Investor · Lubbock, TX · Member since 2015 · 308 posts · 106 votes
10y
Umm, yes! Collect all that rent up front! Why would taking the rent money each month make the tenant any less risky?
Some people save up money and pay in advance. They'd just rather not worry about paying it each month. And, they don't understand or care about the time value of money.
But you are an investor, and you care about the time value of money. You know that the cash in your hand now can be deployed to other uses like more property, paying down debt, or even an interest bearing money market account.
I would simply state that rent is owed and paid monthly and if she wants the unit that is what she will need to do, this is not Puerto Rico and I doubt that is the way it is done there anyway.
Flashing cash is usually a big red flag. Screen her carefully to make sure she is acceptable but I would never take rent in advance.
If you take it remember it must be kept in a separate bank account and only drawn out monthly. Technically it is still her money till the rent is due each month.
So, I have an applicant for an apartment that I'm renting that will pay for one years' rent up front.
It's not an internet scam, I actually met this person. They live two houses away in a 1 bedroom and want a two bedroom.
When I asked her why, she said she's from Puerto Rico and that's what she's accustom to doing.
Are there issues or concerns with this?
If they live two houses away, they know how things are done here. I call BS. Something's weird with this applicant. Better screen the heck out of her and see if you can get any truth out of the current landlord.
If I had to make a guess, I'd bet there are relatives from Puerto Rico about to fill up your apartment. If she checks out on everything, I'd put her on a month to month. Something's amiss.
Durham, NC · Member since 2013 · 502 posts · 215 votes
10y
I don't recommend it. I find it hard to imagine that tenants in Puerto Rico routinely have so much cash on hand. Even if it were like that, it is time to learn the habits on the mainland. The tenant can easily open a checking account and have the monthly rent withdrawn from it on the first.
Should the tenant turn to be a problem tenant and you want to evict at some point, it will be much harder to convince a judge if rent is already prepaid. Disclaimer: I don't have any personal experience with a case like that.
Investor · Lubbock, TX · Member since 2015 · 308 posts · 106 votes
10y
Umm, yes! Collect all that rent up front! Why would taking the rent money each month make the tenant any less risky?
Some people save up money and pay in advance. They'd just rather not worry about paying it each month. And, they don't understand or care about the time value of money.
But you are an investor, and you care about the time value of money. You know that the cash in your hand now can be deployed to other uses like more property, paying down debt, or even an interest bearing money market account.
Rental Property Investor · Allentown, PA · Member since 2016 · 33 posts · 18 votes
10y
I've prepaid before as well as seen places that give discounts for paying early. You can always write the lease up
As a yearly lease to be laid however. If they prepay and end up getting evicted or leaving without proper cause... Oh well sucks to be them.
I've also gotten discounts for signing multi year leases as well.
Alexandria, IN · Member since 2016 · 38 posts · 7 votes
10y
I paid 6 months in advance to my last landlord. We moved without having a job first so we agreed to a 6 month lease that I paid in advance since I passed everywhere else except for having an income. So I "flashed cash" to qualify. She is probably doing the same thing, no one is going to loan their landlord money without a motive.
Investor · Laguna Niguel, CA · Member since 2014 · 16 posts · 9 votes
10y
In my early 20s, I moved from Boston to Los Angeles. Student, unemployed, credit history limited to one $500 credit card. I could not get a lease application approved. Decent savings and no debt, I offered to prepay 6 mo + security deposit. Terms accepted by a complex owner / manager.
In my w2 business we often accept advance payment from our corporate clients, as they need to deplete budget before we determine the full scope of work. We accent the payment and track in Quickbooks as credit, funds set aside until applied to an active project.
I've used 6 and 12mo pre-pay as negoiation for office space and commercial storage with great success.
Investor · Oklahoma City, OK · Member since 2016 · 98 posts · 51 votes
10y
If she checks out well in every other area, I would definitely consider it. People customarily pay yearly rents in Indonesia and parts of Europe as well. I know students who pay rent up front when their student loans or grants come in. I would make sure to outline who is considered a tenant and explain that no one else is allowed to move in without approval. Make sure it is in the lease. Check local laws regarding when that money is actually available for your use. I wouldn't think you could spend it all at once but may take it out of an account monthly.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
10y
I would never consider it, and I think it's a big red flag. Why? Because only people who NEED to pay up front (for the most part) offer to pay up front. (Student rentals by the semester are an exception to this.) And why do they need to pay up front?
A few things jump out at me:
1. they know their activities are going to make you want to evict them, and they want to head that off and hope you won't (or can't)
2. They can't qualify any other way, they might have lots of cash but no documentable income. Think prostitution, drug dealing, or any other activity where they don't report their income to the authorities. Even if the activity is legit, the non-reporting is illegal. If they'll cheat on one hand, they will do the same to you if it suits them.
