting process in lieu of a big pile of rent upfront I can certainly see where that could lead to issues. I still completed my background check, but they were young college students so I didn't find anything.

    Truth. 

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  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    I've personally never accepted someone who offered to pay a year up front because there was a strong reason why they were doing it.  Typically when a applicant offered to pay more upfront, it was because they had bad credit, low income, or something else that is alarming.  The question that tends to come to mind is, "what happens when that year is up?"

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  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    4y

    I'd like to share some experiences on what I have seen in the Baltimore area which is my neck of the woods.

    As many know the federal eviction moratorium ceased after a Supreme court ruling on August 26, 2021. One argument against it was the opinion that if it ended there would be a massive tsunami of evictions. This didn't happen. One of the largest reasons is the legal system. A good comparison would be a flood from a dam breaking instead of a tsunami. Since it is now becoming right in certain crowds to call things infrastructure that aren't related to something that most people consider that like a road, bridge, or dam imagine the rent court being the dam. Lets call it legal infrastructure. Once the moratorium ended the courts were not excessively inundated with cases. Prior to the pandemic the court could only handle do many cases at once. Where I live that lead to a 5.5 month backlog between filing and trial time. I went to the court as I was hired for an eviction the other day. The time limit is now only 3 weeks better so by filing a few days before Christmas court will be May13th. I talked to the clerks who Im sure have gotten a lot of complaints and it has to do with courtroom spacing which over the next month will ofcourse get bad again. I was hoping that many cases would either have rental assistance pay or start having judgements be rendered. There is a small section of the suburbs of Baltimire to the south in Anne Arundel county. I am about to be hired there and found that filing to trial time is only a couple weeks. Anne Arundel county has very little poverty. I know reading this will make people say don't come to Baltimore or more blue collar big cities in democratic areas and stay in the less impoverished suburbs. Even in Baltimore if you are in A or B grade areas you are going to be fine. Also news flash just last night the state of Maryland ruled that now the rent court was suspended again. Apparently distancing isn’t good enough for Maryland though a vaccine has been out almost a year. Thus landlords who have patiently waited since summer for a mere court date are once again taken advantage of so tenants handouts can be extended one more time.

    On the back end of all of this is screening criteria will be much higher than before. There is no way around that as it directly relates to how much a landlord will lose if they pick the wrong tenant. This will be unfortunate as it will lead to the homelessness the alt left were trying to stop. However a landlord or property manager has a business to run and when an eviction that to 3 to 4 months is now 8 to 10 months things are going to adjust. Apparently the city of Philadelphia doesn't think thats equitable enough for the tenant. There any landlord cannot discriminate against a tenant because of credit score, evictions, or criminal history. If you do they think you should be subject to a $2000 fine. If you reject someone you must show them the reports which is fine but if you do not have another unit available you could have an issue with the fine. New York City proposed similar measures but just for criminal history. That was shot down before it became law. Though I do not work in Philadelphia I feel for the landlords up there. I do think the credit score and eviction laws will be respected about as much as jaywalking and landlords will find ways around it but its the mere thought that someone thought that was ok and that an actual law was passed shows a little where things are headed.

    This being all said by the end of next month when covid is expected to start really subsiding for most of the country I think it would be good to track where things are headed on here. I'd like to know how long it takes to get a failure to pay rent case in your neck of the woods now and in the coming months and if there are other avenues like terminating a month to month lease that are faster and a rough estimate of how long it would take to actually evict someone.

    I do feel based on how things are going that enough hard working people that are not only landlords but other hard working middle class or upper middle class people are getting beyond sick of the system and the direction things are heading which is a direction towards Marxism which has had catastrophic consequences historically for obvious reasons In other countries.

    That being said I would like this post to updated through the year as I expect after next month cases will start to cut down for most if the country. With covid rates lower the court spacing excuse goes away. I understand things take time but I feel a good time to revisit this after initial responses would be october and november. By that time the moratorium will probably be rescinded everywhere as its over 85% right now and will be over 99% gone by the end of January assuming the places its still around don't extend them again, which I understand is an if. Thus by October and November of 2022 we should see an improved filing to trial time for failure to pay rent cases and eviction time lengths dwindling as well. If things have not improved I think october and november would be a great time to let the message get out and conveniently its right before the midterm elections and would help people consider who they want to vote for based on clear evidence.

