Paying a year of rent up front

14 Replies

Hy, ont of my renters want to pay me a year of rent. He also want a discount for paying everything up front. What is a reasonable/normal range of discount I should offer him/accept from him? Thank you a lot! 

I’ve had this happen from one tenant that does it yearly and we have agreed on one month free.  More or less it’s having the vacancy without all the management fees that go with it.  Hope this helps!

This always sounds better in theory, than it happens in real life.  First there's the matter of whether you can even write it up that way in your lease.  I don't know what the rules are in your area (you should check), but here in AZ, a landlord cannot require more than 1.5 times the rent up front, which means that it can't be in the lease as a requirement.  So, that leaves it up to the Tenant to volunteer to pay after a signed lease is in place. 

Next is the fact that you can't "Have" the money even if they prepay.  You must place the prepaid rent into an account, and only "take" each momnth's rent as it becomes due.

So, I don't know what benefit that is for you..??  Why would you offer a discount for that?  It's the same as a tenant who would pay month by month.

Cara, 

The situation you are in is phenomenal! It is not common for tenants to pay a year up front and that is great for you!! Congrats

Are you using a software to collect rent or are you to just doing it the old fashion way of collecting a check from your tenant? If using software, it should just show up as large credit in the tenants account and it could be distributed out monthly. 

If doing it the old fashion way, you could always do an addendum stating the terms of your payment arrangement. I don't think any state would have an issue with that scenario as long as both parties sign the lease. 

Hope this helps.

I am in Quebec city, Canada. It is not illegal to pay your rent in advance. I collect it the old fashion way. 

The benefit for me is that I wont have to think abouth collecting his rent every month and it garantees that the tenant will stay for the whole year. 

However he wouldn't do this for free, he want a discount for paying me up front. The tenant is not even interested in a monthly payment. He will pay a year or find somewhere else to stay. 

Thank you for your precious help!

Mael,

For what ever its worth, here is a copy of a blog that I wrote on this very topic of rent up front;

I know it may sound appetizing and those dollar signs can look oh so great, but there are many downsides to collecting all the rent upfront. You also will need to check with your state and or municipality, it could be against the law to collect money beyond the current rental period.

Some of the issues that I have ran into in the past are that the tenant needed to break the lease, we re-rented the property, but the owner wanted to keep all of the rent in escrow. We had no vacancy, no repairs, and the tenant paid our lease fee. There was no out of pocket or loss to the owner, so litigation ensued, eventually (one year later) the owner lost and had to refund the money we had in escrow. Thank god we had the funds in escrow and refused to send them anywhere until litigation ended, or I think the tenants would have been out the money, long spent by the owner.

Some other issues to consider that could and have happened to owners, is that the property could be damaged by a hurricane, flood etc… and they have spent all of the money, which essentially needed to be refunded to the tenant.

The tenant could file bankruptcy, and the owner could be dragged into this because of the upfront rent the tenant paid.

What if the owners get divorced, what happens to the money that was already paid? What if the tenant is in violation of the lease and you need to evict, you may have a real issue when it comes time to evict.

Keep it clean and don’t let that carrot/hook cloud your vision when it comes to collecting all the rent up front.

Originally posted by @Cara Lonsdale :

This always sounds better in theory, than it happens in real life.  First there's the matter of whether you can even write it up that way in your lease.  I don't know what the rules are in your area (you should check), but here in AZ, a landlord cannot require more than 1.5 times the rent up front, which means that it can't be in the lease as a requirement.  So, that leaves it up to the Tenant to volunteer to pay after a signed lease is in place. 

Next is the fact that you can't "Have" the money even if they prepay.  You must place the prepaid rent into an account, and only "take" each momnth's rent as it becomes due.

So, I don't know what benefit that is for you..??  Why would you offer a discount for that?  It's the same as a tenant who would pay month by month.

There is limit to collect Security Deposit amount but I don’t think 🤔 there’s a limit to collect rent up front!

Originally posted by @Sai T. :
Originally posted by @Cara Lonsdale:

This always sounds better in theory, than it happens in real life.  First there's the matter of whether you can even write it up that way in your lease.  I don't know what the rules are in your area (you should check), but here in AZ, a landlord cannot require more than 1.5 times the rent up front, which means that it can't be in the lease as a requirement.  So, that leaves it up to the Tenant to volunteer to pay after a signed lease is in place. 

