Should landlords accept rent payments in advance?

Advance rent payments are when tenants pay for future months of rent ahead of time. For any landlord, a tenant offering to pay their rent in advance may sound like a dream come true. However, there are potential downsides to consider before you accept the payments.

In this guide, we explore the pros and cons when landlords accept rent payment in advance, helping you choose what’s right for you.

What is considered an advance payment?

An advance payment is when a tenant pays more than 30 days of rent before the payment is due. Any payments that cover more than one month’s rent are considered advanced rent, whether the tenant offers two month’s rent or a whole year’s rent. 

The pros of accepting advance rent payments

A tenant offering advanced rent payments can be very appealing. We explain under which circumstances accepting these payments might be an optimalchoice for you: 

Security buffer for tenants that can’t provide proof of income

When screening potential tenants, one key factor to look at is their financial stability. For tenants with an irregular income, it can be a concern to enter into a lease with them. These types of tenants may then offer advance rent payments to give you confidence in their financial stability or ability to pay rent on time.

When landlords accept rent payment in advance in this situation, they gain a financial safety net. It ensures that rent is covered even if the tenant’s income is inconsistent. This reduces the risk of late rent payments and gives peace of mind.

Simplify rent collection

If you are not using rent payment software, collecting rent can be a time-consuming process. Keeping track of who has paid and chasing tenants for outstanding payments requires constant follow-up and meticulous record-keeping.

Accepting advance rent payments can simplify this process for you. With rent already paid upfront, you don’t have to worry about monthly collections. This frees up your time and reduces administrative work.

Tenants also benefit from paying their rent in advance. They won’t need to remember to make monthly payments, reducing their stress about late payment fees. You can also use this offer as a marketing tactic to attract new tenants to your property, helping keep your vacancy rates low. 

Cover extra rent for tenants with no rental history

Another aspect to look for when screening a potential tenant is their rental history. Tenants without a rental history can be a concern for property managers, making it challenging for them to find a place to stay. They may offer advance rent to demonstrate their reliability and commitment.

Accepting advance rent payments in this situation can be beneficial for you. It provides financial assurance and reduces the risk associated with renting to someone without a rental history. This approach can help you feel more confident in approving such tenants.

The cons of receiving upfront payments

Despite the benefits, there are also downsides to accepting advance rent payments. 

Rent advances are not allowed everywhere

In general, it’s best not to demand advance rent payments. If a renter proposes advance payment, your ability to accept such a payment will depend on your state and local laws. For example, some areas may only allow the first and last month’s rent to be collected in advance and may have specific rules on where to keep the money.

To manage this, you should familiarize yourself with the rental and other fair housing laws in your state. Understanding these regulations will help you avoid any legal issues. Consulting with a legal professional can also ensure you stay compliant.

No chance to increase rent

Typically, landlords can increase rent at a rate specified in the lease agreement. If you accept advance rent payments, you might miss out on adjusting the rent to cover property improvement costs or compensate for shifting economic conditions. This could result in lost potential income over time.

To handle this, consider setting shorter advance payment periods, like six months instead of a year. This allows you to more freely reassess and potentially adjust the rent when appropriate. Including specific clauses in the lease about rent increases can also prevent this from being an issue.

Alternatives to accepting rent in advance

If accepting rent in advance isn’t ideal for you, there are other ways to mitigate risk and ensure consistent payments from tenants who have irregular income or no rental history. 

Require a guarantor

A guarantor co-signs the lease and is responsible for rent if the tenant defaults. If the tenant fails to pay, you will still receive your rent payments. This can provide an extra layer of security, especially for tenants with a poor credit history or unstable income. 

Request a larger security deposit

Increasing the security deposit can help cover potential damages or missed rent payments. This method can provide a financial cushion, reducing the risk of loss. As always, you should consult a legal professional to ensure you’re in compliance with state and federal laws to avoid legal issues.

Offer shorter lease terms

Short-term leases, like month-to-month agreements, allow you to reassess and adjust rent more frequently. This flexibility can help you respond to market changes and tenant reliability. It also provides an easier exit strategy if the tenant becomes problematic.

Split payments

Offering split rent payments can make it easier for tenants to manage their finances. This method allows tenants to pay rent in smaller, more manageable instalments throughout the month. It can reduce the likelihood of missed or late rent payments, making it a beneficial option for both you and the tenant.