The tenant wants to pre-pay their rent for a few months or even a year in advance. Sounds wonderful. Should you accept this?
So a tenant comes to you and wants to pre-pay their rent for a next few months or even for a whole year. They say they have the money now and makes it easier for them to budget.
Wow, what could go wrong? Should landlords take this deal?
No, never. Never ever.
But why not, your rent collection worries would be over. The tenant pre-paid their rent, this is great.
No, no it’s not. This is a big red flag.
Tenants paying rent for months ahead of time can cause serious problems.
First, the money must be kept in an escrow account. The rent is not due yet so it’s not the landlords yet. You must hold the funds in escrow and then release the funds when the rent becomes due.
But this is not the big issue.
The real risk is if you have a problem tenant. If you have a flakey tenant in your house, you’re stuck with them.
It would be very difficult to get the tenant out of the property if you accepted their prepaid rent. This sounds like a legal nightmare and now lawyers get involved. Ewe lawyers.
Accepting prepaid rent can cost you dearly in court costs and legal fees.
And finally, if the tenant's life changes and needs to vacate, you know what’s coming… they want all their money back. Now what happens? You just might find yourself in the court system.
So just keep it simple and collect the rent when due. If you screen properly for good residents, rent collection should not be a problem. Don’t create a problem by accept advanced rent.
My name is Michael Bielon, if you need property management or any assistance with your property, I’m here to help. Thanks for watching.
