12 Mos Rent Up Front- Yes or No

45 Replies

I began looking for a tenant for my new rental property a few days ago and have received a lot of interest. One of the applicants qualifies in every way (clean background check, good credit score, non-smoker, etc) except that she has no income. She was previously married to a wealthy individual and currently lives off of the divorce settlement. She has offered to pay the full lease term (12 mos) upfront since she has no regular verifiable income.  Is there any reason I should not accept her as a tenant that I’m not thinking of? It would be her and her 4 year old daughter occupying the home. 

If you were going to do a 12 month lease then I don’t see a problem. 

Are you saying she received a divorce cash settlement and does not receive ongoing alimony or child support? If she recieves either they are income and not considering as income would be improper. Having said that, Ive had ex's not pay my single mom tenants, it causes problems. 

I'm always apprehensive when a prospective tenant want to do MORE than necessary. Can we say there's a red flag?

Your business, your choice, but think of what you have to gain versus what you have to lose if you take an entire year's rent upfront... 

Depending on what your local/state laws are, it's very risky to accept that much rent up front. In California, if you accept that much rent from a resident, you typically cannot evict them because you have already accepted their rent through a period of time. I only say this because a tenant could be problematic, such as cause several complaints from neighbors that cause you to get fined by the city, disturbing other tenants if it's a duplex or MF, performing illegal operations, use the premises for something it's not permitted for, etc. If you accept that much rent from a tenant and they cause issues, you may be stuck with keeping them for the full duration of the period they paid rent through. Not to mention, there are also possibilities of cashflow through lease termination fees if they had to move out for an emergency if your state/local laws permit. Ultimately, fair housing laws require that you treat all applicants/tenants the same, therefore what you decide should be a standard practice going forward. I am sure Texas laws are different from California laws so it might be best to talk to an attorney.

I had someone pay 6 months cash at a time. They were the best tenant I've ever had. 

I would check her previous 2 landlords to make sure she was a good tenant, if she was I would do it. It is nice not worrying if someone is going to pay on time for a whole year.

Are you required to hold it in escrow? If so, it is a liability. If she leaves early, you may be forced to return part or all of advance rent. I never accept it with the exception of the last months rent if called for in the lease. 

Screen the applicant just like you would in all other ways.  You can downplay credit history since you will have cash in hand.  I did this in PA in 2013.  They payment side was great: once and done for a year.  The tenant wasn't such a good choice though as I did screen well enough.

Originally posted by @Jeorgia Brown :

I began looking for a tenant for my new rental property a few days ago and have received a lot of interest. One of the applicants qualifies in every way (clean background check, good credit score, non-smoker, etc) except that she has no income. She was previously married to a wealthy individual and currently lives off of the divorce settlement. She has offered to pay the full lease term (12 mos) upfront since she has no regular verifiable income.  Is there any reason I should not accept her as a tenant that I’m not thinking of? It would be her and her 4 year old daughter occupying the home. 

 I'd go for it. I'd imagine the property is in Texas? Texas is very landlord friendly. If you were in say... California the added risks would be dealing with the crazy landlord tenant laws might dissuade me a bit but renting property in those ultra Blue areas dissuades me and many others in general, lol.

One time we had two tenants in a single family home. The one guy got a big settlement because his partner died. He came in and paid the whole next years rent in cash. He was sick too so he didn't want to deal with paying rent going in and out of the hospital. He ended up passing away like 10 months later or something. So we were paid during the entire time he lived there and we were able to give his family ample time to clear out his belongings. Ended up being a best case scenario in a tough situation.

There are no issues at at nor do you have to keep it in escrow in Texas.  Guarunteed rent for 12 months is not a bad thing

If the lease is ending early and you have to rent the property again, any unpaid rent after damages and all other expenses would need to be refunded

@Jeorgia Brown if she checks out in every way, why would it matter if she pays a year in advance? Go on, take the money and run! Seriously, take the money and treat her like any other tenant. 

Personally, I wouldn't spend that money in advance just in case something happens during the lease. Collect a month of rent each month when it comes due and hold the rest.

I have paid for full years and six months leases in full before. Never had a problem. I have used them to house a crew working in the area. Of course workers are harder on them usually so I just put the owner as other insured on my liability policy. It keeps us both sleeping better at night. 

