On the surface, paying rent in advance may seem like a win-win scenario for both landlord and tenant; the tenant secures a property they’re keen on (which they otherwise may not have secured), and the landlord receives a chunky lump-sum, not having to worry about the prospect of rent arrears in the near future.
However, before you decide to stump up a small fortune, perhaps there’s reason to err on the side of caution!
First and foremost, I should probably make it clear that tenants willing to pay rent in advance is particularly uncommon (for the obvious reasons). At least, from my experience it is.
Over the last decade I’ve only had one tenant offer to do it, and he was my second ever tenant if my memory serves me correctly (which it usually doesn’t). Either way, it was donkey’s years ago. But it happens.
Why tenants should think twice before paying rent in advance!
Whilst paying rent upfront may initially seem like a great way of securing a tenancy for a rental property in high demand (for example), there is an obvious pitfall in the tactic!
What happens if the landlord ends up being lousy. For example, if s/he doesn’t make necessary repairs? THEN WHAT?
You’ll essentially be stuck in a property managed by an asshole landlord that you don’t necessarily want to occupy longer than necessary, and you’ll have little leverage. Not that withholding rent in cases of disrepair is encouraged or legal, but you know what I mean.
The landlord at this point will literally hold all the chips. Not a nice position to be in. I can guarantee that you will feel sick to the stomach having paid so much rent in advance to an utter douche-bag.
While you have the grounds to venture down the legal route and seek compensation if your landlord fails to meet his or her legal obligations, it’s still a whole bunch of hassle. I think the reality is, you would rather have not paid so much rent in advance.
So yeah, that’s definitely a point to be wary of.
If you decide to pay rent in advance!
To clarify, I’m not trying to encourage or discourage anyone from paying or accepting rent in advance! I just want to make it clear that it’s not an infallible plan, even though it can easily disguise itself as one.
I completely understand why some tenants proceed with paying rent in advance:
- If a property is incredibly desirable with plenty of demand, paying rent in advance could be the tipping point that encourages the landlord to let the property to them.
- It helps some tenants manage their finances, knowing they don’t have to worry about paying rent every month.
- Some people just don’t like to be in debt.
I definitely get it.
If you’re adamant on paying rent in advance, allow me to suggest the following:
- Do your due diligence on your prospective landlord! Here’s a blog post all about how to find a good landlord.
- Think carefully about how much rent you want to pay in advance. You may want to limit your risks by handing over too much leverage.
- Your tenancy agreement should clearly state how much you paid upfront and for how long it covers.
- Pay the rent electronically so there is proof of transfer! Do NOT pay in cash.
Why Landlords should think twice before accepting advanced rent
I was initially going to only highlight the dangers of tenants paying rent in advance. But the reality is, there’s also reasons for landlords to be cautious. So I should probably discuss that, too.
Having a tenant pay a huge chunk of rent upfront should be every landlords wet-dream. I’m salivating just at the prospect!
However, you know what they say. If it sounds too good to be true…
That said, it’s not particularly surprising that tenants paying rent in advance has been a common sign of foul play; some tenants do it for toxic reasons:
- The tenant doesn’t want to be disturbed because they’re partaking in illegal activity in the property. For example, criminals renting properties to harvest cannabis farms has become a growing trend.
When a tenant pays so much cash upfront, there’s usually very little reason to contact them. You can also assume that if the tenant is up to no good, reporting any maintenance issues isn’t going to be at the top of their agenda.
- The tenants have AWFUL rental history, so the offering of large some of cash is a diversion.
I’ve accepted rent in advance from a tenant!
Yup, I did it.
Being wiser and more experienced, I’m not sure if I would do it again. But maybe I would, I guess it would depend on the circumstances.
I remember feeling excited when my tenant paid 12 months upfront, at the time. I grabbed the money out of his grubby little mitts like he was holding crack and I was an addict looking for my next hit! GIMME!!!
I don’t even remember considering any of the risks (I definitely won’t be that foolish again) – I was too busy feeling overwhelmed knowing that my mortgage would be paid for the next 12 months. I felt safe.
I’m pretty sure most landlords would feel the same. Only natural.
Fortunately, it worked out just fine for me! I didn’t have any problems. So obviously it can work out wonderfully.
If your tenant wants to pay rent in advance…
If I was approached again by a tenant willing to make it rain on me, I would do the following (and recommend that other landlords in the position to do the same):
- Ensure thorough referencing is conducted. Getting references from past landlords would be a critical component of that process.
- Understand the reason for why the tenant wishes to pay in advance. In my case, my tenant said he doesn’t like to be in debt, and prefers not having to worry about rent each month. Fair enough.
- Definitely take a deposit (I say this because it might be easy to side-step a deposit if rent is paid in advance).
- There has been legal complications with taking rent in advance (Johnson v. Old) - the issue was that the advanced rent was deemed as a "deposit", and the landlord was facing heat for not securing the deposit (because obviously the landlord thought it was rent, so didn't see any need to secure it in a deposit scheme).
To avoid any confusion, make sure it is clear in the tenancy agreement that rent has been paid in advance. Specify the amount and the duration it covers. Also, make it clear how much was taken for the deposit! It's critical to make the details clear.
- Conduct regular quarterly inspections to ensure the property is being taken care of properly.
- Only accept the rent electronically so there is proof of transfer! Do NOT accept payment in cash. Criminals tend to prefer cash.
Right, so that’s a wrap. It’s been a blast.
If anyone has any stories to share regarding paying rent in advance, please share…
Disclaimer: I'm just a simple landlord blogger; I'm not qualified to give legal or financial advice. Any information I share is my opinion based on my personal experiences as an active landlord, and should never be contrued as legal or professional advice. For more information, please read my full disclaimer.