OMG - Our Tenant is Ahead in their Rental Payments

[SYD]

We self manage one of our RIPs. The Tenant has been in the property long-term and has been consistently late with paying the rent. At one stage it got so bad we were one day away from a tribunal hearing due to non-payment of the rent.

For many years the Tenant would say things like "I want to get 3 months ahead" or "I'm going to pay 5 weeks rent every month so I will will get ahead".

I would keep reminding them about their obligations. Also on their rental statement I would record Date Rent Due, Date Rent Paid and Number of Days Late as a further reminder. The Tenant would just pay 4 weeks rent every month but not realise why they were falling behind.

But something has changed around six months ago.

The Tenant started to pay a bit extra each month. We started to receive 5 or 6 weeks rent each month. It is now got to the stage where the Tenant is now 10 weeks in advance.

We are as happy as Larry about the change in the rent payment situation. The only downside is I need to budget so that the money is not spent too quick.

So I'm wondering whether forumites have other stories about tenants changing their behaviour for the better.

SYD

 

[Bigtone]

We self manage one of our RIPs. The Tenant has been in the property long-term and has been consistently late with paying the rent. At one stage it got so bad we were one day away from a tribunal hearing due to non-payment of the rent.

For many years the Tenant would say things like "I want to get 3 months ahead" or "I'm going to pay 5 weeks rent every month so I will will get ahead".

I would keep reminding them about their obligations. Also on their rental statement I would record Date Rent Due, Date Rent Paid and Number of Days Late as a further reminder. The Tenant would just pay 4 weeks rent every month but not realize why they were falling behind.

But something has changed around six months ago.

The Tenant started to pay a bit extra each month. We started to receive 5 or 6 weeks rent each month. It is now got to the stage where the Tenant is now 10 weeks in advance.

We are as happy as Larry about the change in the rent payment situation. The only downside is I need to budget so that the money is not spent too quick.

So I'm wondering whether forumites have other stories about tenants changing their behaviour for the better.

SYD

it has happened to me a few times, only seems to happen in a very tight rental market when the tenant realizes they r on a good wicket and it would be hard to get another place now for that price let alone with a mark against name, if you r in inner west Sydney this is possibly the case on ur ip now.

Take Gladstone for example two years ago vacancy rate approached double figures and rents were dropping and arrears not good, now it is pretty much impossible to rent a place and payments are in immaculate order on my ip's.

human nature at work.

 

[Cdro]

Interesting tenants. My suggestion would be to try to get them onto a regular schedule of paying the same amount each month, so that they are always a month in advance. (Is that the condition in your lease agreement?) Or I'd just give back the amount overpaid each month.

IMO, although it's great that they're paying their rent, the overpayments could get tricky because:

• You need to keep track of their overpayments
• What will happen if they move out? You might end up having to pay them back a large amount. Unless you're both really clear on where they are up to, feels like potential for a dispute.
• You are effectively their savings scheme. It is nice for you to be 10 weeks ahead and have this money offsetting your mortgage, but really it is their money, and they should have the right to put it somewhere else and have earnings on the cash.

I am also not sure whether there would be any tax implications for you? I'm no tax expert, but I would be asking whether you have to pay tax on this income in the year that they pay it. If they then move out and you have to pay it back, I'm not sure if this is a tax deduction or not. Worth checking.

 

[SYD]

Interesting tenants. My suggestion would be to try to get them onto a regular schedule of paying the same amount each month, so that they are always a month in advance. (Is that the condition in your lease agreement?) Or I'd just give back the amount overpaid each month.

This is too complicated for the Tenant who thinks 4 weeks = 1 month. The rental agreement is payment of rent weekly in advance.

I would never consider refunding overpaid rent on a regular basis. Not a habit I want to start.

IMO, although it's great that they're paying their rent, the overpayments could get tricky because:

• You need to keep track of their overpayments
• What will happen if they move out? You might end up having to pay them back a large amount. Unless you're both really clear on where they are up to, feels like potential for a dispute.
• You are effectively their savings scheme. It is nice for you to be 10 weeks ahead and have this money offsetting your mortgage, but really it is their money, and they should have the right to put it somewhere else and have earnings on the cash.

Keeping track of the Tenant's payments is not a problem. It is something we do anyway. A list of the Tenant's payments is stored on the rental statements which we send to the Tenant on a regular basis. We have never had an issue with keeping track of the Tenant's rent.

If the Tenant moves out at the end of the lease we would simply refund any overpayment (subject to inspection). If the Tenant breaks the lease having rent in advance by 10 weeks gives us extra protection in case we don't find a replacement tenant within a quick time.

I also think it gives the Tenant some comfort being so far in advance. Investing in the Bank of SYD is not a bad thing. Previously the Tenant would seem to live week to week so it is good to see someone get their act together financially.

I am also not sure whether there would be any tax implications for you? I'm no tax expert, but I would be asking whether you have to pay tax on this income in the year that they pay it. If they then move out and you have to pay it back, I'm not sure if this is a tax deduction or not. Worth checking.

As the Tenant has paid rent to August we will have to declare and pay tax in the current financial year. It just means we wont have to pay the Flood Levy on this money.

SYD

 

[Cdro]

Fair enough, sounds like it works for both of you.

 

[antonio]

Fortunately have our tenants paying in advance and not having the problem of chasing rent
*hug tree* aka *touch wood*

This is a great reminder that the initial filter of prospective tenants is very important

Hope your tenants stay that way Syd!