It might seem like a dream come true: a renter wants to prepay six months (or even a full year) of rent to live in your Sarasota rental homes.
That's a no-brainer, right? They give you a lump sum of money, move in, and you don't have to worry about anything until it's time for them to pay again next year. That's a win—maybe.
We don't want to raise an unnecessary alarm, but investors should proceed with caution when a renter offers to prepay the rent for any amount of time. While in some cases, it can be a winning situation for you and your cash flow, in other instances, the influx of rent can be a renter's effort to skirt the rules.
Foreword: The following article is not a substitute for legal counsel. The information contained herein was current as of the time of writing. If you need immediate help with a pressing issue concerning your rentals, turn to a competent attorney or our Gulf Coast experts for real-time assistance!
When You Should
Sometimes, renters are truly honest: they offer to pay ahead on the rent because it works best for their finances or lifestyle. Maybe a renter travels often and doesn't want to miss a rental payment. By prepaying the rent, they don't risk a late payment or late fees—and you don't have to wonder if your resident is in town to pay the rent on time.
Even if a renter's (or potential renter's) offer to prepay the rent seems like a good idea, Sarasota investors must still follow best practices when choosing a new renter or accepting rent ahead of schedule.
Consider allowing rent prepayment when:
- A renter passes your screening process: Even if a potential renter wants to pay a year in advance, follow your tenant screening process and criteria. If an applicant passes the background check and meets your criteria, prepaying the rent is probably a safe way to go.
- You know the renter: Is a current resident offering to prepay the rent when they renew? If you know and trust a long-term renter, accepting prepaid rent can be a good decision.
- Your research supports the move: Does it feel like a safe situation? If you run the appropriate renter screenings and it seems like a way to build a good relationship with a renter, consider allowing the renter to prepay the rent if there are no red flags.
Accepting prepaid rent shouldn't be your usual mode of operation or something you readily offer. However, it can be okay under the right circumstances.
When should investors be wary of an offer of rent in advance? Here's what we think you should keep in mind as an expert Sarasota property management company.
When You Should NOT
Pay attention to red flags: If you have an established tenant screening routine, you already know some of the red flags to look for when choosing a new resident. Make this commitment to protect your investments: an offer of prepaid rent should never supersede your tenant screening process, renter criteria, or red flags.
Even if you're desperate for an influx of cash, it's better for your long-term investment success to deny prepaid rent when a potential renter:
- Doesn't want to go through the screening process
- Fails your screening process
- Doesn't have a job or any verifiable income
- Doesn't plan to live in your property as their primary residence.
If a background check shows that an applicant has terrible credit and bad rental history, they probably don't meet the criteria to live in your rental property—even if they hand over enough cash to cover the rent for several months.
Sometimes an offer to prepay the rent is a distraction technique from a 'Professional Tenant' or a potential renter with bad intentions (like criminal activities) planned for your Sarasota property.
Follow Your Rules—No Matter What
Whether a resident prepays the rent or pays month by month, apply the rules. Every resident must:
- Meet your criteria
- Sign a legal lease agreement
- Follow the rules of the lease
- Experience the consequences of lease violations.
If you're not sure about accepting prepaid rent, consult a Sarasota property management professional. We can help you analyze the situation and make sure a renter meets your criteria through a thorough tenant screening process.
Under the right circumstances, we can recommend prepaid rent and help you budget the cash to manage expenses throughout the year.
To Allow Prepayment or Not?
Ultimately, it's up to you when faced with the offer of prepaid rent. If it works well for your accounting and cash flow, the renter has a legitimate reason to prepay, and the funds (and background check) back it up, having the cash in your bank account can be helpful.
Gulf Coast Property Management is here for you as a professional Sarasota property management resource! Never risk uncertainty with a renter—no matter how they pay the rent. Red flags are worth considering, and no amount of prepaid rent is worth property damage, a bad renter, expensive legal battles, and future income loss.
Of course, this isn't the only way that working with property management services can help you grow your portfolio safely and securely. Learn more when you download your free copy of our guide to real estate investing in the Sarasota area!