Potential Tenant willing to pay a years rent in advance.
Property Manager · Member since 2020 · 6 posts · 9 votes
Potential Tenant willing to pay a years rent in advance.
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Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
5yIt depends on what your state will allow. In AZ, where I am, a Landlord cannot require or hold more than 1.5 times the rental rate in security deposits and/or prepaid rents. It is illegal for Landlords to hold more than that.
So, before considering, you may want to check your applicable laws.
34 Replies
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes5y
hi @Kristen Brandner !
Thats a tricky one. Personally I'm hesitant to accept a years rent upfront because of the implications if a lease was to be broken. Say you wanted to evict because of a major issue, well the tenant is paid up on rent. It makes me wonder WHY anyone would want to pay a years rent upfront. If you have the money just hold onto it and use it to pay rent. I suppose that it might be because of their situation, however.
My other question is, where is this property located.. you are asking 2k per month rent and have only had 4 inquiries in a month? Do you think maybe the rent is a bit much then? Could you afford to say drop it to 1800 and maybe get a pool of better candidates ?
Hope it all works out for you. Sometimes you do need to take a chance on a tenant.
- 5yDana WhickerPro MemberInvestor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votesPretty much this answer.^^^
Originally posted by @Nicholas Weckstein:
hi @Kristen Brandner !
Thats a tricky one. Personally I'm hesitant to accept a years rent upfront because of the implications if a lease was to be broken. Say you wanted to evict because of a major issue, well the tenant is paid up on rent. It makes me wonder WHY anyone would want to pay a years rent upfront. If you have the money just hold onto it and use it to pay rent. I suppose that it might be because of their situation, however.
My other question is, where is this property located.. you are asking 2k per month rent and have only had 4 inquiries in a month? Do you think maybe the rent is a bit much then? Could you afford to say drop it to 1800 and maybe get a pool of better candidates ?
Hope it all works out for you. Sometimes you do need to take a chance on a tenant.
Accepting that much rent up front is more likely to benefit the tenant than you. However, if 2k a month is a bit higher than market and it works out for you, then great, but it's a risk.
- Property Manager · Member since 2020 · 6 posts · 9 votes5y
@Nicholas Weckstein
Hi Nicholas!
We live in a pretty rural part of eastern Washington. Problem is, not a lot of rentals on the market. I paid 265k for the house a year and a half ago and it’s gone up in value with an estimate of 328k. It’s pretty nice for the area and very well maintained. My mortgage is 1300 month. I know BP forums recommend the 1% rule for rent which would make the place 2650/month. That’s pretty steep in our area so, we decided on 2050/month not including utilities. It comps to rents in Spokane and is slightly lower for a 3bd/2bath. I’ve only listed it on Zillow rentals at the moment in terms of advertising as I am kind of hoping to avoid Craigslist if we don’t find a tenant that seems legit. We would consider dropping rent but I also don’t want to attract low income tenants. So far we have multiple families that have 4-5 kids which isn’t ideal for the space (it would get thrashed).
Anyways; he and his family check all the basic boxes with the exception of a stable/continuous income. He mentioned he is working on a nursing degree and works for the same company I do. (I’m a nurse at the local hospital) and so I know he has a good employer.
Our thoughts are that we make it clear in the rental agreement that he can pay a year up front and we can renew the lease if he is able to continue to pay up front or meet the income requirement. We also would make him sign 6 month terms so we are only subjected to that time period. As you said I want to give this guy a chance and if he can pay a year up front, at least I know that part is secured. It’s enough of a cushion too that it would cover rents and utilities if he was somehow unable to pay. Just trying to get some peace of mind. Thanks for the reply.
- Real Estate Coach · Coeur D Alene, ID · Member since 2013 · 458 posts · 295 votes5y
Originally posted by @Kristen Brandner:
@Nicholas Weckstein
Hi Nicholas!
