Why would someone want to pay for a year's rent upfront?
August 27, 2017 4:42 PM   Subscribe

I am landlording for the first time -- with the help of an established property management company -- and they tell me that they have found a family who wants to rent my house, but the family wants to pay a year's rent upfront. I'm delighted to have a renter, but I'm just paranoid enough to try to figure out if this is some sort of tenant scam.

It just seems weird to me ... why would someone want to do that? Is this the first step in some classic tenant/landlord scam that I don't know about?

The house is offered as a long-term (e.g. not Air B&B) rental, and I'm looking for a standard 12-month lease with options to continue if they want to keep living there. The house is nice but not posh, the price is aligned with average costs, and the market there is normal in terms of what's available ... we're not talking about a NYC-style situation where people scratch and claw to find a place to live.

Could there be some tax implication here (either for the renter or for me) that I don't realize? I have never been a landlord before and haven't rented property myself in 15+ years.

The property management company is a longtime, well-regarded member of the business community in a city small enough that a bad reputation would get around quickly. I have no concerns that they are involved in anything shady.

Can someone either validate my paranoia or tell me to take a pill?
posted by mccxxiii to Work & Money (43 answers total) 1 user marked this as a favorite
Did you ask the management company if they've seen this before?
posted by Night_owl at 4:44 PM on August 27, 2017

I suspect they have limited/no/bad rental or employment history. If you do your homework and they have good references, etc, I'd think your biggest concern might be getting them out at the end if they aren't working or something like that and that's why they want to pay up front. (Not really the best idea in that situation, but I can understand why someone might want to make sure they have a roof over their head for as long as possible and worry about the rest later)
posted by wierdo at 4:47 PM on August 27, 2017 [10 favorites]

Maybe someone is going to pay the rent for them and wants it done up front to you rather than via the new tennants (if they don't trust them to manage their money).
posted by kitten magic at 4:49 PM on August 27, 2017 [11 favorites]

I did this once to negotiate a rent decrease and once because we didn't meet the apartment complex's minimum income thresholds. Interest rates are low, so if your tenants have the cash and don't want it locked away for more than a year, why not?
posted by OrangeVelour at 4:51 PM on August 27, 2017 [4 favorites]

Obviously you can background check them, but I know two people who have done this and it was just a failsafe situation - one had just inherited some money and was just kind of jittery in the wake of the inheritance and preceding situation that led to it, the other got a grant twice a year and just wanted to make sure rent was taken care of before anything else happened.
posted by Lyn Never at 4:56 PM on August 27, 2017 [9 favorites]

They're probably just trying to make sure you know they're good for it. Perhaps they have bad credit or some other problem that can make it hard for them to find a place, but they've found themselves in a position where they can just say "Look, we can pay, here's the money, you can have it." I wouldn't be too worried; I'd actually be pleased not to have to be concerned about the possibility of them suddenly not paying rent at some point during the lease period.
posted by Anticipation Of A New Lover's Arrival, The at 4:57 PM on August 27, 2017 [5 favorites]

If it's a scam (and it's not obvious to me that it is, for the possible explanations cited above), it's probably a bad check. They move in, establish tenancy, place themselves under the tenant protections of the local law, and the check bounces. I have heard of this happening, but it was a long time ago and I don't have a citation.
posted by Bruce H. at 5:08 PM on August 27, 2017

...the other got a grant twice a year and just wanted to make sure rent was taken care of before anything else happened.

One of my college friends was in this situation. She even negotiated with the utility companies to pay ahead a lump sum on her bills so she wouldn't have to worry about them for months, in addition to paying the whole year's rent.
posted by The Underpants Monster at 5:11 PM on August 27, 2017 [3 favorites]

Returning quickly to add ... I have emailed the management company the same questions I'm asking here, just wanted to offer this up to The Crowd for ideas. And I won't do this unless it's a cashier's check or wire transfer.
posted by mccxxiii at 5:17 PM on August 27, 2017 [1 favorite]

Oh, take their money, just make sure it's drawn on a US bank and hold it for a week or two to ensure it clears. Or pay a not-so-small fee and use a service like Ingo that guarantees the funds.

Cashier's checks can (and often are) forged, and even wire transfers can be clawed back if the money is still in your account. (and even then, you just get a nice returned item fee and a negative balance). Absent you personally witnessing them having a cashier's check issued from their bank, cash is about the only thing you can count on, and even then you could be passed counterfeit bills.

I don't say this to discourage you, just to be realistic about the risks.
posted by wierdo at 5:26 PM on August 27, 2017 [1 favorite]

Cashier's checks are easy to fake, just FYI. I wouldn't think the bad check scam would be a great idea on their part--presumably the check would bounce before they moved in, and even then, I don't think they can magically establish tenancy AND avoid felony charges (or whatever bouncing a check that large would be).

My guess is it's to show that they're good for it.
posted by Slinga at 5:27 PM on August 27, 2017

I've had to use a property management company only briefly, but isn't this why they're there? They collect the rent, assume the risk of nonpayment, and assume responsibility for recovery in the case of a bad actor?

