Best use with a year of rent upfront?

[Jason H.]

Hi BP Community,

I'd like to survey the forums on the best use of a year's worth of rent paid by a great tenant upfront on a personal residence that is just in the 1st year of a 30 year conventional.  Leave it in the bank account to auto-pay the mortgage each month, or put it towards the principal but still pay the monthly out-of-pocket as if nothing changed?  Plan to keep the house for at least 5-10 years.

[Thomas S.]

Tenants wanting to pay up front usually means a problem of some sort. I never accept rent in advance.

Having said that and assuming you have agreed to accept the payment you need to understand the money is not yours until each monthly rent payment is deducted from the total amount. Never spend it or place it into your receivables account.

You must keep the money in a separate account and only draw it out as the tenant owes rent. Legally It is not your money until the first of each month.

In the event the tenant decides to move before the end of the lease you are obligated to refund the advance.

In the future I would strongly advise against taking advance payments. Our business operates on the principal of monthly payments and this is best adhered to for the sake of all involved.