Prepaid Rent During COVID-19? Tips From McKinney Property Management

At RentHub, we love these kinds of investing questions because it gives us the chance to shed some light on a topic that causes landlords and investors stress—especially during these trying times as a community.

When you're trying to retain profitable investments in the McKinney area, a prospective renter who throws down enough cash to cover an entire year's worth of rent sight unseen might seem like the ideal when you may already be concerned about how COVID-19 will affect your rental income.

On the flip side, experienced investors know to treat this with some measure of caution—no matter the economic season we are in.

Sure, the idea of having someone pay upfront definitely comes with its own set of perks—but should you say yes? Are there any dangers involved with accepting prepaid rent? Let us put some of your fears to rest with an inside look at prepaid rent from the perspective of McKinney property management.

Please note: This article is not intended as a substitute for the great legal advice of a skilled attorney or the expert services of a McKinney property manager. When in doubt, reach out to the pros!

Why Your Applicant Might Offer in Advance

While sinister meanings behind offering rent upfront might have been the norm for landlords prior to the COVID-19 crisis, that has all changed. Before the pandemic, the most common reasons we saw tenants offering prepaid rent in our role as McKinney property management were as follows:

• Jet-setting workers who move from place to place as part of their job description will sometimes have relocation expenses paid for in advance so that they can land on their feet.
• Tenants who know they struggle with their finances might pay upfront as a sign of goodwill in their desire to rent. These renters are often fantastic additions to your property once the finances are squarely out of the way. 
• Tenants that are currently cash-rich but house-poor between jobs might also choose to pay in advance to secure housing while they look for work.
• A renter with a previous history of poor credit may offer payment in advance as a means of securing their next home, knowing their score will show up during a thorough screening process. However, this isn't necessarily worth walking away from! It depends on the rest of their rental history.

When you consider the impact COVID-19 has had on a large demographic of renters, landlords may find it increasingly common for their prospective residents to offer several months' rent in advance when securing their new home as the dust continues to settle from the pandemic.

What Are the Benefits to Upfront Rent?

It always helps to examine both the positives and negatives of any surprise choices you face as a landlord—including the potential windfall of a year's worth of rent upfront! That said, how can you expect to gain from this type of arrangement?

When your potential renter offers the entire amount up front (rather than several months' worth), this eliminates one of the major reasons that investors need to pursue something drastic (like eviction). You can be sure that the rent for your property will be paid on time, every time!

Even if your tenants choose to break their lease for reasons that aren't covered by housing law exceptions, you're still guaranteed that income because it's already in your pocket! There's no worrying about how to hunt up the rent you're owed in this scenario.

Are There Potential Drawbacks?

• If your tenant needs to break a lease for any sanctioned reason (such as military service), you'll need to reimburse the remainder.
• Huge lump sums of rent or the need to pay back a tenant can throw your taxes for a loop if you're not prepared for this potential outcome.
• Those funds might not be legal—or they might be a flashy disguise for a Professional Tenant.

Even with these drawbacks, from the perspective of McKinney property management, prepaid rent can be a big plus for investors! However, there are some crucial things you still need to keep in mind when considering the offer. These tips hold true whether you're in the middle of a crisis or buoyed by an economic boom.

A Thorough Screening Process Is Still Essential

Even with a year's worth of rent or several months' worth right before your eyes, you absolutely cannot neglect to run a thorough screening process on each prospective applicant.

• This is your first line of defense when it comes to protecting and preserving your rental income and investment properties.
• Professional Tenants that target big-ticket rental properties sometimes show up with a lot of cash and a great story—but it falls through as soon as you really start digging into the references.
• Your screening criteria must be applied equally to all applicants to prevent the appearance of bias—regardless of if they show up with a cash advance or not!

Failing to screen prospective applicants—whether they offer prepaid rent or not—is a quick ticket to ending up in hot water with the Fair Housing Act (FHA). 

Additionally, failing to screen tenants rigorously opens you up to the expense, stress, and struggle of facing a potential eviction in the face of a poor tenant placement—is that two months' prepaid rent really worth $5,000 or even $60,000 in attorneys fees?

That's a big "Nope!" from the experts in McKinney property management. Sticking to your standards protects your investment portfolio in good times—and bad.

Tough Questions Call for the Professional Touch

When you're facing the dilemma of prepaid rent for your properties in McKinney during a pandemic, you might rush headlong into a Professional Tenant! Scam artists don't let up during a panic: if anything, they're more active than ever. Don't let fear take over: turn to RentHub Property Management as your guide.

While we're handling the ins and outs of helping your current properties stay profitable during social distancing, you can use this as your opportunity to focus on family, development, and growth.

A great place to start is by downloading your FREE copy of our guide to real estate investing! There's no need to make expanding your financial empire any harder than it has to be. Take some tips from the professionals in McKinney management, and let us show you how to safely pursue growth even in the face of the novel Coronavirus.

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