    Do you think a tenant should be able to steal from a landlord for close to a year or do you think 2 to 4 months even with legal representation like it was 2 years ago is equitable for everybody moving forward with covid vaccines available?

    Please respond about your part of the country. Looking forward to the responses.

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  • Cameron Braig
    Atlanta, GA · Member since 2021 · 493 posts · 162 votes
    4y

    Thanks for starting this thread. Responses have been informative and valuable. 

    0Reply
  • Kar Sun
    Member since 2021 · 388 posts · 277 votes
    4y

    no, I would not do it. It messes up taxes and once they have prepaid it might be hard to get them our. I wont take chances on my A/B class properties.

    0Reply
  • Laura MarksBusiness Member
    Real Estate Broker · Independence, MO · Member since 2020 · 127 posts · 111 votes
    4y
    Originally posted by @Billy Smith:

    I have a SFH right now that was paid a year in advance.

    The tenants both had a back-ground check, they were approved with a cosigner.

    The cosigner was an aunt who is a real estate investor.

    The aunt wanted to pay advance since she cosigned.

    So, the yard is mowed, had 2 service calls.

    I am not sure if I would do it again or not.

     This is illegal in KS.

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  • Justin Fox
    Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
    4y

    Nope, never.  I don't need their money upfront, I need their income to qualify upfront.  They can stick their money in a savings account and drawn on it monthly same as I would be required to do.  I have a process that I use and criteria I don't deviate from.  I have the ability to keep my properties vacant for years.  I'd prefer that over emotionally miscalculating, and then potentially having horrid tenants occupying my mental space at night.

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  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
    4y
    Originally posted by @Laura Marks:
    Originally posted by @Billy Smith:

    I have a SFH right now that was paid a year in advance.

    The tenants both had a back-ground check, they were approved with a cosigner.

    The cosigner was an aunt who is a real estate investor.

    The aunt wanted to pay advance since she cosigned.

    So, the yard is mowed, had 2 service calls.

    I am not sure if I would do it again or not.

     This is illegal in KS.

     I had a real estate lawyer write up a lease to cover such a way to pay .

    option A or B .

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  • Ted Moseley
    Real Estate Agent · Orlando, FL · Member since 2021 · 1 post · 0 votes
    4y

    I'll throw in my $0.02 since this ALMOST happened to me on a property that I represent the landlord on. I had pretty good background checks and other applicant information and she was going to pay a year up front. I was ready to recommend her strongly to the landlord over a few other applicants for the property. When it came time to get the all important proof from her that she could cover the 12 months she turned into a ghost. I'm so glad I went with the other couple who were ready and willing to show their commitment to the property owner and pay their lease in regular monthly increments. 

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  • Javier RosalesPro Member
    Los Angeles Ca · Member since 2019 · 107 posts · 15 votes
    4y

    @Kevin Hunter oh ok, I was still in High school than. what do you have going on now

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  • Chris PereiraPro Member
    Real Estate Agent · Van Nuys, CA · Member since 2020 · 13 posts · 3 votes
    4y

    I have been in this situation with one of my rental properties. My tenant was employed by a local religious community organization which pays for the tenant's housing as part of their compensation. It was easier from a payables perspective to accept full lease payment upfront vs on a monthly basis.  Given the unique situation I was comfortable allowing this type of arrangement and given the tenants type of employment it gave me more confidence that we were dealing with a high quality tenant, who just had a unique employment arrangement. Overall, from my perspective this is definitely not a normal arrangement but a case-by-case basis based on the individual tenant.  I also didn't offer any discount on rent as from my perspective I was doing the tenant a favor vs the other way around. If a potential tenant asks me for this type of arrangement, it raises my awareness that I need to focus on my due diligence and probably have some additional conversations with applicant to better understand their situation. 

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  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
    4y

    I had a church pay a years lease up front twice they tore up the deck on the first  renter  I kept  the deposit fixed the deck .I did complete back ground checks on both renters .

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