Prospective tenant offering to prepay rent

[Adam Rey]

Good Afternoon BP universe. Working on my first single family rental in Charlotte, NC. Wondering about a prospective tenant who is squeaky clean other than saying he is moving to the area recently to look for work, but hasn't found a job yet. He is willing to prepay 1 year of rent. I can think of no good reason to approve this person or why someone would be willing to do that for "legit" reasons. Read the BP book Guide to Managing Rental Properties, and it seemed advised against tenants of this prepaying nature. To me willing to prepay a year of rent without a current paystub offering job screams drug dealer. However background and credit checks and references do seem to all be clean and positive. Previous paystubs show his job had previously made well over 3x the monthly rent. My gut is to deny the tenant and cite the current monthly 3x income requirement, but was looking for a second opinion to ensure I'm not crazy.

Sincerely appreciate any advice,

Adam

[Chris Claflin]

@Adam Rey, this is a great question! Everyone else had some good pointers in here too. As an investor and licensed Charlotte property management company here are some thoughts:

• It's good to be careful of folks with no income who want to pre-pay rent. Those can sometimes (but not always) be folks who can run into trouble.
• Make sure you have a robust screening mechanism and screen them very well
  • Current employment (length & earnings)
  • Evictions, foreclosures, bankruptcy, bad debt
  • Current & prior landlord references
  • Personal references (for down the road if they choose not to pay you)
  • Credit
  • etc.
• People often rent because they are in transition, so if this person is qualified, I would think strongly about taking him as a tenant
• I good strategy would be to get him on a 6 month or 9 month lease. You could charge a premium in rent for a shorter lease. Think about reducing the rent and transferring to a 12 month lease after they can show proof of new income
• Regarding security deposit: be very careful with this one. You need to comply with the North Carolina Tenant Security Deposit Act which limits how much of a deposit you can take depending on the length of the lease (this act applies to DIY landlords too). The max is equivalent to 2 month's rent for any lease longer than month-to-month. Also, according to that act, prepaid rent is not the same as a security deposit so it has it's own stipulations that go with it.

I hope that helps. Reach out if you have any questions and good luck!