You may have experienced a tenant wanting to pay a few months’ rent in advance. They may have the money on hand and want to make sure that they are set in paying their rental fees. You might think that it is an advantage since you got what you need earlier than expected. But before you accept any advanced payments, ask yourself why you should and whether or not it’s a real advantage?

Here are some reasons that would motivate a landlord to accept advanced payments:

• Rent collection made easy

Think about the time you would save if you have one less tenant to worry about. If you are a landlord with several properties, your time is very important and you need to manage that wisely. Constantly trying to reach a tenant who avoids you during rent due dates will drain your time and energy.

• Establish the property

When you create an appealing listing on online platforms like Padleads, you would expect that several applicants will get in touch with you after you syndicate your listing to popular rental websites. You might have a few applicants that are qualified but those who would offer to pay in advance to secure a property are most likely earnest to rent. It also means that the rent is insured and you won’t have to worry.

However, be careful not to accept applicants who have red flags in their applications just because they offered to pay rent in advance.

• Rental fees are covered

You might come across a tenant who is still in the process of looking for a job or could not provide any income documents. If they offer to pay in advance, it might be a good proposition because you need assurance that the rent will be settled.

We cannot predict when the tenant would be employed but at the very least, you will not have to worry about rental payments.

• Tenants without rental history

Consider accepting advanced payments from first-time renters with no rental history because they’ve just started to become independent and have left home. For the same reason as with an unemployed tenant, a landlord needs to be assured that they can pay the rental fees.

RISKS

You might have considered accepting advanced payments after learning the advantages but we’re not done yet. You should know that there are also risks to this kind of arrangement.

• Disobedience to landlord policy

If a tenant will commit a breach of contract, they might be subject to eviction. For instances like these, the landlord would have to return the advanced payment given by the tenant.

• Rate of rent cannot be increased

Some landlords will appraise their property annually and this could be their basis in possibly increasing their rental fees. If this happens, the landlord will not be able to solicit for additional rent since the payment has already been made based on the original rate stated in the lease agreement.

• Security deposit guidelines

Before you accept the payment, make sure that you research your state laws since they differ in some areas. Since security deposits may be considered as a form of advanced payment, your state might consider advanced rent as such, therefore it should be in line with the limitations set by law regarding the security deposit amount.

• Additional financial records

Remember to always check your state laws before you implement this. Some areas would require you to keep the advanced payment made in a trust and will only be transferred to your account when the due date for rent comes around.

ALTERNATIVES

There are alternative ways of ensuring that you get paid if you decide not to accept the advanced payment of rental fees:

• Ask for a cosigner

These are usually a parent or relative of the tenants that will be responsible for coming up with the payment if the tenant would be unable to pay the rent themselves. These are common for those who are renting for the first time.

• Rent guarantors

If the tenant cannot provide a cosigner, then you might want to consider a third-party rent guarantor. The tenant will pay for their services and in return, the rent guarantor will pay for the lease if the tenant fails to do so.

You may already have a system on collecting rent monthly which is working for you just fine. But if you want to consider accepting advanced payments, keep in mind these pros and cons.