Potential tenant wants to pay 1 years rent up front!

[Ryan Monier]

I have a potential tenant that would like to pay the entire years rent up front.  I have already screened tenant through an online service and was wondering why would tenant give me over 15k  instead of paying monthly.

Any advice or issues to look out for?

[Yash Desai]

I would ask them where they got the cash from if it seems like a very high amount compared to their income, however, this is not completely unheard of, some people just don't trust themselves with money.

[Clayton Barnes]

Maybe they don't like dealing with bills? I will generally pay my subscription services for a full year, though it often comes with a discount, just to avoid a monthly bill.

If you want to go negative maybe they're up to something and they don't want to give a landlord a reason to come to their rental.

[Thomas S.]

Because there is likely something you missed in your screening process, there is something wrong with the tenant. Offering a landlord a bribe is a huge red flag.

Tell your applicant that our business operates on monthly payments and you would prefer to keep it that way.  Put him on a M2M lease to protect yourself. Chances are he will walk and you will have dodged a bullet.

If you accept his bribe it remains his money and must be kept by you in a separate account only to be drawn on each month as the rent is due. He is entitled to demand it back at any time and if you are forced to evict for any reason it will be complicated.j

[Corby Goade]

I would never accept rent for a year in advance. If there are problems, you'd have a heck of a time getting a tenant evicted.

[Thomas S.]

Monthly payment of rent is pretty well universally standard. Anything outside the norm is usually suspect, if not it certainly should be.

Since there is zero benefit to the landlord to be paid in advance there is no reason to deviate from the norm. If you are concerned about not being paid monthly or believe the advance payment will guarantee payment you are compromising your screening standards and should not be accepting this tenant for that very reason.

[Ryan Monier]

Thank You @Yash Desai @Clayton Barnes @Thomas S. @Corby Goade for your advice!

[Janel F.]

Sounds suspect to me. Have you spoken to their previous landlord or called their place of employment to confirm that they are still employed? I'd definitely go over this application with a fine toothed comb.

[Christopher Blanco]

And in 3 months when this tenant has 20 people living in his apartment, how will you evict him? 

[Matt K.]

This sounds like a good way to get a fake check and then be out a good chunk of money once they ask for some of it back and then the fake check bounces. 

The only logical (and it's a  HUGE stretch) would be someone like an oil worker that wants to prepay living expenses in case they run out of money or are in the field. 

It's more likely they are going to use your house to grow...... and won't even live there.

[Joe Splitrock]

@Ryan Monier I had an older lady who paid for a whole year up front. I was concerned about it, but I called her bank and talked to them. It turns out she had owned a business and her husband died. She had considerable funds in the account. She wrote a check for the entire year, kept the property spotless and moved out at the end of the year. I legally deposited the entire amount in my account. 

I had another applicant who offered to pay cash up front. He received annual checks from tribal casino royalties - close to $200K. Him and his girlfriend showed up in new cars with dealer plates (Escalade and Corvette). They both had new iPhones. He had a home foreclosure from the previous year. He had no job and no rental references. He was currently staying with a friend. I denied him for not having references.

Another applicant offered to pay 6 months up front. She listed her profession as "private dancer" on the application. There was no way to verify income because her business is a cash business. She told me the tax returns wouldn't verify income. I denied her because she was committing tax evasion at a minimum and possibly doing more than dancing. I am not the moral police. I just can't have illegal activity in my properties.

Often cash is a smoke screen for deeper problems or could even signal illegal activities, but not in all cases. 

[Alexander Felice]

HARD PASS

you get no benefit, you can't spend the money until the year is up anyway, and no one renting your place should have 15K to blow. if it's legit it's unlikely they would be renting and they would be smart enough to know that paying a year upfront is silly and uncessary.  

[Amy A.]

I don't think it would be any harder to evict a tenant who has paid upfront than it would be to evict a paying tenant with a lease.  If there is a lease, you have to evict for cause.   If you prefer a month-to-month lease so that you don't have to give a reason to evict (and bring witnesses and other hassles), than this tenant might not be the one for you.  However, if you typically give a year lease, I would investigate further why this person wants to pay a year upfront.  I sometimes get students who pay with student loans to pay every 6 months, when they get their loan disbursement.

