Risks of Prepaid Rent?
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Risks of Prepaid Rent? (by Mark [NV]) Aug 10, 2010 7:12 AM
       Risks of Prepaid Rent? (by Laura [MD]) Aug 10, 2010 7:17 AM
       Risks of Prepaid Rent? (by 574-Brad [IN]) Aug 10, 2010 7:24 AM
       Risks of Prepaid Rent? (by John... [MI]) Aug 10, 2010 7:39 AM
       Risks of Prepaid Rent? (by Lynx [GA]) Aug 10, 2010 8:12 AM
       Risks of Prepaid Rent? (by Mark [NV]) Aug 10, 2010 8:43 AM
       Risks of Prepaid Rent? (by John... [MI]) Aug 10, 2010 9:03 AM
       Risks of Prepaid Rent? (by John... [MI]) Aug 10, 2010 9:08 AM
       Risks of Prepaid Rent? (by BRAD 20,000 [IN]) Aug 10, 2010 10:21 AM
       Risks of Prepaid Rent? (by reid [KS]) Aug 10, 2010 10:59 AM
       Risks of Prepaid Rent? (by Lynx [GA]) Aug 10, 2010 12:38 PM
       Risks of Prepaid Rent? (by Virden [OH]) Aug 10, 2010 12:45 PM
       Risks of Prepaid Rent? (by Natalie [CA]) Aug 10, 2010 4:44 PM
       Risks of Prepaid Rent? (by John... [MI]) Aug 10, 2010 7:20 PM
       Risks of Prepaid Rent? (by Chris [CA]) Aug 10, 2010 8:15 PM
       Risks of Prepaid Rent? (by Mark [NV]) Aug 11, 2010 6:29 AM
       Risks of Prepaid Rent? (by BRAD 20,000 [IN]) Aug 16, 2010 9:45 PM


Risks of Prepaid Rent? (by Mark [NV]) Posted on: Aug 10, 2010 7:12 AM
Message:

This is for a sfh on a 12 month lease in NV.

Have a prospective tenant who has offered to prepay 12 months lease payments in advance -- sounds good (too good??) to me!!

Says they are starting business and don't want monthly rent expense to show up in their financials...

Besides making sure this lump pre-payment is valid (cashiers check or money order), documenting acceptance, and delivering monthly statements showing draw-down of lump being applied to that month, what risks are there and what additional precautions would you take?

Thanks for your seasoned advice!

--75.15.xxx.xx




Risks of Prepaid Rent? (by Laura [MD]) Posted on: Aug 10, 2010 7:17 AM
Message:

Check your local laws, in Montgomery Co. MD it is illegal for the landlord to collect prepaid rent (there is a max to what you can collect). --71.191.xxx.xxx




Risks of Prepaid Rent? (by 574-Brad [IN]) Posted on: Aug 10, 2010 7:24 AM
Message:

I've done it, and I'd do it again. Specifically says in lease that I'm not waiving my right to evict for issues not related to payment. --66.228.xxx.xx




Risks of Prepaid Rent? (by John... [MI]) Posted on: Aug 10, 2010 7:39 AM
Message:

Can you do an actual one-year lease (i.e. not 12 months for a year -- but an actual single one-year agreement)? In Michigan, we would have to do that. Otherwise, all pre-paid monies like that would be seen as deposits -- and would therefore violate the law that says that the deposit cannot be more than 1.5x the monthly rent.

In any case, yes, I've done this -- in a situation where a guy had recently lost his job but had also recently won $20k playing Keno. I did a one-year agreement and he paid for it up front. Worked out well.

- John...

--207.241.xxx.xx




Risks of Prepaid Rent? (by Lynx [GA]) Posted on: Aug 10, 2010 8:12 AM
Message:

As in Brad above, I've done it and I will do it again. Be sure the lease or addendum states that you retain all rights of eviction for any other issues than nonpayment of rent, and that if you evict you will return all unused rent through the date of termination. One additional point: Unless you want to pay taxes on the whole amount, get two checks - one dated now covering payment through Dec. 31 and one post-dated for Jan. 1, 2011 for payment through remainder of lease. Of course, they could stop payment on the post-dated check, but if they do you could evict them for nonpayment. The other way to handle the income tax issue is to set up a escrow account or use your attorney's escrow account for the year's lump sum and then withdraw rent once per month.

I love prepayment of rent. --168.29.xxx.xx




Risks of Prepaid Rent? (by Mark [NV]) Posted on: Aug 10, 2010 8:43 AM
Message:

Per John's suggestion i have looked through NV revised statutes and don't see (or recognize) any prohibition against prepaid rent, but I'm not a lawyer..

Good suggs on adding/clarifying lease provisions retaining rights to evict on any non payment related issues.

Per John's question on writing as one-year lease vs 12-months -- my agreement is for one year lease, payable in 12 monthly installments (aka rent)...would i have to change that?

Good point on taxes Lynx, which option did you or others do? (1 check, 2 checks, escrow, other?)

Did anyone who has done this give any kind of pre-payment discount off stated monthly rent?? How much is it worth to have it all upfront? Interest I could get is only 1-2% max...should I offer any more than that? --75.15.xxx.xx




Risks of Prepaid Rent? (by John... [MI]) Posted on: Aug 10, 2010 9:03 AM
Message:

Mark: I couldn't confirm this in the actual law due to lack of time, but a quick Google search had a site that listed the maximum security deposit in NV as "Maximum deposit amount of 3 month's rent".