You're paying them to spare you some of this anxiety. Rely on them.
posted by Emperor SnooKloze at 5:31 PM on August 27, 2017

My best guess would be they have bad credit or some other thing they think a landlord would "ding" them for and not want to rent to them, so they're doing this to guarantee you'll get your rent payments.
posted by rainbowbrite at 5:33 PM on August 27, 2017

I did this once, when we'd gotten a windfall. We saw a nice place that we liked, and paid the year's rent up front.
posted by Marie Mon Dieu at 5:44 PM on August 27, 2017 [2 favorites]

I'm a small time landlord, and my last tenant paid a year up front for a discount. He also had bad credit. But otherwise, he was fine.
posted by kimdog at 5:49 PM on August 27, 2017 [2 favorites]

A friend of mine did this - they had $$,$$$ in the bank from the sale of their house, but no rental history because they'd been living in a house they owned for the past several years.
posted by Murderbot at 5:51 PM on August 27, 2017 [3 favorites]

Is it harder to evict them if necessary if you've cashed their full payment?
posted by kapers at 6:05 PM on August 27, 2017

Be super careful about references. It's odd, but not an obvious scam.
posted by theora55 at 6:27 PM on August 27, 2017

What I think is outrageous is that the management company passed on this "offer" to you without explaining the rest of the applicant's situation! I don't think this management company is great! They are not doing their job!!

Undoubtedly there is bad credit, a bankruptcy, or some other reason. The management company either knows the reason or they should be asking for a reason and passing on the answer to you so that you can evaluate the situation completely.

No to the tenant because you don't have enough info. Fire the management company because they literally are not showing the basic skills required to execute their end of the contract. You should not have to ask why, the management company should have given you that information. Tsk tsk. No. Do not engage further, this is how bad tenant experiences start.
posted by jbenben at 6:38 PM on August 27, 2017 [9 favorites]

In my jurisdiction, it would not be harder to evict a person who had paid rent in advance for lease violations (although obvs. not for nonpayment of rent) but you would be counter-sued to refund the pro rata portion of rent. I imagine that would be pretty standard. That is something you could ask your property management company or local landlord-tenants rights group. They might know if this is a common scam in your city, too.

Your basic residential lease is drafted with an annual rent, payable in 12 installments due on the first on the month and late after X date. It's not common, but not too unusual to have tenants pay a whole year in advance, for the various reasons cited in the thread.
posted by crush at 6:40 PM on August 27, 2017

I just want to clarify that there is nothing wrong with paying up front, the problem is that the application is tainted by the mismanagement of the process via the management company. If they started telling you now that the applicant has a great credit history, good references, etc - I would have to see the app myself, see the credit check, call each reference + verify employment myself, etc..

I can't understand how this was communicated to you in such an unprofessional manner, in your shoes I would not trust anything from this management company. Is a new trainee communicating with you? That's still a bad sign, but maybe you could overlook it if the applicant otherwise checks out. Trust has been damaged between you and the firm you hired. Proceed with caution, double check everything. Better yet, hire a new firm that can do the job correctly without babysitting.
posted by jbenben at 6:53 PM on August 27, 2017 [1 favorite]

When I was in college, I paid my rent several months in advance. The reason was that my student loans would be deposited in my bank account at the beginning of the semester, so I'd have it all then. I would have rather paid while it was there than wait a few months until I may have spent it. One landlord asked me to write separate checks for each month, dated for the first of each month, to avoid the pro-rated return issue.
posted by kevinbelt at 7:04 PM on August 27, 2017 [2 favorites]

My parents did this when they rented a house after selling one, because they had no rental history and no jobs but they did have the money from the sold house -- basically, this was their way of proving that they could pay rent, in addition to good credit and a positive background check.
posted by linettasky at 7:07 PM on August 27, 2017

Guys, I really have no beef with the management company right now. To clarify further: They sent me an email late Friday afternoon that said "we have a very interested renter but they want to pay for a year upfront, they are filling out the application over the weekend, just wanted to check and see if this is a deal-breaker for you before we move forward."

They are doing their jobs. They are communicating with me just fine ...they will tell me more after they get the completed rental application. I wrote back and asked them the same questions I'm asking here, but I think it never hurts to seek out a variety of opinions.

Glad to hear people suggest various reasons that I wouldn't have thought of for this situation. I shall certainly proceed with caution in any case ...
posted by mccxxiii at 7:25 PM on August 27, 2017 [6 favorites]

My neighbors did this because they had enough cash to afford it and they were bad at sending in their rent check every month because of frequent travel and forgetfulness. Better to pay it upfront than to have to pay late fees a few times a year.
posted by goatdog at 7:26 PM on August 27, 2017 [2 favorites]

A friend of mine just did this. Her husband died, she got some money from life insurance, she's got a lot to deal with, and not having to remember to write rent checks for a year sounded really appealing.
posted by crotchety old git at 7:39 PM on August 27, 2017 [1 favorite]

My brother in law just did this because he and his partner were both between jobs, but he has some substantial assets in the bank (from what I understand). He wanted to show that they could definitely pay for the duration of the lease.
posted by cabingirl at 7:40 PM on August 27, 2017