Regardless, make sure he understands that you do regular inspections of the interior of the home to make sure it's safe.  If he plans illegal activity,  he won't want that.

[Liwen Gu]

I actually made that offer to a landlord as a tenant looking for a new home, haha. The offer I made was to hope that they would lower the rent if I can pay upfront for an entire year (I think I asked for like $50 off or something) because I didn't really know what to do with my money that was just sitting in the bank making no income. Also, there were a lot of showings and I wanted to offer something different than the other tenants in hope that I would get the place. I had no investment strategy at the time so I thought I might as well try to lower my rent and I thought it might help the landlord if they had a mortgage or other debts to pay off. They didn't end up accepting my offer though :(

I didn't view it as a bribe...just something that gave me an extra edge over the other tenants. You might want to just ask them why they want to give you 1 year's rent. Maybe they just really want the home and don't want to lose it to other applicants...

[Michael Norris]

Seek out their motivation on why they want to pay it up front. An insurance client of mine has a couple high end properties he was flipping that are now occupied by pro ball players with families in town for the season. They both paid up front what he would have asked for a year's rent and will occupy the property for about 8 or 9 months. In the mean time both houses are in a hot area taking appreciation and the rent off sets his improvement expense.  I'd straight up ask them why face to face... Most people pay month to month - why are you offering to pay up front? If it doesn't feel right don't do it

[Account Closed]

1) If you did your screening appropriately, then it shouldn't be an issue.  Many situations could warrant this - as an example, in your area, there are a lot of people in the oil & gas industry.  Do they work on a well in the gulf?  3 months on, 3 months off is common working on a rig.  They could be an ERP consultant installing SAP or Oracle or another software package that requires them to be in a corporate apartment for months at a time.  In both situations, it may be worth their while to pay up front and not worry about being late on rent.  When I was a consultant, and had a corporate apartment in Houston, I had to pay a ticket on my car that was parked at the airport (I was flying out on Sundays and flying back on Fridays).  I had forwarded my mail to the corporate apartment out of convenience....car registration notices do not get forwarded via the USPS and I totally spaced it.  This could be convenient for the tenant.

2) Talk to an accountant about this - you MAY need to spread the revenue you receive over the life of the lease (Sept - Dec reported on your 2017 tax returns, and the rest on your 2018 tax returns) depending on your individual situation.

[Michael Gellar]

Have you run a background check on the client to see if that might let you know why they would want to pay upfront?

I am still a new property owner but all prospective tenants go through a background check (which they pay for) which shows credit, credit history, employment verification, etc.

Mike

[Cody L.]

I'd take that ALL DAY LONG.

I remember when I kicked out my live in girlfriend. She had no job. No wheee to go. I gave her some cash and offered to help find a place.

No one would take her (due to no income, rental history, credit) so I offered apartments a full year of rent, in advance, in cash.

I had 10 people say "no" before one finally did it.

Now that I own property I think they're all lunatics. I'd LOVE if my tenants paid a year in advance.

[Cody L.]

Listen to you guys. If some of you actually RUN your own apartments with the type of advise you give Id be shocked.

"Well what happens if he's selling crack? How are you going to evict?"

Uh, you evict for a lease violation just as you would if he was paying monthly. Except with a big chunk of prepaid rent you have money for liquidated damages for make ready, court costs, and downtime till you find a new renter.

There is no "rule" about paying monthly. Some people pay weekly. Hell. Some daily. Some every other month. Some quarterly.

Take the year of rent. Don't listen to these people.

[Russ Smith]

I've been managing rentals for over 17 years and this is not a regular occurrence but it has happened a number of times over the years and has worked out just fine the several times it did happen.  My most recent example, I had a tenant (a traveling motivational speaker with $250,000 in his business checking account) pay me $16,200 up front for the year and a $1400 security deposit.  Things are working out just fine.  I've been inside since he moved in (twice), the house is clean and well-kept.  His lease is about to expire and I'm hoping he pays me another 16k.  Most important thing....do your homework!  Check background, employment, references, etc.  Then, if all looks good, take the money and run!  Good luck.