3. If you have accepted rent for a year, and not escrowed it, how are you going to explain to the judge that you want to evict them? Good luck with that.
A landlord friend of mine had exactly that problem. The tenant was a drug dealer. It was made worse by the fact that since the rent in advance was cash, he hadn't declared it on his taxes. I had no words for that situation.
Plenty of people will disagree with me on this, but I want trouble free rentals, and taking cash up front is just asking for bad situations. You learn these things when you make your own mistakes, and correct them as you go along. I've made plenty of mistakes in over 20 years of rentals. So I've learned plenty.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Doug Prahst I had a tenant pay one year up front. It was an older lady who was caring for her grandchild. I called her bank and they confirmed plenty of money to cover the check. It was strange, but nice to have year rent paid up. I called her two months before the lease ended and due to circumstances changing she did not renew. She moved out at the end of one year and the property was in perfect condition. I mailed all her security deposit back.
I would be suspicious, but just check out the story. It worked out great for me, so that proves anyone wrong who wants to say this is guaranteed trouble. Just dig into the reason and verify the story and you will be fine.
Investor · Cincinnati, OH · Member since 2015 · 374 posts · 120 votes
10y
I accept prepaid rent but I never ever promise or offer benefits in exchange. The reason is that some tenants have mastered the "lure of the big payout" and landlords, especially new or poor landlords, fall victims to it all the time. They are enticed by the promise of money and allow things they shouldn't. I've been promised rent paid in advance several times and have only received it once. All those other promises "fell through".
Portland, OR · Member since 2008 · 123 posts · 73 votes
10y
I suppose it depends on the situation. I'd most definitely find out why (other than the PR thing) she wants to do this, and vet her out just as any other renter. Maybe she gets an annuity and likes to just take care of rent for a year and be done with it?
Also, why does she want to move two houses away from her existing house? If she's payed a full year there why is she moving (unless your listing is perfectly coincidentally coming up just as her year is ending at the old house, and there's some compelling reason for changing homes)
Everywhere · Member since 2016 · 63 posts · 26 votes
10y
I personally wouldn't take the whole year's rent up front. It could be a red flag. Maybe the person will be a good tenant but what if she's not and you need to evict her? If you do decide to accept the year's rent, I would consult an attorney before doing so just in case you do need to evict her for any reason or to find out the laws in your area. I'm an overly cautious person though and would want to know what the legal ramifications would be.
Residential Real Estate Broker · Houston, TX · Member since 2016 · 7 posts · 1 vote
10y
Having been in property management for years, we have had tenants offer to pay rent up front usually as a result of having inherited some funds or recently gotten divorced. As always, my answer yes or no would depend on the particular situation. This is where doing a stellar background check on the front end is so worth it!!
Rental Property Investor · Brookville, OH · Member since 2016 · 488 posts · 363 votes
10y
I'm originally from Ghana, West Africa and that is how it is done over there. Tenants pay 1, 2 or 3 years in advance. This is the norm for some countries. I would double down on the back ground verification but I would not turn it down if they checked out.
Investor · Denver, CO · Member since 2015 · 177 posts · 71 votes
10y
Personally I've prepaid for a number of apartments 6 months to a full year in advance, in order to negotiate a discount. Nothing sketchy about it. However I agree with a few others, that you should still screen her like everyone else, and if you have to evict add a section about how rent will be refunded following the same process // procedure and timeline that you normally would with a deposit.
If you feel like she's sketchy, then just don't do it. But I wouldn't be scared off by someone trying to be noticed, especially if it's a competitive rental market.
Investor · Downers Grove, IL · Member since 2015 · 1k+ posts · 955 votes
10y
@amy bellamy
Amy is correct, once you get so much money in advance, it is very difficult to evict the tenant if needed.
We were helping with a property once, and that's what the tenant did. But after we realized they were not taking care of the property and being unreasonable, the landlord wanted to evict them.
The only reason the eviction is successful is because the lawyer found out some bills were not paid. And even though the landlord wanted to keep most of the money for repairs, they couldn't as it is not considered as security deposit.
By the way, these people stay in the house till I show up with the sheriff and 2 other movers, as required by law. And they still left a bunch of stuff, expecting to stay there. Professional renters I would say.
Screen them, double screen and have a good eviction lawyer draft up some addendum to your lease to protect you, in case you need to evict them. Good luck!
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
10y
@Doug Prahst and @Chris Krivanek - that's the wrong movie when this topic comes up. A better movie for this topic is "Pacific Heights", where Michael Keaton's character makes a rent pre-payment (and engages in some disturbing behavior as well). That movie should be required viewing for anybody who wants to own rental property.