So, it won't be listed in the law as a "prepaid rent" clause -- it is more an issue of whether or not any prepaid rent is considered a deposit (which it usually is) and then if your state has any maximum deposit law.

If it really is 3 months then someone pre-paying a year's worth of rent could be seen as giving more than the 3 month maximum deposit.

That is why I mentioned maybe needing to do a PERIOD of 1 year as opposed to a PERIOD of a month for a lease of a year. That works in Michigan because Michigan security deposit law isn't defined as 1.5x the MONTHLY rent, but is instead 1.5x the PERIOD rent. So, 1-year periods are allowed.

If NV says that it is 3x the monthly rent specifically, then that might be an issue -- even with the year period. So, be sure to double-check on how the "maximum security deposit" part is written in NV law. Just to be safe. :)

- John...

--207.241.xxx.xx




Risks of Prepaid Rent? (by John... [MI]) Posted on: Aug 10, 2010 9:08 AM
Message:

Found this for Nevada:

NRS 118A.242: "1. The landlord may not demand or receive security or a surety bond, or a combination thereof, including the last month’s rent, whose total amount or value exceeds 3 months’ periodic rent."

So, Nevada law appears to reference "months" directly. That MIGHT be an issue for you for collecting a year's worth of rent up front -- even if you try to call it a year PERIOD and avoid anything mentioning monthly at all.

I'm not a lawyer; your mileage may vary; look both ways before crossing. Good luck! :)

- John...

--207.241.xxx.xx




Risks of Prepaid Rent? (by BRAD 20,000 [IN]) Posted on: Aug 10, 2010 10:21 AM
Message:

1. Make sure this is not one of those international internet frauds - Don't refund ANYTHING. A quick check to the Secretary of State or Atty General office would bring some peace of mind.

2. make sure the funds clear before handing over keys, at least first month's and deposit.

3. Shady? I suspect there is another REAL issue to "launder" this money as rent - ex-wife, back child support... If a guy is starting a business, wouldn't he want as much cash on hand at all times? Banks want to see cash. The bank will want to see what he pays for housing, whether prepaid or not.

4. I'd take it in a heartbeat, but keep a watchful eye. Not normal for people to pay such amounts in advance.

--67.175.xx.xxx




Risks of Prepaid Rent? (by reid [KS]) Posted on: Aug 10, 2010 10:59 AM
Message:

Around here on rare occasions someone will pay a month or two ahead and I gladly take it --70.250.xxx.xxx




Risks of Prepaid Rent? (by Lynx [GA]) Posted on: Aug 10, 2010 12:38 PM
Message:

Mark, either option will work. I prefer to escrow the check and pay out the rent from that as the rent is due. That way the tenant can't stop the post-dated check. Escrowed money is not taxable until it is released from escrow. --168.29.xxx.xx




Risks of Prepaid Rent? (by Virden [OH]) Posted on: Aug 10, 2010 12:45 PM
Message:

I do it often and almost always with students, be sure to inform them you will be in to inspect monthly just as if you had to pick up the rent, it keeps everyone happy about 1 nagging noise or cluck in the furnace besides any leaking pipe from pushing 5628390 cans of something under the kitchen or bathroom sink, if you provide a stove open the oven door when you inspect to be sure it is not so bad on month 10 that you need a whole new one. The eviction for lawn parking, excess noise complaints, too many occupants is all the same. --76.241.xxx.xxx




Risks of Prepaid Rent? (by Natalie [CA]) Posted on: Aug 10, 2010 4:44 PM
Message:

Although in CA you cannot collect more then 2 months rent (unfurnished unit) as security deposit you could collect 6 months worth of prepaid rent, but no more then 6 months.

So one obviously has nothing to do with the other. --71.194.xxx.xxx




Risks of Prepaid Rent? (by John... [MI]) Posted on: Aug 10, 2010 7:20 PM
Message:

Again, that is state specific. CA must specifically define prepaid rent? In any case, Michigan clearly defines any pre-paid monies as deposits -- and then states the 1.5x the normal period rent maximum. So, Mark will want to double-check for NV.

- John...

--207.241.xxx.xxx




Risks of Prepaid Rent? (by Chris [CA]) Posted on: Aug 10, 2010 8:15 PM
Message:

I would be very careful - ask for a letter stating that's their idea and not yours and allow them to ask for the money back, as I'm sure they would get it back if they ever went to court. *** monthly rent payments are part of life. who are they fooling? Why not invest it and have dinner on the interest? *** their loan is approved and they need to utilize money wisely and that does not make any sense, unless they have some devious trick planned. Closing, NV is the worst state - they have all the choice. so why pick your place and then make this offer? I'm skeptical about this. --125.25.xx.xx




Risks of Prepaid Rent? (by Mark [NV]) Posted on: Aug 11, 2010 6:29 AM
Message:

Thanks John for digging into NRS for me on the periodic/monthly thing, my old Nolo LL Legal guide was a little vague on that.

I'm tending to agree with Chris and Brad's skepticism as to this tenant's story about why they want to prepay, just doesn't make sense...and I can't afford potential legal hassles just to accomodate their peculiar situation or scheme.

Will try to find out more if given the chance...

Where have all the "conventional" renters gone, seems lately I'm getting nothing but special cases.

Thanks all for sharing your time, input and 'sixth sense' gut feel/judgements, I appreciate them all.

--75.15.xxx.xx




Risks of Prepaid Rent? (by BRAD 20,000 [IN]) Posted on: Aug 16, 2010 9:45 PM
Message:

Re-reading - another thought. Don't spend it all. They might move out and force you to return it. --67.175.xx.xxx





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