We live in a pretty rural part of eastern Washington. Problem is, not a lot of rentals on the market. I paid 265k for the house a year and a half ago and it’s gone up in value with an estimate of 328k. It’s pretty nice for the area and very well maintained. My mortgage is 1300 month. I know BP forums recommend the 1% rule for rent which would make the place 2650/month. That’s pretty steep in our area so, we decided on 2050/month not including utilities. It comps to rents in Spokane and is slightly lower for a 3bd/2bath. I’ve only listed it on Zillow rentals at the moment in terms of advertising as I am kind of hoping to avoid Craigslist if we don’t find a tenant that seems legit. We would consider dropping rent but I also don’t want to attract low income tenants. So far we have multiple families that have 4-5 kids which isn’t ideal for the space (it would get thrashed).
Anyways; he and his family check all the basic boxes with the exception of a stable/continuous income. He mentioned he is working on a nursing degree and works for the same company I do. (I’m a nurse at the local hospital) and so I know he has a good employer.
Our thoughts are that we make it clear in the rental agreement that he can pay a year up front and we can renew the lease if he is able to continue to pay up front or meet the income requirement. We also would make him sign 6 month terms so we are only subjected to that time period. As you said I want to give this guy a chance and if he can pay a year up front, at least I know that part is secured. It’s enough of a cushion too that it would cover rents and utilities if he was somehow unable to pay. Just trying to get some peace of mind. Thanks for the reply.
I think that if you accept prepaid rent for 12 months, you'll be obligated to him for 12 months worth of rental space (even if term of lease is only 6 months).
What if he paid 6 months in advance of rent, and you called the other 6 months "deposit". This distinction allows you to ask him to leave after 6 months if you give him his large deposit back. BUT if he turns out a great renter, you begin to apply the additional he paid you to his rent monthly until the deposit you really want is left in his account. Something like this may enable you to get all the cash up front from him, and still be able to end his lease in 6 months if it goes sideways. Best of both worlds.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
Originally posted by @Kristen Brandner:
@Nicholas Weckstein
Hi Nicholas!
We live in a pretty rural part of eastern Washington. Problem is, not a lot of rentals on the market. I paid 265k for the house a year and a half ago and it’s gone up in value with an estimate of 328k. It’s pretty nice for the area and very well maintained. My mortgage is 1300 month. I know BP forums recommend the 1% rule for rent which would make the place 2650/month. That’s pretty steep in our area so, we decided on 2050/month not including utilities. It comps to rents in Spokane and is slightly lower for a 3bd/2bath. I’ve only listed it on Zillow rentals at the moment in terms of advertising as I am kind of hoping to avoid Craigslist if we don’t find a tenant that seems legit. We would consider dropping rent but I also don’t want to attract low income tenants. So far we have multiple families that have 4-5 kids which isn’t ideal for the space (it would get thrashed).
Anyways; he and his family check all the basic boxes with the exception of a stable/continuous income. He mentioned he is working on a nursing degree and works for the same company I do. (I’m a nurse at the local hospital) and so I know he has a good employer.
Our thoughts are that we make it clear in the rental agreement that he can pay a year up front and we can renew the lease if he is able to continue to pay up front or meet the income requirement. We also would make him sign 6 month terms so we are only subjected to that time period. As you said I want to give this guy a chance and if he can pay a year up front, at least I know that part is secured. It’s enough of a cushion too that it would cover rents and utilities if he was somehow unable to pay. Just trying to get some peace of mind. Thanks for the reply.
The way the 1% rule works, it is based on current value, so $3280 would be the monthly rent if you met the 1% rule. That puts you at 0.6% ratio. Not that you have to follow the 1% rule, but just wanted to clarify how it works.
This statement is concerning: "So far we have multiple families that have 4-5 kids which isn’t ideal for the space (it would get thrashed)." This is a violation of Federal fair housing and is considered discrimination based on familial status. Generally speaking, a 3 bedroom house can accommodate 7 occupants (maybe more). The general rule is two per bedroom plus one, but could even be more depending on square feet. You cannot reject an applicant for having 4 or 5 kids in a 3 bedroom house.
https://kingcounty.gov/~/media...
