Paying Rent in Advance: Is It Worth It for Landlords?

If you're a landlord, and potential tenants have asked you about paying rent in advance, you’re likely wondering if allowing them to do so benefits your business. After all, it can be tempting for tenants to ask for this added flexibility - but as with any big decision concerning lease agreements, there are pros and cons of accepting rent payments in advance.

In this article, we'll break down the considerations associated with paying rent upfront - from the financial benefits to ensuring compliance with the law - so that you have the information needed to decide what's best for your rental property.

Let’s get started.

What Is an Advance Rent Payment?

Rent paid in advance will cover, at minimum, your renter's next month’s rent. Any additional payments would also be an advanced payment to the landlord from the tenant, whether your renter is paying six months' rent upfront or prepaying rent for a year.

6 Pros of Accepting Rent Payments in Advance

Having a tenant pay rent in advance may or may not be right for you, considering that every landlord-renter relationship is different. Let’s look at a few reasons why it might be advantageous.

1. Streamlined Rent Payments

Rent collected in advance is better because it can help to streamline the process. The traditional one-payment-a-month model can slow down critical home maintenance and repairs.

2. Promotes Shorter Rental Vacancies

Rent advance opportunities can be leveraged in high-demand markets, especially if you’re in a popular area or your property is relatively new. More money in your pocket is guaranteed with shorter rental vacancies, which is the ultimate goal of every landlord.

3. Improved Landlord-Tenant Relationship

If your tenant is interested in paying rent upfront for a year and you allow for it, it demonstrates trust and goodwill. In the end, doing so can do wonders for your relationship.

4. Reduced Administrative Costs

Simply put, the more rental payments you’ll pay in administrative costs. By reducing the amount of time a tenant pays rent, you can save yourself in small fees along the way.

5. Support for Potential Tenants Lacking Rental History

Renters who have a lack of rental history are not necessarily bad tenants. They could be students or just new to the rental game in general. You can provide insurance to yourself while allowing them to rent by asking for upfront rental payments.

6. Secured Rent Payments

Tenants that can pay several months of rent in advance can safeguard your payments while still giving them a chance at your rental property. You’ll also alleviate some of the pressure by giving them time to find their next source of income if they are in between jobs.

5 Cons of Accepting Rent Payments in Advance

There are also downsides to accepting rent payments in advance. As a landlord, you must weigh the pros and cons to decide if it is worth it.

1. Taxable Income

Any rent you receive in advance from your tenants is taxable income, unlike monthly rent payments. You will likely pay taxes for the year you collect the rent payments.

For example, if you collect rent from a tenant in October 2023 that will cover November 2023 to May 2024, you will pay taxes on those advanced payments in 2023, not 2024.

2. Complicated Eviction Processes

Since you are collecting rent beforehand, eviction can become much more complicated for your tenant. While lease violations are tricky, evictions become even more challenging. Therefore, vet your tenants thoroughly before ever considering allowing them to pay rent in advance.

3. Adhering to State Laws

Much like many rental laws, the logistics of an advanced rent payment vary. Some states require an escrow or trust account as the only way you are allowed to collect rent in advance. Then, you can only transfer the money to your account when the monthly rent is due.

4. Lease Violations

Breaking or violating the lease agreement is one of the few challenging situations tenants encounter. The tenant may even lose their tenancy under these circumstances. You must pay the remaining amount back to the tenant if they have already made advanced rental payments.

5. Inability to Increase Rent

A tenant is locked in at their rental rate once they pay their rent in advance. If the tenant has already made payments at the amount you both contractually agreed upon, you cannot change the rent price. You will have to wait for the lease to expire to raise the rent.

Alternative Ways to Guarantee Rent Payments

As a landlord, it’s up to you to determine whether accepting advanced rent payments is suitable for your business. Let’s look at a few considerations you might want to make.

Request a Co-Signer

A cosigner is a person that assumes secondary responsibility for rental payments and acts as a safety net for ensuring you get your rental payments. For example, if the primary tenant defaults on their rent or makes inadequate partial rent payments, you will seek out the payment through the co-signer.

Suggest a Guarantor

Not all tenants can get a co-signer, which can be difficult if they require one to qualify for your rental. A rent guarantor is another option who will act as the tenant's co-signer and cover the rent if the tenant is in a situation where they cannot pay it themselves.

Explore Rent Guarantee Services

Landlords can seek out rent guarantee services, typically in the form of rent guarantee coverage through insurance. If a tenant stops paying you, rent guarantee coverage is a type of insurance that covers your rental income.

Final Thoughts

Can you pay apartment rent in advance? Yes, your renters can, but you must decide if it's worth it to you as a landlord. Paying rent in advance does have its benefits but pitfalls as well. Ultimately, based on your landlord-renter relationship, you'll have to decide how you’ll want to collect rent.

If you’re in-between tenants right now and looking to get high-quality tenants for your property, make sure to create a listing for Apartment List.