It might seem like a winning proposition for a landlord to accept prepaid rent. After all, having a lump sum of cash is great. It’s a guarantee that you’ll pay rent and on time, because you did in advance. However, it’s not a good idea for all landlords to accept prepaid rent, and there are 5 reasons why they won’t accept it.
1 – Wants the Flexibility to Increase Rent
When the landlord accepts prepaid rent, they’re agreeing that you can pay that rent rate for the months you’ve prepaid. This locks them in, so that they can’t increase the rent. Many landlords want the flexibility to charge a higher rent down the road, and they won’t accept prepaid rent for that reason. By the way, you can at least try to use this tactic if you want to ensure that you’re not charged a higher rent for the months that you prepay. Some landlords will willingly accept the cash.
2 – Plans to Sell Apartment
A landlord might have plans to sell the apartment, and doesn’t want prepaid rent to hold up the deal. According to your state’s real estate laws, the buyer and seller must honor an existing lease agreement. A landlord who accepts prepaid rent from a tenant in a month-to-month lease has in fact extended the lease term that now has to be honored. A landlord may think it’s more marketable to sell the property to a buyer who knows that they can move in after closing.
3 – Intends to Terminate Lease
Acceptance of prepaid rent has the potential to extend the lease term, but the landlord may want to terminate the lease. If the landlord wants you to move out, they won’t accept prepaid rent. Some tenants try this strategy two or months prior to the lease termination to make sure that they have a place to live after the lease expires, and it’s a way to find out what whether the landlord plans to renew the lease based on their acceptance or refusal of the prepaid rent.
4 – Too Much Accounting
It’s one thing if you’re one of two tenants, or the landlord’s only tenant. It’s another thing if the landlord has multiple tenants and has to keep track of all the prepaid rents. This may result in the landlord hiring a bookkeeper or a property manager to keep track of everything. Your landlord may not view those options as economically beneficial to them, and will avoid the hassle by not accepting prepaid rent from anyone.
5 – Doesn’t Want to Pay Interest
Another accounting headache in the eyes of a landlord is paying interest to tenants on prepaid rent. Some state laws require a landlord to pay interest if the prepaid rent exceeds six months. Some landlords don’t want to bother with this, or expose themselves to liability if they fail to pay interest.
If you can get the landlord to accept prepaid rent, and you can afford to pay it, you’ll benefit as a tenant. However, don’t be surprised if they refuse to accept it for these reasons.