When it comes to prepaid rent, you probably only consider the potential negatives. However, did you know there are positive aspects to allowing your tenants to prepay their rent?
While you should keep in mind that there are both pleasant and unpleasant factors to accepting the money upfront, it's a golden find when you have an eager tenant willing to part with a lump sum to secure your San Antonio investment properties. Read on to learn more about what faces you as a landlord who accepts prepaid rent.
A tenant may wish to prepay to secure your property, especially with bad credit. A background check should be done on every tenant, including those who offer to prepay for any length of time. While you may think that many tenants who offer to prepay are trying to avoid the background check, tenants with bad credit who offer to pay upfront are not necessarily a red flag.
Some prospective tenants may be out of work for a while and have a lump sum that they can use to secure a home, despite their employment status. Occupations such as oil field workers are laid off for months at times but have a reserve of cash to use to get by on.
Many tenants also choose to prepay because they need to get into a property quickly. A person who takes an out-of-state job may need to find a place to set up with very little time to look. They may offer to prepay as a way of speeding up the process. It's challenging to judge case by case, but some tenants just want to secure a new home for themselves.
In other cases, tenants may know that they poorly manage their money and are looking to prepay so that they don't have to worry about their rent down the road. Tenants such as these can be excellent to have, as they tend to stay in your property until what they've paid for expires.
How Does Prepaid Rent Benefit You?
When a tenant prepays, you know that you have that investment property locked down for the foreseeable future. You won't have to worry about receiving payment on time every month, and will have the cash in hand as soon as the tenant pays. Use your discretion, and if your accounting adds up, consider allowing the tenant to prepay. You will have the money to pay your mortgage (if applicable) and the profit on top all at the same time.
Money earned from prepaying can be used to expand your investment property business, such as a down payment on a new holding. This money could also be applied to other expenses, such as hiring an expert property manager in San Antonio to help you manage your growth or to fund updates on one of your current properties. The advantages of one lump sum upfront are endless!
Terminating a Lease
None of us want to terminate a lease early—but sometimes it's the only option. Evicting a tenant is a process that can be taxing on both your time and money, especially if the tenant prepaid for any length of the lease. When going through the eviction process, the last thing you want to do is give money back to the tenant to refund any rent that they prepaid.
If a tenant has violated the lease agreement, and the only option is eviction, you should still go through with it even if they have prepaid. If you turn your head to any behaviors which violate the lease, you run the risk of further problems down the road. This may make you reconsider prepayment, but it shouldn't if you have an airtight lease. If you're concerned about advanced payments and your leasing terms, discuss your lease with your attorney or a trusted property manager.
The Bottom Line
It is important to remember that any prepaid rent is held by you for a service that has not been provided until each month rolls around. You still have a duty to maintain the property and keep in touch with your tenants. Happy tenants make for a successful investment property business!
Trust your instincts; there are good reasons and bad reasons to allow a tenant to prepay. Consider tenants on an individual basis, and if your gut tells you that it is okay, then go with it! You are the final word on how things are done in your investment properties.
If this all seems like too much, and you are overwhelmed by the process, consider hiring a local property manager. With a property manager at your side, you will never have to worry about the pros and cons of prepaid rent. Your property manager will take care of everything for you—while you reap the benefits of owning multiple investment properties.
At Real Property Management Campanas, we also know that knowledge is power. Regardless of how long you've been investing, we put together a helpful guide to help you continue building your property empire. Download your free copy of "Real Estate Investing: Grow Your Portfolio," and experience the difference that working with seasoned property management makes for your investments!