Collecting First and Last Month’s Rent: Pros and Cons

As a landlord, you are responsible for collecting a laundry list of items from your tenants before they move in. This list includes move-in fees, which might be a security deposit, first and last month’s rent, pet deposits, etc.

However, no two landlord requirements are created equal. As such, you might have different requirements for your tenants based on a few other criteria. For example, not all landlords require the first and last month’s rent before moving in. But why?

In this article, we’re going to take a closer look at the pros and cons of collecting first and last month’s rent so you can figure out which is the better alternative for your rental property.

What’s the Purpose for Collecting First & Last Month’s Rent?

As it suggests, collecting the first and last month’s rent means that you will collect the funds from your tenant that covers two month’s worth of rent at your property. The concept of collecting this money upfront is that the renter will be providing you with the funds necessary to pay for the first month and last month of their lease agreement.

As a landlord, you might be eager to collect as much money upfront from your tenants as possible. It’s essential to consider both sides of the argument for and against this theory.

What’s the Difference Between Collecting First Month’s Rent and a Security Deposit?

Establishing a clear difference between collecting the first month’s rent and a security deposit from your tenant is essential. These funds are two completely different things that serve different purposes.

Whether or not you decide to collect last month’s rent, the first month’s rent will cover the rent cost. Alternatively, the security deposit will cover any damages tenants may cause to your rental property through the duration of their lease. If your tenant leaves your property in the same condition as when you handed the keys over, you will refund the security deposit amount back to your tenant.

Pros of Collecting First & Last Month’s Rent

Many landlords require first and last month’s rent before move-in for a few reasons. With the collection of these funds, upfront comes several benefits, including that it:

Ensures Tenants are Financially Stable

One of the primary reasons landlords require first and last month’s rent from tenants is that it helps to ensure that they are financially stable. Even if you conduct a credit check and verify employment during the screening process, it does not always give you a clear picture of your renter’s financial situation.

By requiring two month’s worth of rent upfront along with a security deposit, your tenant can prove they are financially stable. In doing so, you minimize your threats of potentially late or missed rent payments from these renters. This method does not guarantee financial stability but acts as another level of screening in the rental process.

Guarantees You’ll Be Protected

When first entering a tenant-landlord relationship, you go in blind. Despite your best efforts during the screening process, you’re still not guaranteed on-time rent payments each month by your tenant.

Sometimes, your tenant might be financially responsible at the beginning of their lease, though down the line, they run into financial problems. In that case, at least you’ll have two months of rent to cover their costs if needed.

Tenants might try to rely on their security deposit to pay for their last month of rent, which puts you in a sticky situation. Although you will have the funds available, it doesn’t protect you if there are damages to your rental property. If you collect the first and last month’s rent in addition to the security deposit, you make sure that you’re protected on all fronts.

Increases Applicants Credibility

Beyond ensuring financial stability, asking your tenants to pay for the first and last month’s rent upfront helps increase their overall credibility. Valuable tenants eager to rent from you should be willing to jump through a few hoops for your property within reason.

Paying first and last month’s rent upfront is in both parties’ interest, as it helps to protect you as a landlord and alleviates the stress of coming up with last month’s rent, all while juggling the funds needed in finding a new place to live for the tenant. Quality tenants will understand this concept and be ready and willing to pay up.

Cons of Collecting First & Last Month’s Rent

Of course, there are two sides to every story, which is why it’s essential to take a look at some of the pitfalls of collecting first and last month’s rent upfront.

Number of Eligible Renters Declines

You might quickly find that requiring first and last month’s rent in addition to security deposits reduces the number of eligible renters in your area. In some instances, it can be hugely impactful.

Not all prospective renters have the funds readily available to cover your security deposit, two month’s worth of rent, and any other additional moving fees you might require. Limiting your prospective market means that your property might sit vacant longer.

More Difficult to Increase Rent

It’s normal and quite often encouraged to increase rent regularly. Most landlords handle rent increases on an annual basis or as the lease agreement comes due. If you increase rent each year, the initial last month’s rent payment will no longer cover the total rent. Over time this difference can be significant enough to cause you a loss upon your tenants moving out.

The solution to this concern is to charge your tenants the difference in rent prices with each rent increase. For example, if you increase your rent prices by $100 every year, you should notify your tenants and let them know they owe you $100 to contribute towards their initial last month’s rent payment.

Contractual Obligations

Any funds you plan on collecting from your tenant should be explicitly detailed in the lease agreement. If you collect the first and last month’s rent payment, you will have to call it such in the lease. In doing so, though, you are limiting what you can use this money for.

Unfortunately, you won’t be able to use this money for repairs or maintenance requests if agreed upon in the contract, as it can only be used for rental purposes. Therefore, it’s always essential to make sure you are also charging a security deposit in addition to the first and last month’s rent.

Final Thoughts

There are several considerations to make when deciding on tenant requirements before move-in. As a landlord, it is your responsibility to understand your options and choose whichever is legal and right for you and your property.

Choosing to charge first and last month’s rent as a landlord is a personal decision and one that should not be taken lightly. Make sure you do your homework and understand both sides before making your final decision.

If you’re looking to list your property, you must choose a platform that you can trust to get the job done.

Apartment List should always be your go-to for property listing needs. We’ll deliver prospective tenants eager to rent your unit, first and last month’s rent fees and all. All prospects have been matched to your unit and have a higher chance of signing a lease agreement with you.

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