It sounds like a dream come true: You have secured a new renter who wants to prepay their rent for six months, a year, or even longer. That may sound like a good thing because you will not have to chase after rent payments for your Baltimore rental homes.
However, it often comes with risks—most of which you may not suspect right away. When you work with a Maryland property management business, you'll be able to avoid making this potential mistake—and ensure you are handling tenant screening process properly.
However, if you're set on managing your Baltimore homes for rent alone, here are some tips from the experts here at Renters Warehouse that we recommend you consider.
Keep in mind that this information is not legal counsel. We highly encourage you to work with an experienced attorney if you’re not handling this process via full-service property management.
Sometimes prospective tenants want to pay upfront for good reasons. For example, they may want to pay for the first six months of the lease because they have difficulty managing their finances on a month-to-month basis.
This brings us to another consideration: Whether your applicant has stable employment. If someone is willing to pay for your Baltimore rental homes for half a year or more, you may be willing to let typical red flags slide when it comes to completing a full background and employment check.
What if the prospective tenant does not have employment but is willing to give you 12 months of rent today? In this situation, consider a few risks:
If your resident departs early, having to return some of the rent they already paid can create some considerable tax snarls as well.
What could you do in this situation? One option would be to split the amount being paid.
For example, let's say they want to give you 12 months of rent. Instead, propose that they pay for eight months of rent, and four months act as a security deposit. At the end of the eight months, you revisit the lease and make a determination based on employment, income, and other renter qualifications if you want to extend a lease to the renter. That way, if there is damage after eight months, you have significant funds to work with for maintenance and repairs.
There are many reasons why someone may want to prepay.
Sometimes, companies provide a severance check to employees as they leave, which can offer a nice lump of money to cover rental costs during the search for new employment. It's often worth asking them why they want to prepay. Just phrase your questions carefully or work with Maryland property management if you need guidance.
If you are considering any type of prepayment like this, here's what we would suggest you evaluate first.
You need to know what you expect and need from your renters, especially if you're considering a non-standard leasing term. A typical lease requires you to outline how much is being paid in rent, the security deposit requirements, and terms for evicting a renter. Make sure to follow the law for each step, even with a custom lease. If you need assistance, you can always turn to the experts here at Renters Warehouse for guidance on writing a leasing agreement.
Ensure that your future renter still meets your terms and requirements for things like:
If you're working with Maryland property management services to help manage your finances, you'll want to discuss this concern with them as well since it may affect the reporting they deliver.
If this is starting to seem like more trouble than it's worth, we can help you navigate the complexities of prepaid rent. As your Maryland rental property management company, we'll work with you to ensure you have the right renter—and we'll help refine your lease to protect your rights as a property owner.
However, this is not the only way that we serve Baltimore investors! Learn more about how to securely invest in real estate in our area when you download our free guide to real estate investing.