Year in Advance Rent...Thoughts?

13 Replies

I have a property that is coming available. One of the potential renters is offering to pay the whole year's rent in advance in addition to the security deposit. Does anyone see any issues in doing this?  The property is a higher end rental that is very desirable and the potential renter works for one of the very large corporations in the area.  My research on the guy seems to bode well for him being a good renter for a year long lease. 

I only take rent in advance when I know exactly where the money originated.  When I was a new landlord I took a lady who paid a year in advance without determining the money's origination.  As I was evicting her I found that she liked to entertain different gentleman on different nights.  Sometimes more than one gentleman...  

Since then, I've made dang sure when I take that large amount of money that is not from illicit sources.  

I'd ask this guy for three months of bank statements to see if there are a bunch of unexplained deposits or this money has been sitting for a while in the account untouched. 

I wouldn't ask the potential tenant for bank statements per se... but I would ask for a few paystubs as I would with all tenants. I really don't see any issue with this. The guy is securing your future for the year. The only concern I would have is making sure there is a clause in the lease regarding if either of you breaks contract and what happens to that money then. It would seem obvious that this money would be yours if he breaks but unfortunately I'm not sure if that's truly the case. Especially depending on the state in which the rental is located. And on the other end if you need to terminate the lease for whatever reason I again don't believe you would be automatically entitled to this full years rent. But I can't say for certain. Just make sure you educate yourself on what having that sort of arrangement means and cover all your bases. Good luck.

Run the background checks you would run anyway. Oftentimes, payment in advance is an offer from people who have horrible credit, are hiding assets somehow, or have other significant issues. Don't let the quick money blind you. If they damage your home, or won't leave after a year, you'll wish you had checked them out.

Also, in many states, you legally have to escrow that money and only draw down from it as the rent would normally be due.

I would also not let the quick money blind you. Do a background check have brief talks with them. If everything checks out if you still dont feel comfortable tell him you'll accept 6 months worth of rent. 

I would not accept a year in advance. My understanding is that it will be difficult to evict if you need to once you cash the check.

I have done this in the past and it has always worked out fine. I had a tenant that went through a divorce and received a lump sum in the settlement. She paid up front and honestly I was worried that the major life change might change the person I did the background check on. She rented for 4 years only to move out when she bought a home. If you do your normal due diligence you should be fine.

My leases all have a clause that says tenant is liable for 100% of rent if they leave early.  They can get an agreement to break the lease but only after I find a new tenant at their expense.  Don't see why you would treat this differently; just take the monthly rent and the cost of a new tentant out of whatever balance they haven't used.

I strongly echo the statements about not skipping any of your other screening steps. My absolute WORST eviction had paid 2 years in full. He was an attorney (not a protected class by the way) and used a settlement and was looking for another at the end of the lease. Found out he had done it before. 

Screen as you normally would, which I hope is awesome, and then take the money. I have had plenty of these go well. Just treat it like you normally would. I also suggest you don't spend the money early. Let it sit somewhere and earn interest, and draw it down if you want. 

There are more downsides to upsides for this type of situation. 

I think the best way to do this is set up an escrow account between you and the tenant with your lawyer. He can give all the funds up front but your disbursements come at the regular time. 

Originally posted by @Alexander Felice :

There are more downsides to upsides for this type of situation. 

I think the best way to do this is set up an escrow account between you and the tenant with your lawyer. He can give all the funds up front but your disbursements come at the regular time. 

 Pure curiosity: why would you pay to put this money in escrow?

I feel it can eliminate a few problems commonly associated with advance rent payments.

1. the temptation (that you shouldn't have, but just in case) to spend any of that money is now removed.

2. If the tenant was using this method as leverage, that option is now removed from them.

3. If you want to evict a tenant who has paid a year in full, it can get messy. This can simplify that process or even eliminate the tenant from trying to bail early if they know their money is locked up in escrow.

Obviously it's not a bullet proof plan, just a method that I have come across and wanted to share. I personally wouldn't take a year rent in advance so I have no direct experience with this. 

Originally posted by @Alexander Felice :

I feel it can eliminate a few problems commonly associated with advance rent payments.

1. the temptation (that you shouldn't have, but just in case) to spend any of that money is now removed.

2. If the tenant was using this method as leverage, that option is now removed from them.

3. If you want to evict a tenant who has paid a year in full, it can get messy. This can simplify that process or even eliminate the tenant from trying to bail early if they know their money is locked up in escrow.

Obviously it's not a bullet proof plan, just a method that I have come across and wanted to share. I personally wouldn't take a year rent in advance so I have no direct experience with this. 

 I have experienced a tenant who tried the leverage you mention. It was funny because we had the money and a solid lease, so the leverage was a joke. Good call. I agree with not spending it so this would help if you just can't control yourself. Number 3 is true, especially if you don't have the money anymore. Thanks for explaining. As soon as someone tells me they want to pay in full I ask WAY more questions than normal. I could see how some beginners (like me years ago with the attorney) get excited, take the money, and skimp on screening. 

I'd say to the original post, learn from my experience, not your own.

I think the rest of your screening becomes more important - income still matters because what happens after the year is up.  If it is to compensate for credit issues - the maximum deposit(including last month if permitted) and month-to-month lease may be the best idea from your side.  

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