You mention writing new terms into the rental agreement. You should have an attorney making changes to a rental agreement to avoid writing illegal clauses into your lease. Just because you put something in a lease, doesn't make it legal and if you end up in court, the judge will not be impressed with your amateur legal work.
If you are accepting a years worth of rent, you can't have a 6 month lease term. If you take a years worth of rent, you have a year tenant. If you are accepting more than 6 months and using it as a "cushion", that is then considered a deposit. Washington has specific laws for handling security deposits. I would check on prepaid rent rules. Some states require you to hold the money in a separate account and only draw money out monthly.
My advice is establish approval standards and accept anyone who meets them. You are considering approving people who don't meet your qualification standards and possibly denying people who do meet those standards just because they have children. Not good.
Once this tenant is living there, you really can't screen them a second time and ask them to move out. That is why you want to screen correctly the first time.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
Originally posted by @Kristen Brandner:
@Nicholas Weckstein
Hi Nicholas!
We live in a pretty rural part of eastern Washington. Problem is, not a lot of rentals on the market. I paid 265k for the house a year and a half ago and it’s gone up in value with an estimate of 328k. It’s pretty nice for the area and very well maintained. My mortgage is 1300 month. I know BP forums recommend the 1% rule for rent which would make the place 2650/month. That’s pretty steep in our area so, we decided on 2050/month not including utilities. It comps to rents in Spokane and is slightly lower for a 3bd/2bath. I’ve only listed it on Zillow rentals at the moment in terms of advertising as I am kind of hoping to avoid Craigslist if we don’t find a tenant that seems legit. We would consider dropping rent but I also don’t want to attract low income tenants. So far we have multiple families that have 4-5 kids which isn’t ideal for the space (it would get thrashed).
Anyways; he and his family check all the basic boxes with the exception of a stable/continuous income. He mentioned he is working on a nursing degree and works for the same company I do. (I’m a nurse at the local hospital) and so I know he has a good employer.
Our thoughts are that we make it clear in the rental agreement that he can pay a year up front and we can renew the lease if he is able to continue to pay up front or meet the income requirement. We also would make him sign 6 month terms so we are only subjected to that time period. As you said I want to give this guy a chance and if he can pay a year up front, at least I know that part is secured. It’s enough of a cushion too that it would cover rents and utilities if he was somehow unable to pay. Just trying to get some peace of mind. Thanks for the reply.
Simple math here, if his job acceptance letter says $14.80 per hour, that is $2565 gross per month with 40 hours a week. If that is the only income and they are not even guaranteeing 40 hours, that is really bad. Funds from a home sale is not income, it is a one time windfall. This would be a hard pass for me. I wouldn't even spend one more minute considering it. I have accepted a years rent from a couple tenants but in both cases they met the 3X rent income standard.
Another concerning detail is that they are only making $14.80 per hour. In my city they are hiring at Little Caesars, McDonalds and many other places at $15.00 per hour. Either your city has a depressed economy or this applicant has a poor skillset.
Have you considered selling the property and just taking the profits? It sounds like it was your primary residence, so the gain would be tax free. That would be $63K worth of tax free income.
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes5y
Originally posted by @Kristen Brandner:
@Nicholas Weckstein
Hi Nicholas!
We live in a pretty rural part of eastern Washington. Problem is, not a lot of rentals on the market. I paid 265k for the house a year and a half ago and it’s gone up in value with an estimate of 328k. It’s pretty nice for the area and very well maintained. My mortgage is 1300 month. I know BP forums recommend the 1% rule for rent which would make the place 2650/month. That’s pretty steep in our area so, we decided on 2050/month not including utilities. It comps to rents in Spokane and is slightly lower for a 3bd/2bath. I’ve only listed it on Zillow rentals at the moment in terms of advertising as I am kind of hoping to avoid Craigslist if we don’t find a tenant that seems legit. We would consider dropping rent but I also don’t want to attract low income tenants. So far we have multiple families that have 4-5 kids which isn’t ideal for the space (it would get thrashed).
