First and last rents.

Rehabbing, Fix and Flip, Rental Properties
1

Excuse me for being green here. I have picked up a rental property for the low low. My question is

Why do you charge last month rent right of the back? I.E first and last month rent and security deposit.

Renter will be moving in on Dec 16th.

Rent is $600.00 so if there are 15 remaining days left. ( 600/30=20.00) 20.00*15 days =300.00

So I would collect Dec remaining day of $300.00 + 500 security for a total of $800.00 to have renter move in Right?

I am confused where the " last month comes in to play"

2

we don’t collect “last months rent”, only a security deposit. our lease is explicit that the final month’s rent must be paid to avoid default.

some states have weird laws on this, might be a good idea to check around.

3

Unless I’m mistaken, collection of “last month rent” is rental income to you and a taxable event this year, even if you have to hold this money for five years!

Keith

4

I would increase the deposit which you don’t have to report to IRS and you can use it to cover last two months if you need to.

5

I never accept partial or prorated rent for move-in. If the tenant is going to move in on Dec 15th, then I collect the full rent $600 plus the security deposit $625 for a total of $1,225. Then on January 1st, I would only collect $300 which gives them credit for 1/2 of December. I do this because a lot of people who can’t really afford the rent will move in late in order to pay less, then on the first full month they won’t pay at all! They will get to live 2 or three months free on you and will just repeat with the next uneducated landlord.

Never accept less than a full month’s rent and a full security deposit for move-in.

Mike

6

Frank,

I agree with you in principle. However, here in my little corner of Ohio, it is nearly impossible to find tenants that can put down the last month’s rent. In fact, it is hard enough to find applicants who have the first month and a security deposit. That is why I never make the security deposit equal to the rent. It allows the tenant to confuse the security deposit with a month’s rent.

When we reach the last month of the lease, I never allow the tenant to use the security deposit as the last month’s rent. If they don’t pay rent on time during the last month, I file for eviction just like any other month. If not handled this way, you have no way of knowing if the tenant will really move out. If they don’t move out, then you have not only lost at least a month’s rent, but have no security deposit either.

Mike

7

Thanks, everyone. I have the answer. I told the prospective tenant that he could pay the $500.00 security on the 15th and move in on Dec 1, 2006. He agreed.

Propertymanager, your correct. It is hard for the middle class to pay first,last and a security.

Thanks again.

8

Propertymanager:

Hear what you’re saying.

I do my rentals in areas maybe two notches about section 8, upper blue collar, but not affluent.

With 2BR apts going for $1,200 to $1,400, a tenant expects to pay $1,200 for the first month, plus another $1,200 security. But I asked for 1-1/2 month security, and that’s what separate the men from the boys.

I could understand in areas where NO ONE has an extra half a month, but in area where over a third of the applicants has no problem with the extra half a month, “1-1/2 month is no problem” indicates a strong applicant, vs someone saying “I could only do one month”.

In fact, I got an applicant, a retired couple needing to be near their grandchildren, initially objecting to 1-1/2 month. but agreed to it. We met for lease signing, but they only bought the first month, and one month security, saying “two months ought to be enough”.

We politley declined, and went for the second applicant on the list whom we told was a backup initially, but really liked the place. We keep rents a little below market, and always paint and repair.

We honestly told the second applicant that we didn’t go thru with the other couple because our policy is 1-1/2 month. When he heard this he said “Mr. Chin, I like your place, and I want to pay you TWO MONTHS security”.

I laughed and said “Ron, thanks. I don’t want two months, and folks able to come up with 1-1/2 month is good enough for me”.

You got to learn when to quit when you’re ahead.

To me, its not the issue of getting 1 month, 1-1/2 months, or even 2 months. it’s an issue of how they repond to the request.

I got a SFH where I market at 10% below rent to get the best tenants. For instance, for a market rent of $2,000/month, I charge $1,800. The tenant saves $2,400/year.

The benefit is many lease up immediately giving stories to their landlord to move out. Additionally, they figure, even if the pay me another half month more security, in the long run, they’re ahead.

I’m ahead of the game collecting more security, and renting the place out immediately versus a vacancy of 30 to 60 days.

9

Frank,

I agree with everything you said. I would charge first, last, and a security deposit if I could get that in my market. However, especially with my lower income rentals, trying to get anything more than first and security would result in significant vacancies. The competition in this area only gets first and the security, and some only get the first with a promise from the applicant to pay the security in installments.

Mike

10

That is a great learning. In this business there are only 2 things that get you in trouble. Being greedy or lazy. In this case, a person waving a check for $1500 under your nose when you are actually entitled to $2000 is a big temptation if you are greedy. You want that check. But you have to stand by your policy. If you let them get away with that, I bet you my green 1999 Jeep Grand Cherokee that they were going to try to exact some other special favor before you get rid of them.

11

When I was a newbie landlord, didn’t know any better, collected the first months rent, and one month’s security.

Then, on move-out, lets say many tenants gives me 30 days notice, say on Nov 1, and he’ll always say “Mr. Chin, I’ll be moving on Dec 1, and because you got one months security, I’m NOT PAYING the LAST MONTHS rent for Nov.”

I would stammer and say “but wait, you can’t use the deposit to pay the rent”, to which the tenant would always say “I know that, but the new landlord needs a months deposit, and I couldn’t pay you the NOV RENT, and he, the deposit. I can’t pay the both of you”.

Of course, afterwards, there’s damages with no deposit to apply it against, because its used for rent. What’s the solution??

I started collecting 1-1/2 month to 2 months security. But there’s a legal problem with this in certain areas.

In the state of MA for instance, deposits are limited to ONE MONTH’S RENT. So are landlords supposed to let tenants pay the last months rent with the deposit, and skip town??.

NO NO, only NEWBIE LANDLORDS, who can’t understand why the last month’s rent is paid up front.

In these cases, you tell them besides the first months rent, the deposit, I WANT THE LAST MONTH’S RENT.

As to tenants starting the middle of the month, I have them pay me 1-1/2 months rent. If they can’t pay all at once, then they have to pay one month immediately, and another half months at the end of the current month.

In other words, if the monthly rent is $1,000, and they start on Nov 15, pay me 1,000 on Nov 15, and another $500 on Nov 30.