A friend of mine who lives in a rent-controlled apt that is super cheap for him does this. Every year.
posted by vignettist at 7:55 PM on August 27, 2017

If I had the money available I'd pay my rent a year at a time just because I'm stupidly forgetful and late rent is not the kind of mistake that people keep forgiving you for.
posted by bunderful at 8:21 PM on August 27, 2017

I was arrested and charged with things my ex did with my tools because nobody but me could believe she was capable of doing that much damage. She'd left tools behind. Charges were dropped but the arrest would come up on the kind of background check service small companies use and there was nothing I could say to convince them that I was not a bad person so I went the appeal to greed bird-in-the-hand "I'll pay the whole year now. I did not do that" route and it worked and over time the landlord stopped treating me like someone who was going to turn it red and bring the sky down upon them.

So I would not assume anything.
posted by Mr. Yuck at 9:08 PM on August 27, 2017 [1 favorite]

One of the other legitimate reasons people do this is for tax purposes. This only benefits me on business premises, but others have different arrangements, such as family trusts for example. I tend to prepay business rent by 6-12 months depending on cash flow.

Given that there seem to be plenty of non-scam reasons for making the offer, I would proceed with caution and rely on the management company to vet the tenant and advise you of possible risk. It shouldn't be too difficult to find out why they've offered and it seems reasonable to ask.
posted by mewsic at 9:35 PM on August 27, 2017

I once offered this -- I'd received an inheritance, and really really wanted the place, and wanted to go back to school and wasn't working and had no plans to look for a job, so that was my 'look, I know I don't look like a great credit risk, but maybe a huge cheque might make me a bit more attractive than others vying for the place?' gambit.

(I didn't get it; I think they got skittish too. But those were my reasons: hey, I really want this, would you give it to me for a big cheque you can collect interest on right now? Don't I look like at least a kinda nice tenant now? Please?)
posted by kmennie at 10:04 PM on August 27, 2017

after 8 years in europe left me with no work or credit history in the US but an enormous amount of money, the first apartment i rented upon my return to nyc was paid for the full year in advance.
posted by poffin boffin at 10:18 PM on August 27, 2017 [1 favorite]

Popping in also as someone who - after 8 years abroad returning with no (American) credit to speak of and no job as of yet (yay, moving home mid-economic downturn) - paid 6 months up-front into an escrow account belonging to my landlord in order to secure the lovely apartment I wanted despite (on paper) looking like a bad tenant. I was gainfully employed and building credit within 6 months. I had, incidentally, offered a full year, but my landlord preferred I not do that (I believe on legal advice, but I'm not sure what that advice was now). This was 8 years ago, and I lived in that apartment for 7 years.
posted by pammeke at 6:12 AM on August 28, 2017

My sibling did this after our mother died and left them a small amount of money. They work in an industry with a long slow season and unpredictable paychecks during the other months. This eased their stress level to know they didn't have to worry about making rent in the tight months. They also were new to the area and did not have a great credit history. The landlord ended up discounting the rent too.
posted by maxg94 at 6:32 AM on August 28, 2017

Assuming this is all legit. I would suggest placing the years payment in an separate escrow account, removing monthly payments. This way if you should have to do a prorated refund you will have those funds on hand. They many want to used the payment upfront as a way to negotiate a lower rent. If possible you may want the payment deposited and cleared prior to them moving in.
posted by tman99 at 6:52 AM on August 28, 2017 [1 favorite]

My brother-in-law is in this situation now. He is a consultant whose income is variable, and is without a permanent, steady job at the moment. But they have the cash to pay and would be good tenants, so they make the "whole year up front" offer when they encounter landlords who are skeptical about their creditworthiness.
posted by AgentRocket at 6:54 AM on August 28, 2017

A friend of mine did this when she moved. They sold their house, and she didn't have a job, so she found a nice place to live by paying a full year of rent in advance.

I also know a student whose trust paid her rent for a full year, so they didn't have to bother with multiple disbursements.
posted by dancing_angel at 8:57 AM on August 28, 2017 [1 favorite]

I was a stay at home mom, with no income, when I left my husband. I offered to pay a years rent in advance to show that I was a qualified applicant and worth taking as a tenant.
posted by jennstra at 10:29 AM on August 28, 2017

I had a tenant who did this and it was because he had bad credit. I felt sorry for him. and he turned out to be an asshole and stole everything from a furnished house.

Watch Pacific Heights
posted by cda at 11:55 AM on August 28, 2017 [1 favorite]

I know someone who does similar things because she's terrible with money and knows it's best if she gets it to where it needs to be before she spends it.
posted by The corpse in the library at 12:10 PM on August 28, 2017

I've done this as a full-time student who didn't have enough verifiable income coming in to meet rental requirements (ie: monthly income 3x greater than the monthly rent). I offered to pay the full year lease up front instead.
posted by stubbehtail at 5:10 PM on August 28, 2017

I have friends who did this when they relocated and had cash from the sale of their house. They're terrible with money so it was the best way for them to ensure their most important expense was handled for a whole year.
posted by masquesoporfavor at 10:48 PM on September 9, 2017

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