Anyways; he and his family check all the basic boxes with the exception of a stable/continuous income. He mentioned he is working on a nursing degree and works for the same company I do. (I’m a nurse at the local hospital) and so I know he has a good employer.
Our thoughts are that we make it clear in the rental agreement that he can pay a year up front and we can renew the lease if he is able to continue to pay up front or meet the income requirement. We also would make him sign 6 month terms so we are only subjected to that time period. As you said I want to give this guy a chance and if he can pay a year up front, at least I know that part is secured. It’s enough of a cushion too that it would cover rents and utilities if he was somehow unable to pay. Just trying to get some peace of mind. Thanks for the reply.
@Kristen Brandner Absolutely ! that makes sense. Truthfully I stopped using Zillow to post rentals because for me in my area I found that I would get LITERALLY hundreds of leads and 90% were bad. Trying to sort through all of that was too much. We have had great luck using the Facebook market place and local Facebook groups. It is how we do all of our rentals now. In fact most people in our area use Facebook or craigslist. Hope it all works out! I think the 6 month term is a good idea!
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes5y
It depends on what your state will allow. In AZ, where I am, a Landlord cannot require or hold more than 1.5 times the rental rate in security deposits and/or prepaid rents. It is illegal for Landlords to hold more than that.
So, before considering, you may want to check your applicable laws.
- Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes5y
Nothing wrong about collecting it although your state may prevent you from collecting it all upfront. Just keep in mind that you can't count it as rental income until the date each payment is due. So it needs to sit in your escrow account and then you pay it to yourself month by month. This is called prepaid rent and it isn't yours till the due dates. Just document it and be sure to follow the rules and you will be fine.
- Rental Property Investor · Philadelphia, PA · Member since 2020 · 116 posts · 23 votes5y
@Kristen Brandner I would focus on the before and you requirements for rental. I won’t relax any requirements as they are paying in advance. In our experience so far such tenants have turned out to be difficult ones. They are offering more upfront as they won’t be accepted without that.
- Fort Worth, TX · Member since 2021 · 90 posts · 32 votes5y
@Cara Lonsdale I didn't even know that was a rule. Thanks I will check my state of Texas. Where do I go to find that information or where to start?
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes5y
Originally posted by @Nicki Shelton:
@Cara Lonsdale I didn't even know that was a rule. Thanks I will check my state of Texas. Where do I go to find that information or where to start?
Texas is a state that doesn't have a limit on the Security Deposit, or prepaid rents collected. So, you may be in luck there. However, the various Cities can impose limits. So, you will still want to check your specific municipality to verify the limits, if applicable.
- Fort Worth, TX · Member since 2021 · 90 posts · 32 votes5y
@Scott M. What type of escrow account would you recommend? Do any of them earn any type of interest? Can you also, keep the security deposits in the same escrow account or must they be separate accounts?
- Fort Worth, TX · Member since 2021 · 90 posts · 32 votes5y
@Kristen Brandner this is my opinion due to the fact I do not have a property yet. However, I think it's their background check and everything else credit check checks out fine I don't see the harm in it. My mom pays her rent 3 years at a time. Everything is fine with her background she has great credit but the only issue is she's on a fixed income and wouldn't meet the three times the rent rule. And also probably wouldn't hurt to check with an attorney to see if you could put some type of clause in there that would protect you. I would also do what the other people said about putting it in a separate escrow account and just pay yourself monthly so that way if you do have to give partial part of the rent deposit back or whatever it's going to be called in your state you will have it.
