“Never look a gift horse in the mouth,” says the old adage. Landlords sometimes feel that way when considering whether to let tenants prepay their rent. At first glance it can seem like a no-brainer: Why would you ever say no to money? After all, you invested in multifamily real estate to generate steady income at limited incremental cost. What better way to pocket more revenue than to be paid rent up front?
On the plus side...
Cash in hand. Getting a lump sum of cash can help alleviate cash flow problems for landlords, potentially making it easier for you to pay ahead for property management services, maintenance and repair providers, and other expenses.
Simpler collection. The more monthly payments a tenant makes at once, the fewer times you will need to run after that tenant to collect rent. Of course, if you’re looking to simplify rent collection, one simple solution is the auto-invoicing function in Story by J.P. Morgan. Story’s automatic invoicing provides configurable payment reminders, reconciliation at the property and unit level – even the option to block a payment if accepting it would place you at risk!
Security buffer. Collecting rent ahead of time could provide more security when dealing with a high-risk tenant – for example, one who has not provided you with proof of income, has become unemployed, or has little or no verifiable rental history.
Sign of good faith. A rental applicant who is willing to pay for multiple months in advance is likely to be serious in their commitment to living in the property.