Renter "between jobs" offers to pay entire year rent up front

Houston, Texas
Tenant Screening
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Renter "between jobs" offers to pay entire year rent up front

Keaton Labby
Lender · Houston, TX · Member since 2020 · 8 posts · 1 vote

Hi Everyone, 

I have a few tenant applications and one of them is offering to pay the full 12-month lease's rent up front with the security deposit. After the screening process the background check, eviction report, and credit report all came back clean with no issues. She just currently doesn't have a job due to moving from out of state. 

My questions/concerns:

1) What are the legal implications/obligations with a full year of prepaid rent in Texas? I can't seem to find any Texas statutes regarding the proper treatment. 

2) What are some proven methods of handling this situation, assuming it is legally sound? Holding the prepaid rent in an escrow account? Keeping it in a checking account? I am ignorant on this topic as a landlord.

3) Are there other concerns that I am missing/unaware of? 

I appreciate any and all comments. 

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Michael HaasBusiness Member
Real Estate Agent · Redmond, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 724 posts · 3k+ votes
4y

This happens in our market too - usually with Retirees or other folks that have wealth, but not much income. Looks like from other's comments that the legal ramifications are mostly edge-cases. Take the money and security of a sure thing! 

[email protected]408-439-7873
HouseHack Seattle | Michael Haas & Team572 Reviews
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  • Joel Case
    Rental Property Investor · Ocean Springs, MS · Member since 2022 · 349 posts · 301 votes
    4y

    I am no expert here, but tenants prepay for the month, I don't know why prepaying for the year would be any different. I was talking with a landlord I know and they had a tenant prepay the full year and said they have been the best tenant they have. Interested to see what other Texas landlords have to say about the legal ramifications. 

    3Reply
  • Jeffrey Albaum
    Investor · Austin TX · Member since 2018 · 151 posts · 165 votes
    4y

    Also not an expert here - so I'd speak with an attorney, but this sounds like the best situation possible! 

    2Reply
  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    Unless there is something tricky in Texas (there is Seattle where landlords have to accept the first tenant that qualifies - yes, rental apps have to be date and time stamped), I see no issues. The usual standard screening was done and came back ok. Just a prepayment. No escrow account needed, just make you have enough money in case you need to evict mid-year and potentially refund a portion of it :)

    1Reply
  • Stephanie Trevizo
    Rental Property Investor · Los Angeles, CA · Member since 2018 · 49 posts · 46 votes
    4y

    I’ve had tenants pre pay rent for a variety of reasons, one reason being that they were between jobs.

    If they are between jobs, and everything else looks good, I ask about the last job, i.e. what did they do, proof of income at the time, how long were they there, when did they leave, etc. 

    I recently had an applicant who was a relocating nurse between jobs. I was pretty confident that she would quickly find a new, well paying job based on the information she provided. She also had plenty of money in reserves from selling a property.

    I’ve had other applicants between jobs who wouldn’t have qualified based on past income, in that case it was not worth the risk in my opinion. 

    Unfortunately, I don’t know much about TX landlord tenant laws, but if you have a local housing authority, I’d try giving them a call. 

    2Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    4y

    There are no issues at all accepting a year's rent in advance in Texas. You are not required to hold in an escrow account and can do anything with the rent you please

    2Reply
  • John Giachino
    Member since 2022 · 8 posts · 5 votes
    4y

    This time last year in OKC, the tenant offered 6 months up front. They’ve been fantastic for a year now and just signed for the next year as well. I definitely felt what you’re feeling though. I was very weary about why they wanted to do that, but I also knew OKC was a very hot rental market at the time. Turned out to be beneficial for me as they take fantastic care of the house. 

    1Reply
  • Richard F.
    Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
    4y
    Aloha,

    Accepting a full year rent up front for a new tenant can raise a Federal Fair Housing issue, unless you offer the option to all prospective tenants. It is viewed as allowing someone to "buy" their credit approval, since they do not otherwise meet your standard criteria. It is perfectly ok to accept multiple months rent from a tenant after they have already been approved by meeting your normal criteria, and paid their initial deposit and first month rent. However, stuff happens, and if the tenant vacates early for any reason, including death, you will likely need to refund a pro-rated portion of those pre-paid funds. Even if they broke the rental agreement, you are required to make a good faith effort to re-rent the unit at the same rate, and cannot keep excess amounts once you obtain a new tenant.
    2Reply
  • Keaton Labby
    OP
    Lender · Houston, TX · Member since 2020 · 8 posts · 1 vote
    4y

    @Richard F.

    Thank you! Luckily they have already met all the requirements for credit check, criminal, eviction, etc. They are offering full prepayment simply because they don't have a current income since they are quitting their job to move into my property. She was a nurse (she provided former income proof) and plans to find a job as a nurse in the area once moving in. 

    0Reply
  • Lucia Rushton
    Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
    4y
    Quote from @Keaton Labby:

    Hi Everyone, 

    I have a few tenant applications and one of them is offering to pay the full 12-month lease's rent up front with the security deposit. After the screening process the background check, eviction report, and credit report all came back clean with no issues. She just currently doesn't have a job due to moving from out of state. 

    My questions/concerns:

    1) What are the legal implications/obligations with a full year of prepaid rent in Texas? I can't seem to find any Texas statutes regarding the proper treatment. 

    2) What are some proven methods of handling this situation, assuming it is legally sound? Holding the prepaid rent in an escrow account? Keeping it in a checking account? I am ignorant on this topic as a landlord.

    3) Are there other concerns that I am missing/unaware of? 

    I appreciate any and all comments. 

     Agree with the others, it's not uncommon for a new resident to have the resources to pre-pay for a year. Plus in a competitive application situation, I've also seen prospective tenants do this to secure the unit. Are you self-managing the property? maybe @Heather Phildius might be able to shed some light on this. 

    1Reply
  • Keaton Labby
    OP
    Lender · Houston, TX · Member since 2020 · 8 posts · 1 vote
    4y

    @Lucia Rushton I am self-managing this property, yes! Thank you for your comment

    1Reply
  • Michael HaasBusiness Member
    Real Estate Agent · Redmond, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 724 posts · 3k+ votes
    4y

    This happens in our market too - usually with Retirees or other folks that have wealth, but not much income. Looks like from other's comments that the legal ramifications are mostly edge-cases. Take the money and security of a sure thing! 

    [email protected]408-439-7873
    HouseHack Seattle | Michael Haas & Team572 Reviews
    WebsiteView Page
    6Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    4y

    @Keaton Labby  Keep in mind the money isn't yours just because they pay a year up front doesn't mean they couldn't get it back if they leave so it isn't a gaurantee. That said I wouldn't let it sway me.  Base your decision on whether they are otherwise a good candidate.  Make sure they have the money they promise in the bank.  Ask for it in a bank check or similar.  I would also judge based on whether they could get a job in your area based on profession and your economy. As for a special account I just wouldn't spend it in advance of the month it is for

    1Reply
  • Keaton Labby
    OP
    Lender · Houston, TX · Member since 2020 · 8 posts · 1 vote
    4y

    @Colleen F. Thank you for your insight! That is how I plan to treat it, just "paying myself" in the same cadence that the renter would if they paid month-to-month. 

    0Reply
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