- Property Manager · Member since 2020 · 6 posts · 9 votes5y
@Joe Splitrock
My agreement says 2 persons per bedroom which puts a max occupancy at 6. That’s in my current lease agreement which was drafted by my lawyer. I live in stevens county which has different rules than king county. I’m currently attempting to make an appointment with my lawyer to discuss the legalities of collecting advanced rent and what that entails. Do I put all of it in a trust? Or escrow? Or can I collect six months now if that is agreed on in the terms of the lease or 12 months if agreed on in the lease. That is the gray area I was hoping to find some clarity on.
I understand for housing laws and I do have a right as a landlord to omit a tenant if they do not meet the qualification standards according to fair housing laws. As mentioned before; I’m not trying to break the law but also protect myself from legal issues long term.
I appreciate the insight.
- Property Manager · Member since 2020 · 6 posts · 9 votes5y
@Joe Splitrock
This person doesn’t meet the approval standards based on the income. Which obviously is a big point to this issue. He’s moving, his job acceptance letter which he gave me, shows he’s a 0.0 FTE with on call pay at 14.80/hr. By my math, he wouldn’t meet the income requirement. However, he is offering me the years rent upfront pending he closes on the sale of his home in Arizona in two weeks.
This is where I find some hesitancy approving him because he Doesn’t meet that qualification. Would you take a chance with him knowing those details and commit to a year lease if that is something that is legal with collecting a years rent up front? My lawyer advised me to do 6 month terms at a time. I mentioned this to the potential tenant and he was fine with it. He said he offered a year to give me peace of mind that I would approve him as a tenant. My question was about risk with that type of tenant and if it was legal in WA state to take a years worth of rent up front even if it’s placed in escrow or a trust?
- 5yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
Originally posted by @Kristen Brandner:
@Joe Splitrock
This person doesn’t meet the approval standards based on the income. Which obviously is a big point to this issue. He’s moving, his job acceptance letter which he gave me, shows he’s a 0.0 FTE with on call pay at 14.80/hr. By my math, he wouldn’t meet the income requirement. However, he is offering me the years rent upfront pending he closes on the sale of his home in Arizona in two weeks.
This is where I find some hesitancy approving him because he Doesn’t meet that qualification. Would you take a chance with him knowing those details and commit to a year lease if that is something that is legal with collecting a years rent up front? My lawyer advised me to do 6 month terms at a time. I mentioned this to the potential tenant and he was fine with it. He said he offered a year to give me peace of mind that I would approve him as a tenant. My question was about risk with that type of tenant and if it was legal in WA state to take a years worth of rent up front even if it’s placed in escrow or a trust?
If he doesn't meet the approval standards, then do not rent to him. Never make an exception. NEVER.
- Investor · Biddeford, ME · Member since 2020 · 29 posts · 6 votes5y
@Kristen Brandner
Similar thoughts to the above folks. Accepting that much in rent will more likely benefit the tenant depending on your state laws. These situations are always tricky as you may have a suitable candidate but the income is off and he may be genuinely compensating for it without a malicious intent. However, the bottom line is you’ll likely never know till you proceed with him. Couple of points for consideration: I haven’t used Zillow rentals but use Facebook marketplace and have seen great results. As mentioned above posting in groups in your local area will help get you more leads that are focused in that area. Another thing, is the rental price, you could drop it by by a few bucks just to be under the 2k range and see if you get more qualified applicants. It’s not an easy situation you’re in but remember it’s better to have a vacant property rather than having a tenant that will cause problems. Although right now you may be hurting for the rent but just keep the impact this tenant can have on the property/business if their tenancy isn’t ideal. Best of luck!
- Rental Property Investor · Huntsville, AL · Member since 2013 · 419 posts · 323 votes5y
It's a good practice to set criteria and know that you will be firm about it before encountering these situations. You need to not be emotional about it and not feel desperate to accept someone. Personally, I've rejected all applicants who've offered 6 months or a full year in advance. If you dig deeper, there are likely other red flags that will tell you to avoid them as well. Have you done an eviction background check? Have you talked to the last 2-3 landlords? How are you going to evict for cause when you've already accepted prepayment? I prefer a stable, monthly payment from a fully qualified tenant who's not looking to buy me off. It's also a sign that other landlords have seen something that you may not have and denied this tenant and hope you'll be bought off.