Originally posted by @Nathan G. :

@Jeorgia Brown if she checks out in every way, why would it matter if she pays a year in advance? Go on, take the money and run! Seriously, take the money and treat her like any other tenant. 

Personally, I wouldn't spend that money in advance just in case something happens during the lease. Collect a month of rent each month when it comes due and hold the rest.

I wonder if you could collect interest on the money with no problems?

@Mike Reynolds

Texas has zero restrictions at all with pre-paid rent or deposits

You can literally put it all on Justify to win the Triple Crown if you want

Disclaimer:  NO that is not sound financial advise !

There is nothing like the power of greed to persuade people to drop standards and over look obvious risks.

The power of money is supreme.

Either she does or she does not qualify, it is that simple. If she qualifies she should be paying rent monthly as every other tenant. If you believe accepting a cash bribe is necesary to qualify a applicant then as a landlord you have a problem.  

@Jeorgia Brown . Do your due diligence (screening, etc) and if you're happy at that point. Accept it and move forward. 

I would put in lease money is NON-Refundable after tenant accepts property, except for acts of God that makes property uninhabitable. (Tornado, Hurricane, Fire Not involving Tenant causes, etc.) 

"I would put in lease money is Non-Refundable"

That would not stand in a court of law. Any and all advance payments toward rent remains the legal  property of the tenant until the monthly rent withdraw is made from the account by the landlord. After a tenant has moved in they have the right to demand any remaining money back at any point in time.

Advance payment is not a guarantee of anything beyond showing a applicant has the money to pay if they choose to do so.

When I went from owning a home to renting at retirement, I had neither an income nor a previous landlord. My current landlord wanted to see the most recent savings account statement with a balance that covered a year's worth of rent. I pay my rent monthly (12-month lease).

Originally posted by @Jim Cummings :

@Jeorgia Brown . Do your due diligence (screening, etc) and if you're happy at that point. Accept it and move forward. 

I would put in lease money is NON-Refundable after tenant accepts property, except for acts of God that makes property uninhabitable. (Tornado, Hurricane, Fire Not involving Tenant causes, etc.) 

 While "non-refundable" is not illegal per se, if the lease was broken it is the responsibility of the landlord to mitigate the damages.  So after the landlord is made whole any excess proceeds should be returned

My guess is the landlord would lose in JP court in a non-refundable scenario.  

Hello,

I have had these kind of offers/renters before.   The only thing you need to watch out for is where is the true money source.  Make sure it's not drug dealing money or something like that.

I have tenants through the years, for a variety of reasons need to do this, and I have looked into it.

In my NOO mortgage, there is a clause that restricts me collecting so many months up front, I don't recall, it's around 60 to 90 days. Reason is there's been scams where a mortgage is taken out, the landlord collects 12 or more months up front, and skip town.

For those I gave the go ahead, I had them give me 12 post dated checks up front. Still, I vetted them though in some special cases, it was difficult.

I had a group of nuns, belongs to an order, whose membership dropped in recent years by a good 75%. If you say "show me your paychecks, W2's", they said their religious order provides for their housing, food clothing, but they don't issue paychecks. Some of them worked at schools and other organizations run by the religious order, and these groups don't issue any paychecks to the nuns. One is the principal of the school. With this would they have a credit bureau report and credit score?

The reason why they are renting apartments is the convent is too big, 75% or more vacant, so they are converting it to commercial space and will be collecting rent. Now I've done consumer and commercial credit, have an MBA in finance, but have no experience in vetting nuns and religious orders. They say they have the local diocese backing.

Besides this, I have people who worked for government agencies stationed overseas for many many years, and have no local reports. Not all of these offer 12 months up front, but I recognize they're making a good faith effort to make the landlord comfortable. 

So not all people offering 12 months rent up front are scammers.

Obviously run your usual screening process and if everything checks out she needs to be considered. I would also check your local housing laws and see what happens when you accept a full years rent too. If they become a problem and you need to evict for other reasons are you allowed to because you already accepted payment? Does the process become harder, are you forced to keep the money in escrow? Plenty of things to consider although a full year without a potential vacancy and rent is quite nice!

I have paid rent and maintenance a full year in advance and have accepted renters who have paid a full year in advance, do your background checks, speak with prior landlord's. Personally have never had a problem with it.

@Jeorgia Brown I wouldn't do it, but that's just me. Hard to work with folks who aren't working hard for their money. Just my experience! 

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