Discount in Rent for Paying 3 Months in Advance?

Question

Just wondering if any of you all have encountered this. I have an SFH listed for $1100/mo, and I had a would-be renter (via our PM) inquire whether we would be willing to lower the rate to $1000/mo if he were to pay 3 months in advance.  I said no, but I'm curious whether any of you have ever had someone do this. I never have.

Jennifer T. · Answer

I did something like this with my first set of tenants.  I think the rent was $850/month.  They paid 6 months up front for a $50/month discount.  However, they only got the discount for those 6 months.  I had an option in the lease that, once those 6 months were up, they could pay another 6 months up front for the same discounted rent.  Or they could pay each month for the normal rent rate.  Once the 6 months were up, they opted to pay each month at the normal rental rate.

I did do background checks and those had come out fine, other than neither of them had any credit.  It wasn't bad credit.  It was just no credit history because they were anti-debt kind of people.  Neither one had ever had a credit card or car loan because they believed in saving money for the things they wanted.  I wish all my tenants managed money as well as this particular couple, lol.

I liked having the cash up front to free up my own cash reserves.  But then, it also worked out fine because they were great tenants and everything went smoothly with their tenancy.

I have a lot more experience now and see where there could have been problems with the set-up. I would potentially do it again, but would have things more spelled out.  Especially the "what if" they moved out before their prepaid rent was up.  I'd also double check if it's legal in my area to do that.  But I've pretty thoroughly scoured landlord-tenant law for my area on a few occasions and have never seen this subject addressed, one way or the other.

Al Pat · Answer

@Alfred Litton Would you get discounts from the bank for making three payments in advance on your mortgage? There lies your answer. You going to get paid, all in one or one at a time. Does not matter.

Alfred Litton · Answer

UPDATE.  Thanks for all the advice and feedback, folks.  I got more information on the fellow, and it turns out he's a retired marine who is older and sold his home to rent closer to friends and family. Large nest egg ($200K in the bank) but on a fixed income (military retirement + social security). He's not rented for 20 years or more, so he genuinely thought that offering to prepay the rent was a way to convince me to lower the price, which he was concerned about due to fixed income.  No evictions, no criminal, excellent credit. So . . . . I offered to lower the rent by $50/mo. if he signed an 18-mo lease, renewing to 12-month leases thereafter.  (I like my leases to run out in the late spring or early summer.) Turns out he's not shady at all.  Just not that experienced with how leases work and what landlords consider normal. I was happy to knock a few bucks off for a vet with no need to prepay.

Joe Splitrock · Answer

I have one tenant that pays 6 months in advance and gets a $25 break per month for doing it. Honestly, I would have given that rent break for a regular monthly paying tenant. I had the rent price a little high to market. This particular tenant has been paying 6 months at a time for a couple years now. It is a little different circumstances because the money comes from a trust. Great tenant, so I wouldn't ever make the blanket statement that prepaying means a tenant will be bad. You have to look deeper.

I have also had people offer to sign a three year lease in exchange for lower monthly rent. That is an even worse deal for a landlord. Tenants can break leases so it really just locks a landlord into a long term agreement. It makes it harder to evict, sell the property or push rent increases.

John Teachout · Answer

State law addresses how much advance rent you can collect. It's not that uncommon for people to want to pay large increments of rent. I don't see a problem with it if they pass your normal screening process. Sometimes people have money now and want to pay their future rent before something happens to their funds...

Nathan Gesner · Answer

This is a 10% discount. What's the benefit? None.

It's also a red flag when tenants offer to pay larger sums in advance. It could be an attempt to distract you from something negative in their history. It could be an attempt to get into the unit before anyone better comes along. It could be a sign they are fiscally irresponsible and they want a few months of good behavior before they get behind again.

There's no benefit to taking rent early. If the tenant pays a year in advance and then breaks the lease after three months, you don't automatically get to keep the other nine months of rent. You still have to look for a new tenant and then refund any unused rent once the new tenant takes over. I'm not an attorney, but in the legal sense you are essentially just holding the money for them and applying it to charges each month as they come due.

Account Closed · Answer

I feel like the only way this would be applicable and make sense is if you live in an area with historically higher vacancy and are cash flowing heavily as it is. Even then it seems like a reg flag to me as well!

Rob B. · Answer

Spot on, Joe. That three-year lease payment upfront in exchange for lower monthly rent doesn't sound like the best type of deal at all. You'd then have to factor in market-rate increases on the front end before you sign the lease because 3 years locked into the same price could be detrimental to your bottom line objectives; there are also tax implications, and to your other point, tenants can still break leases (some of this depends on location/area but still..). I think it really does come down to looking at each and every situation as its own. A lot of great advice above.

Anthony Rosa · Answer

Provided everything checks out, i'm not sure id take 3 months in advance but i would absolutely discount $100/month (provided rent is upwards of $1500) if my gut tells me that the candidate is best qualified and knows it.

Charlotte Dunford · Answer

@Alfred Litton you would make more money finding a good tenant who will make monthly payments than a tenant who may not be able to pay you rent thus paying you 3 months in advance.

Discount in Rent for Paying 3 Months in Advance?

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