Next is the fact that you can't "Have" the money even if they prepay.  You must place the prepaid rent into an account, and only "take" each momnth's rent as it becomes due.

So, I don't know what benefit that is for you..??  Why would you offer a discount for that?  It's the same as a tenant who would pay month by month.

There is limit to collect Security Deposit amount but I don’t think 🤔 there’s a limit to collect rent up front!

 It's all the same (at least here in AZ).  It's considered Security Deposit and/or PrePaid Rents.  They fall under the same category, and are limited to 1.5 the rent.

@Maël Fortin is this a long term renter? I've seen some tough stories where the landlord/tenant accepted rent for an entire year and things soured quite a bit. A year is a long time -- things can happen to people that can change their situation and affect the property.


If you have a good relationship with this renter, they've always paid on time, they take care of the property, etc -- then I think its a fine idea to pursue. I would put the money away somewhere and only withdraw when the rent is actually due. As far as discount, that's entirely up to you. If your numbers aren't favorable at current rates, I wouldn't give a discount. Cash (flow) is king and you shouldn't compromise on hitting your numbers.

I'd also watch this property like a hawk. People prepay for a year expecting a landlord to back off and let people do whatever they want -- illegal activity, illegal tenants, illegal pets -- I'd be especially cautious with this type of arrangement. 

If it's too good to be true, it probably is... I would have to ask the question "why are they renting if they have that much money"? Where did the cash come from? Drug money? Are they actually going to be the ones living there or are they putting someone else in? If you have all of your money upfront (if it is legal) it is going to be much tougher to evict them. I have been offered this in the past and said no.

I've been asked that just a couple of times over the years. Even had one I did it with and they ended up moving and I had to refund a big chunk (but I kept a month for breaking the lease).

At the end of the day, my response to a discount is no. I'm going to get my number regardless. And they may say well what about tenants that would stiff me?  I counter that by saying those are far fewer than you think. And its not something I worry about.

Thats usually enough to get them to stop asking for the discount. 

In terms of accepting rents up front, as always, I would check with your local laws. But I find it hard to believe that any county has the right to limit how much in advance someone were to pay their bills.

I'm guessing that 1.5 times rule applies only toward the initial move in. If that is the case, I would tell the tenant to just pay the initial move in amounts on move in. And then after they move in, they can pay the remaining year if they so desire.

No matter what, I can tell you there's no way I'm discounting the rent an entire month just because they're paying the rent up front for a year. On a 1,400/mo rental, thats basically like giving them 85/mo off the rent.  I can't afford to do that. 

Not only that but it doesn't guarantee me that they won't become a collection issue at some point in the future. Just not the first 12 months. That just doesn't make sense for me.

The tenant is a long term tenant, he have been living there for 3 years now (even before I buy the property last year). I personnaly househack there, so there is no possibility for pets/drug production. 

The goal of the tenant is to have one less thing to think abouth every month. His goal is also to get a discount on his rent by doing so. 

He have been a verry good tenant, he keeps the place clean and pays on time. I dont want to lose him, but I dont have much room to reduce my cashflow... This is why I asked you, the pros, what kind of discount is reasonable and I value your oppinion a lot! Thanks!

Hey! If you don't want to decrease your cashflow and the tenant doesn't want to bother paying you every month, simply ask for postdated cheques for the whole year. This way, you won't have to bother him and you can deposit his cheque on every first of the month. As simple as that. 

Furthermore, make sure the Regie du Logement doesn't consider the full-year rent as a security deposit because remember that it is illegal to ask for that in Quebec. Just make sure the tenant doesn't use it against you later on. Just back yourself up with good paperwork if you decide to accept a full-year payment.

Hope this helps!

I had an NOO mortgage, and it specifically prohibits me from collecting more than 2 months rent up front. I don't know how prevalent it is today, but some owners whose mortgages are underwater, had collected year's rent up front, skipped town and skipped paying the mortgage leaving the mortgage company holding the bag. So I accepted 12 post dated checks from a tenant once who needed to do so.

Thank you so much everyone!! I know what I will do, I will ask for 12 postdated checks. 

Since I want to keep the tennant I will offer him a discount on the LAST month's check. 

Thanks for your help. 

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