Securing property which won't be available for 1.5 months?

Question

I was reading Blake Morris' post in this thread here:

https://www.biggerpockets.com/forums/52-rental-property-questions-landlording-issues/topics/106490-tenant-gives-deposit-to-hold-and-pay-first-months-rent-3-days-later

He stated:

"Another thing you can do, which is what we do where I work, we do not let someone sign a lease until the unit, or home is ready. When they sign the lease they pay fist months rent and deposit and get keys all in the same day. It becomes effective the day they sign the lease and we prorate their second months rent payment."

In my scenario, I am moving at the end of December.  My current house will be available for the tenant the 1st of January.  Part of my new loan requires that I have a signed lease in place.  How does this work then?  What's the best way to handle this?  I would like to get a security deposit and signed lease in place ahead of time.

The new tenant is an associate of the family across the street from mine.  We haven't signed any paperwork at this time, only agreed to my rent cost and said that he wants to rent the place.  He's waiting on me to provide him with necessary paperwork.

I amusing EZLandlordForms.com (paid subscription) to build a Maryland-specific lease.

Thank you.

- Dave

Colleen F. · Answer

I read that statement as well but disagree we never  take checks, sign the lease,  and hand over keys.  For our student rentals they leave the deposit and sign the lease months before the rental starts. For regular rental most people are planning a month or more ahead.  For your rental I would get the lease and deposit. You want to be sure if you have to rent to someone else you have time to show it and get that renter. No one is committed without the signed agreement and deposit.  And of course get the first months rent before move in. If there is a lag in when they are going to take possession we would have deposit and signed lease and then get first months rent a month prior.

Roy N. · Answer

Dave:

It will really depend on the tenancy act/law in Maryland.

Here we have a standard lease form (government mandated) in which the term and period of the lease are specified.  In most instances the period is one month, but can be specified as {bi}-weekly.

I would suggest consulting a real estate lawyer in your area {ask other landlords for references} and if there is no standard lease, use the services of a lawyer to prepare your lease.   It may cost you a a few hundred dollars, but can save you far more than that down the road.

David L. · Answer

OK scratch those updates above, they aren't pasting right. This is all I find in regards to security deposits.  I also found the bi-weekly payment arrangement addendum for Maryland but it doesn't mention anything about limits (nor does the code below).

§ 8-203. Security deposits
	 
	     (b) Maximum amount. --
	    (1) A landlord may not impose a security deposit in excess of the equivalent of two months' rent per dwelling unit, regardless of the number of tenants.
	    (2) If a landlord charges more than the equivalent of two months' rent per dwelling unit as a security deposit, the tenant may recover up to threefold the extra amount charged, plus reasonable attorney's fees.
	    (3) An action under this section may be brought at any time during the tenancy or within two years after its termination.
	 
	 Md. REAL PROPERTY Code Ann. § 8-203

EDIT: I don't know why it asks for a login/password.  I'm having a heck of a time pasting the code.  Sounds about right for a gov't website. :)

http://www.lexisnexis.com/hottopics/mdcode/

David L. · Answer

Roy,

If a lease is signed for a year, is it still considered a bi-weekly rental?  I don't want to hole myself into being only able to legally accept less than half a month's rental fee as a security deposit.  At least in your area?  I'm looking to find out what it says specifically for MD but all I can find so far is that I can't take more than two months value.

Good questions, I will look into that...thank you.

- Dave

Roy N. · Answer

David,

Here, if you were to setup bi-weekly payments (as opposed to semi-monthly) you would likely be deemed to be renting on a bi-weekly basis ... which would imply 2-weeks notice required and a maximum security deposit of one period (2-weeks) rent.   You need to check your local residential rental laws to see if you would be impacted similarly.

Assuming you want the rental period to remain monthly If your tenant wanted to pay bi-weekly as opposed to semi-monthly, I would insist that each payment remain $1000.00 to ensure rent for the month is payed in-full by the first.

At the end of the year, you could carry forward the extra 2K accumulated to the first month of the next year.

If his pay is going into a bank account, I do not understand whey he can not simply schedule a recurring {semi}-monthly payment to you for his rent rather than have his employer implement another payroll deduction {it is possible you would not be an eligible recipient}.

David L. · Answer

@Roy N. , Thanks for the idea, but I may have used the wrong phrase.  He wants to have it pulled directly out of his paycheck so he doesn't even see it, not physically deposit it to my account.  I believe "allotment" is the word I should have used.  On payday (every other week), just have $X get sent to me.

I only have this one property so that last part wouldn't be an issue either way.

Is it common for people who do bi-weekly payments to front-load the landlord with enough money in the account to cover the difference until the balance evens out?

Let's use $2K/month as an example.

2,000/month x 12 payments/year = 24,000/year

Bi-weekly at the same rate would need to be reduced to = 24,000/year.

24,000/26 payments = $923 per payment

$923 x 2 = $1846 which is going to be short $154 of what is due, not to mention the payment to the bank is due on the 1st, not randomly throughout the year.

Roy N. · Answer

@David L.

If your lease period is monthly, then you want to be certain your new tenant's semi-monthly payments are both in-advance of the next period (i.e., by the end of the month, he has paid the rent for the next month) and not 1/2 in advance and the other 1/2 part-way though.

We give our tenants a bank deposit card which allows them to make a direct deposit.  If your bank can do this, and provide unique ledger entries for deposits from each card type (i.e. ABM deposit - xxxx, where xxxx are the last four digits of the card), then it would work for you.

We have one tenant who makes a deposit every week when she is paid as she does not trust herself to hold onto the money until month's end.

For our tenants who pay electronically, we normally only accept one payment per month, however, if they wanted to pay semi-monthly, it could be accommodated.

If you have too many tenants doing multiple deposits per month, then your banking fees will increase as you will be having a 2-4 fold increase in transactions.

David L. · Answer

Absolutely...I need to make sure he is committed beyond a handshake and a verbal approval; otherwise I am going to be in a jam.

The other thing I have to figure out is how to do bi-weekly payment via Direct Deposit vs. monthly.  (His request - "set it and forget it").  I'll see what I can scrounge up on here for information.

Roy N. · Answer

@David L.

We frequently sign leases long before a unit/property becomes vacant.  We start advertising a unit as soon as a the current tenant gives notice; given most our tenants are on annual leases, notice is at least 90-days out from the end of the lease.

If we sign the lease months in advance we collect the security deposit at the time the lease is signed and give out keys when we received the first month's rent.

Securing property which won't be available for 1.5 months?

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