Hi All,
I just wanted to share my recent experience that relates to a landlord accepting rent up-front, and share a general warning regarding this common practice.
When people apply for properties through our agency, they often will ask if the owner would be likely to accept their application instead of others, if they offer to pay for the entire 6 month/12 month lease upfront. It is our practice to tell them that it is unnecessary, and the best tenants are the ones who pay on-time, every time.
Recently we signed up a tenant who had offered to pay the balance of rent for an 8 month lease upfront (had just sold their PPOR) around $21,000. The owner was very excited at the prospect of a windfall, which allowed them to do renovations to a second IP.
After 1 month, the tenants who had paid rent upfront decided to break their lease. They paid the fees, and did everything by the book. When a new tenant was found, they expected their rent back ($19,500). The owner had spent their rent money, and had no way of giving it back. The owner wanted to pay them back weekly, as much as they could afford. Went to QCAT, the owner was given 30 days to pay, were over-committed, couldn’t draw down their other loans, and ended up having to use cash-advance on their credit cards. Not a cheap option.
Taking rent up-front is fine, as long as you have the capacity to pay it back very quickly if you need to. Keeping it in a savings account is the obvious solution, and relying on that advance money to do renovation work is ill-advised.
Also – many of our clients are first-time investors, and don’t realize that if a tenant pays rent 12 months in advance in June 2011, it will affect their tax. You don’t want to be caught in the trap of having an artificially inflated rental return one financial year and then getting nothing the next.
I just wanted to share my recent experience that relates to a landlord accepting rent up-front, and share a general warning regarding this common practice.
When people apply for properties through our agency, they often will ask if the owner would be likely to accept their application instead of others, if they offer to pay for the entire 6 month/12 month lease upfront. It is our practice to tell them that it is unnecessary, and the best tenants are the ones who pay on-time, every time.
Recently we signed up a tenant who had offered to pay the balance of rent for an 8 month lease upfront (had just sold their PPOR) around $21,000. The owner was very excited at the prospect of a windfall, which allowed them to do renovations to a second IP.
After 1 month, the tenants who had paid rent upfront decided to break their lease. They paid the fees, and did everything by the book. When a new tenant was found, they expected their rent back ($19,500). The owner had spent their rent money, and had no way of giving it back. The owner wanted to pay them back weekly, as much as they could afford. Went to QCAT, the owner was given 30 days to pay, were over-committed, couldn’t draw down their other loans, and ended up having to use cash-advance on their credit cards. Not a cheap option.
Taking rent up-front is fine, as long as you have the capacity to pay it back very quickly if you need to. Keeping it in a savings account is the obvious solution, and relying on that advance money to do renovation work is ill-advised.
Also – many of our clients are first-time investors, and don’t realize that if a tenant pays rent 12 months in advance in June 2011, it will affect their tax. You don’t want to be caught in the trap of having an artificially inflated rental return one financial year and then getting nothing the next.
