Tenant Is Offering Full Year Rent In Advance

[Joshua Gordon]

My stellar tenant of two years plans on renewing his lease this month. He called me today to ask if he could pay a full year’s rent in advance for a ten percent discount. I told him I’d have to think about it and get back to him. As of right now, I’m leaning towards taking his offer. I plan on using the immediate profits towards a down payment on a new property.

Curious to hear what you guys would do in my situation?

[Nathan Gesner]

Originally posted by @Joshua Gordon:

My stellar tenant of two years plans on renewing his lease this month. He called me today to ask if he could pay a full year’s rent in advance for a ten percent discount. I told him I’d have to think about it and get back to him. As of right now, I’m leaning towards taking his offer. I plan on using the immediate profits towards a down payment on a new property.

Curious to hear what you guys would do in my situation?

Two thoughts:

1. Your lease should include an annual rent increase to keep up with cost of living and market rates. Your tenant should have a 3% increase this year so a 10% decrease will actually put you 13% behind market, possibly more. On a $1,000 rental that would equate to $1,560 lost in one year. I know some good charities that could use that money.

2. Just because you receive money today doesn't mean it's yours to spend today. The rent payment is earned the day it's applied to a charge. If you receive $12,000 today, you would apply $1,000 of it to November rent and keep the rest in your account. In December you would earn another $1,000 and so on. Why? Because there are many reasons why your tenant could legally break their lease and get that money back. If your tenant called on January 10th and said they broke the lease and moved out, that money is not yours to keep. You have to make a good faith effort to find a replacement tenant. Once the new tenant takes over, the old tenant is cut loose and his money has to be refunded.

I knew a lady that managed over 100 vacation rentals. Guests would put money down to reserve a rental and the manager would take her commissions and spend it. Then the guest would cancel and she would have take money from another reservation to pay back the guest. She was over $250,000 in the hole, robbing Peter to pay Paul.

Don't spend it until you earn it. The same applies to security deposits.