- Member since 2021 · 237 posts · 153 votes5y
@Kristen Brandner
Pay year #3 in advance? Yes. Begin this way? No.
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes5y
Obviously you get two opinions here. Personally I like it. Makes sense. I like renting to people who have been homeowners. Getting a year up front reduces a lot of your risk of non-payment. Look at the pictures of their home online that they are selling. Is it in line with the place you are renting? How does the condition look? Price?
If allowed in your area I would also look at collecting 2 months deposit, just so if they have a problem later, you can be protected somewhat.
We've done this plenty of times and it all worked out well....but the reasons have to make sense....like this where they just sold a house and have the cash. Or they get student loans in the Fall...and want to pay up front so they don't run out of money at the end of the semester. Not everyone budgets well...and to me it is good they recognize this.
Of course if there is a bad reason they are doing this...then I would avoid I've seen people with backgrounds, or severe credit issues, or bankruptcies...or some other reason you normally would not rent to, but they want to overcome that with cash. I'm sure for some money talks.
As far as the offer letter goes and income...maybe he gets in and does a lot of OT....or looks around and gets a better job, or a part time gig. Maybe the spouse goes to work too. Sometimes people new to town...get that first job to get started...and then figure out what the lay of the land is...
- Rental Property Investor · Inlet Beach, FL · Member since 2018 · 199 posts · 111 votes5y
@Kristen Brandner
In my experience, people offer this as a way to sweeten a deal they know they wouldn't get otherwise.
Typically people in this situation may have some money at the time, but it indicates a larger risk because this is a bad money management system.
Why can't this guy open a savings account and put 1 year of rent in that account and just draw down each month? Probably because he'd spend it otherwise. Maybe not, but you don't need the responsibility of managing his money.
This also presents problems in mortgages (which I know this isn't about, but offers some insight into the inherent risk). When a borrower pays rent up front, they undergo a "payment shock" based on essentially paying $0 rent per month to all of a sudden having a monthly mortgage.
So what happens at the end of the year, and this guy wants to renew the lease? Are you going to reevaluate his creditworthiness and qualifications again? His situation will change dramatically if he's expected to start making monthly payments when he wasn't before... or does he plan to pay 1 year advance each renewal?
Like others have mentioned, there may be legal restrictions as well. I'm not too sure, and honestly, I wouldn't have thought to look that up until I read this thread!
- Member since 2019 · 12 posts · 7 votes5y
Collecting funds in advance is a wonderful thing and can increase your return with the ability to go invest that capital else where. One interesting takeaway from my own experience of doing this; a monthly rent payment has a dual purpose. First is obviously keeping the terms of the rental agreement in good standing....2nd is that regular monthly payments serve the landlord by routine engagement with that tenant. In other words, you would never otherwise hear from your tenant until a year later. That's both good and scary....my experience as a landlord is that is much easier to "check out" on the tenant that fulfills their rent responsibility upfront....
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes5y
Question for the Group (since I've not yet encountered this)
Feel free to make the usual legal referrals, as appropriate ...
In a case like this, could the advance rent be held with an escrow company (1 year of escrow fees to be included with the deposit)?
The escrow company then disburses to you monthly. That is, the funds are held in escrow, not by the landlord / management company.
Should the tenant not complete the lease term, could the escrow company be directed to handle any refunds as negotiated with the tenant and/or their legal counsel at the time of the initial deposit / inception of the lease?
Naturally, the lease agreement should include language stating that should the income requirements for renewal not be met upon expiration of the lease, that would constitute ground for refusal to renew the lease (or go to month by month).
Just thinking out loud here. All thoughts welcome ...
