Rent Paid in Advance

[Brett IP]

Good Afternoon

Just thought I would ask what sort of discounts people have given for rent paid 6 or 12 months upfront in advance, if any at all?

I have an IP available for rent at $440/wk and some applicants have offered to pay a full 12 months immediately at $410/wk, so $21320. This chunk of money sitting on my residential home loan would save me more on interest than the $30/wk loss in rent.

However, it kills the ability to up the rent in 6 months, would kill me with income in this FY and if I dont like the tenants im stuck for 12 months.

Not willing to take that risk, I have offered 6 months upfront at $430/wk and thats it. Anyone had offers like this?

 

[porp_e]

Hi BrettIP

I personally haven't had any experience with this but am just wondering what would happen if the tenants turn out to be a nightmare and need to be kicked out? Would it complicate matters given they had paid that far in advance?

 

[Alabex]

When working in realestate we had it all the time.... some things to bear in mind.

a) your property managers fees are probably "on rent collected" if they collected the 21k they will take the entire years management fee at once.

b) keep some money aside for repairs and bills if you cant readily access it from your loan - or get your PM to hold onto some for this purpose

c) the tenants tend to be a little bit more demanding with repairs etc - a bit of "i have paid 20k in rent, fix my tap, give me new carpet, paint the place etc etc"

 

[alplant]

Yep, we had an applicant offer six months up front and at the asking price, no discount asked for and none offered.

The situation was a little different though. They were the only applicants we got (not that they knew that I suppose) and the PM advised against accepting them. They had been recommended by the previous tenants who were less than ideal themselves, always in arrears, and eventually we had enough and didn't renew their lease. They had been there four years and the rent had been increasing in line with the market (actually a little under market) but it got to a stage where they just couldn't afford it anymore. They also didn't really need a house as big as this one any more either. But given all those circumstances they left without any dramas and then recommended the place to friends coming from another state. I guess because the friends knew what had happened with the previous tenants they offered an up front payment in the hope of over riding any prejudice we might have because of the friendship.

Anyway long story a bit shorter, we accepted them on a three month trial (paid up front) because of the situation and the fact that they had no references, and then renewed their lease for a further six months (not paid up front), and are about to renew their lease for another six months. They continue to pay three or four weeks in advance, even though they don't have to, and have turned out to be reasonably good tenants now. They were a little demanding at first, but that has settled down now.

 

[alplant]

Yep, we had an applicant offer six months up front and at the asking price, no discount asked for and none offered.

The situation was a little different though. They were the only applicants we got (not that they knew that I suppose) and the PM advised against accepting them. They had been recommended by the previous tenants who were less than ideal themselves, always in arrears, and eventually we had enough and didn't renew their lease. They had been there four years and the rent had been increasing in line with the market (actually a little under market) but it got to a stage where they just couldn't afford it anymore. They also didn't really need a house as big as this one any more either. But given all those circumstances they left without any dramas and then recommended the place to friends coming from another state. I guess because the friends knew what had happened with the previous tenants they offered an up front payment in the hope of over riding any prejudice we might have because of the friendship.

Anyway long story a bit shorter, we accepted them on a three month trial (paid up front) because of the situation and the fact that they had no references, and then renewed their lease for a further six months (not paid up front), and are about to renew their lease for another six months. They continue to pay three or four weeks in advance, even thought they don't have to, and have turned out to be reasonably good tenants now. They were a little demanding at first, but that has settled down now.

 

[Brett IP]

Thanks everyone

I just find this a strange offer thats all. Why would you want to hand over all that money, though I guess in this case its to try and get a discount.

 

[tobe]

If the idea is to sit the money in your offset account to reduce interest, the maximum discount you would consider would be less than the interest rate you are paying the bank. if the property is negatively geared, the minimum discount would be less again, depending on your tax rate.

 

[ozsupra]

We took a 12month up front payment from an overseas tennant a couple of years ago. Their property manager (yes, the tennant had one) convinced us to take $20 less per week. I believe a third party was footing the bill. Paid in cash. No issues, worked out fine. (probably proceeds of crime)
A.

 

[the_captain]

I would never do it. IMHO there is no upside for the landlord in this type of arrangement. I have been asked twice to do it. Both wanted a significant discount.

I also rejected both requests for a pay by the month tenancy, why? Because, my reasoning was that they wanted a discount, so would not be able to or want to pay the full asking price month to month, and having a lump sum, means that they may not be able to continue to pay on a month to month basis after the money runs out.

YMMV