How to hold LAST month's rent

Question

I just signed my first lease and I collected first, last, and security deposit. Security is in a landlord tenant account, that was easy. And First month's rent will go to my PITI and the rest cashflow I will split between reserves and giving myself a little payout to enjoy.

BUT, how do people choose to handle last month's rent on your own bookkeeping/accounts?

Thomas S. · Answer

It is the tenants money until used. It should be held in the account with the security deposit.

Brian R. · Answer

@Thomas S. Makes great sense! I'm happy to make conservative safe choices. Well put too, "All you need is a proper paper trail but in the end, before a judge, all you will ever need to do is say yes or no that you have the LMR. Yes is a no brainer, no is much more difficult to argue." Thank you! Time to do some reading for PA/Phila

Thomas S. · Answer

This is the point in time where you sit down and learn all your state landlord tenant regulations. This is a responsibility you have in order to properly and legally operate your business. IT is all state specific. With luck it will all be spelled out. If not then it will not an issue and you may place it where ever you choose. You then simply keep thorough book keeping records to show where and how it is held. All you need is a proper paper trail but in the end, before a judge, all you will ever need to do is say yes or no that you have the LMR. Yes is a no brainer, no is much more difficult to argue.

Thomas S. · Answer

This has nothing to do with Canada or the US. Until the money is actually applied as the LMR it is defiantly not yours. It is not a pre payment. You are holding it in trust to be applied to the last month and, under some circumstances, may be returned to them. To further support the fact that it remains their money many jurisdictions require landlords to pay the tenant interest on the amount while being held by the landlord.

It is the same as if a tenant were to "pre pay" 6 months rent. The money does not belong to the landlord until it is applied each month to the rent due. It is held in trust and may not be touched by the landlord.

Brian R. · Answer

@Thomas S. Thank you for the reply. I don't know if that is specific to Canada where I see you are from. That strikes me as incorrect here because a security deposit is in fact theirs, with all going right that money goes back to them unlike the rent that is due to me. Rent is my money, and commingling my money [rent] with theirs [security deposit] is definitely not allowed in the states.

Collecting last month's rent is them prepaying an obligation/commitment to me that they owe since they committed to a 12 month term. It will be my money even if they leave the lease early because it is for their 12th month of rent. Or if they renew, their 24th 36th, etc month.

Curious to hear if any US based investors have similar or differing thoughts on this.

Brian R. · Answer

@Jennifer Jacobs and @Thomas S. thank you both for this insight, it is starting to make more sense especially considering how this relates to pre-paying 6 months for example.

My two follow up questions are:

1. Should I now just go to my bank and ask to transfer one month's worth of rent money into the landlord tenant account?

2. Will there be any extra issues or formalities I should be mindful of when the time comes that I take that money to apply to last month's rent? I am slightly concerned because I know security deposit is a formal thing [which is why I have it in a landlord/tenant account with their SS# attached to it. Want to make sure I am doing things right. dotting my 'i's and crossing my 't's

How to hold LAST month's rent

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