- Investor · Northern VA/DC area · Member since 2020 · 5 posts · 4 votes5y
@Kristen Brandner
Speaking from personal experience,
I had a tenant want to pay two years of rent in advance. The total was about $60,000.
He had a prior bankruptcy because he was unable to pay his child's medical bills due to a sudden illness. Recently, he had paid the medical bills, moved to my city and gotten a much higher paying job. Noone would give him a chance because of his prior bankruptcy.
I worked out a deal where we made him pay a DOUBLE security deposit plus the first month's rent. He was an awesome tenant, he fixed the broken items in the house and for two years, we didn't have a maintenance bill on the property. After the two years was up, he was qualified to buy his own home and we paid his double security deposit back in full.
This excellent tenant is now a successful real estate agent and our personal real estate agent in the Northern Virginia area.
- Investor · Kaneohe, HI · Member since 2012 · 218 posts · 104 votes5y
@Kristen Brandner Move on. people that want to pay more than a month in advance is because they have been looking and got passed on by other landlords. yes some will be good tenants that were just in a bad situation, but most are problem tenants. This guy barely makes enough income monthly to cover rent. how is he going to pay for other expenses like food car utilities schooling etc. after he uses up the proceeds from the sale.
If you are still really considering him at least keep looking and dont sign a lease until you have the cash inhand. some people might just lie to you and you sign a lease giving him the benefit of the doubt that he will actually close in 2 weeks. he could just get into the house and not even have a house to sell and will not be able to pay rent because of his income. then you end up with a squatter and if the eviction moratoriums is still in place or get reinstated then you are screwed.
I find majority of my tenants on craigslist. I tried zillow and facebook for the past 5 times and zillow is not worth it. FB gets a lot of inquiries usually 40+ for 1 week listing for me and at least 30 are a waste of time. I only found 1 tenant from FB the rest are from craigslist. You will get pretty much the same tenant pool from fb and craigslist the trick is just prescreen them before scheduling a showing.
- Rental Property Investor · Ridgewood, NJ · Member since 2013 · 49 posts · 66 votes5y
@Kristen Brandner your going to hear a lot of opinions here!
My personal experience
Vet your tenants (Stick to your requirements!) to mitigate risks and you should be fine. Make sure your state allows this and follow the rules of your state.
I am doing this in the state of Florida. Parents were paying up front for their adult child. We are on year 5 of this arrangement, tenant keeps the place in normal condition. Its great
- 5yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
I agree with @Cara Lonsdale check and see what the state allows as this can be your way out from accepting. A lot can happen in 12 months. The landlord should have control of the property, not the other way around.
NETWORTH BUILDERS5236 Reviews - Rental Property Investor · Los Angeles, CA · Member since 2019 · 27 posts · 18 votes5y
I think this is an easy problem especially if you are still new to real estate investing as I am. Set your criteria and practice sticking to it. You can take risks once you have more properties to soften the blow if anything goes wrong in any of the others. You have a income criteria and a occupancy limit so make sure to stick to them. I was in a similar position earlier this year with my duplex and it took me more than a month to find a tenant but the tenant I have found earns good money, is always on time or early with payments and causes no problems. If I gave in to the family of 6 who wanted my 2 bedroom I probably would have had a much harder time. Good Luck!
- Real Estate Broker · Pueblo, CO · Member since 2013 · 366 posts · 303 votes5y
Even if you did consider this silly proposition his house hasn't sold yet. That's a big if.
- Investor · Spokane WA · Member since 2015 · 88 posts · 49 votes5y
I faced a similar case where I accepted prepaid rent - and then had trouble (drugs, arrest) with the significant other of the tenant. Ended up needing to evict, but tenant (and their legal team) claimed they were owed the money as a deposit. Turns out the distinction between prepaid rent and deposits is murky in Washington State, and you would probably need to litigate in order to get a distinct brightline. There are specific rules in Washington state around how you must deal with deposits, if not you are liable for 3x the deposit amount.
In summary: we no longer accept prepaid rent.
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