Now that you’ve found tenants who are interested in renting your property in Layton, Utah, it’s time to collect their deposits. Many landlords struggle with deciding whether to collect last month’s rent upon signing the lease.
There are both pros and cons to collecting last month’s rent before a tenant moves in. It can make you feel secure in your decision to rent out your property. But it can also confuse your tenants, especially if they are first-time renters.
By the end of this article, you can decide whether you want to collect last month’s rent before your tenants move in or not.
Why Collect Last Month’s Rent?
Why would you want to collect last month’s rent? Some local landlords in Layton may view this practice as unnecessary, while others deem it essential.
The main reason landlords collect it before tenants move in is to provide additional security. This money can be used to cover any unpaid rent throughout the lease term or if the tenant terminates the agreement.
It can be difficult to find the right tenants for your rental property in Layton, UT. So, some additional security can make you feel better about renting your property. You may also find that you trust your tenants more if they pay this rent upfront.
Clearing Up the Confusion
There is often some confusion when landlords ask for last month’s rent before their tenants move in.
Since the security deposit is usually equal to one month’s rent, tenants may be under the impression that it serves as last month’s rent. Therefore, they may feel that they are paying three month’s of rent in advance.
It’s essential to explain the difference between the security deposit and last month’s rent to your tenants. This will clear up their confusion and help them understand why you’re asking for last month’s rent.
Last Month’s Rent
The purpose of collecting last month’s rent upfront is because then the last month of the lease is already paid for. This could be beneficial to your tenant because they don’t have to send you a rent check for the last month of their lease.
This money does not have to be returned to the tenant as it is for the landlord to keep.
The security deposit is usually equal to one month’s rent. However, in Utah, there is no limit to how much a landlord can charge. This money serves as protection from damages done to the property.
If your tenants leave damages when they move out, you can then use the security deposit to cover the cost of repairs. Keep in mind that you will have to provide an itemized list of the repairs to the tenant when returning the remaining deposit.
If your tenants leave no damages, then you may return the security deposit back in full. This deposit should be kept in a separate bank account, usually in escrow, and remains untouched throughout the duration of your tenant’s lease.
How to Collect Last Month’s Rent
Some tenants may be wary of paying the last month’s rent upfront. The best way to legally collect this rent is to add it to your lease agreement.
Under the clause that states what is owed upon signing the agreement, simply add a line for last month’s rent. Make sure to also provide the date that it is due. If forgotten, this could cause problems and arguments in the future.
Pros of Collecting Last Month’s Rent
Now that you understand the reason landlords collect last month’s rent, it’s time to learn the pros of collecting it.
Verify High-Quality Tenants
You should never underestimate the importance of finding reliable tenants for your rental property. Usually, when tenants are willing to pay last month’s rent upfront, it’s a sign that they will be good tenants.
This also means your tenants can afford to pay the rent. This should make you feel more secure and trust that you’ll receive rent each month. It’s also a sign that your tenants plan to stay the entire length of their lease.
If your tenant turns out to be unreliable and misses a month of rent, you can use the last month’s rent to cover it. While it’s still a blow to your income missing a month, this can make it a little better.
This is also good protection if your tenant decides to terminate the lease early. You should have some penalties in the lease for this type of situation already. However, in this instance, you can keep the last month’s rent as a way to recover.
It Benefits the Tenant
While you as a landlord benefit from collecting last month’s rent upfront, your tenant does too. Once the last month of their lease rolls around and they don’t have to pay rent, it feels like they’re getting a “free” month.
Having already paid the rent a year ago, they’ve probably already made up for the loss. So, they don’t miss the money when their lease ends.
Cons of Collecting Last Month’s Rent
So, you’ve heard the good things about collecting last month’s rent; now it’s time to consider some of the cons.
Decreases the Tenant Pool
Not all renters can pay three month’s of rent before moving into an apartment. Many can only make the first month’s rent and security deposit. Asking for last month’s rent will deter these tenants from renting your property, leaving it vacant longer.
Now, because they can’t afford to pay last month’s rent upfront does not necessarily mean they aren’t good tenants. Some may be waiting for their security deposit from their previous apartment to be returned to them.
Could Lead to Arguments
A year is a long time. When you have a lot going on and may not be as organized as you would like, you could forget that you already collected last month’s rent. This is why it’s so important to stay organized and keep your books up-to-date.
Arguments can also arise if your tenant decides to renew his lease. The last month’s rent is then used for the last month of the new lease. Again, you or your tenant could forget that it was already paid when yet another year passes.
If you decide to increase the rent for any reason during your tenant’s lease or when they renew their lease, you will have to collect the remaining rent owed for the last month.
While this may only be a couple hundred dollars, it’s still important to collect it. Tenants may argue about it, saying they already paid last month’s rent, giving you even more stress and problems.
Get Help Acquiring New Tenants and Collecting Move-In Deposits
Chasing down people for money is not the best use of your time as a landlord. Why not let a professional management company do it for you?
Key Renter Elite is Layton’s leading property management company. Our professional team can fill your vacancies faster with quality tenants, fully manage and maintain your rental properties, and organize your finances.
Contact us to speak to one of our team members about managing your Layton rental property today!