Published December 3, 2020
Updated March 27, 2023.
When choosing not to list a Detroit property for sale and instead transform it into an investment opportunity in your portfolio, rent collection naturally emerges at the forefront of your concerns for said property. Maximizing the ROI on any Detroit investment property means ensuring that rent comes in on time.
This can make the potential for prepaid rent sound ideal, as though renters drop bags of money on your doorstep, then never need anything else from you. While we wish it could be that easy, it isn't often that simple.
No matter what types of Detroit investment properties you choose—whether single-family, detached properties, or multi-family units—on-time rent payments are a high priority. So, hypothetically, accepting prepaid rent should be an ideal solution to making sure you never lose sight of your cash flow.
However, it's not always a smart way to operate Detroit investment properties. Keep reading to learn when it's better to deny prepaid rent and the best way to manage on-time rental payments for your properties!
Legal Note: This article is not a substitute for legal counsel. If you need direct assistance for your Detroit investments, reach out to Own It Detroit Property Management for a rapid, professional response!
When to Deny Prepaid Rent
In some cases, letting a renter prepay can be a good decision. However, not all renters are trustworthy—or actually have the cash to prepay the rent months in advance.
When you have a large real estate portfolio, letting too many renters prepay can risk significant income loss as a long-term strategy. Additionally, if you rely on these upfront advances, you'll find the rug pulled out from under you if you're forced to end a lease early or deal with unexpected circumstances.
You're in the real estate business to make money, and an influx of prepaid rent can boost your cash flow. We know it might be hard to turn away a large amount of cash, but doing so can often be in your best interest when it comes to rent collection.
'Professional Tenants' and dishonest renters know the allure of money. Sometimes, renters (or potential renters) use an offer of prepayment to distract property owners from a poor rental history or other issues to get around your tenant screening process.
However, building stable income and protecting your Detroit investments isn't worth the risk of the promise of prepaid rent that never comes.
Screening Renters Can Help You Decide
Your tenant screening process is one of the best ways to inform your decision about letting a new renter prepay the rent. You might notice some red flags right away, including:
A potential renter offers prepaid rent in return for skipping the background screening process
An applicant's background check reveals evictions, rental payment defaults, and problems with prior properties
Your renter doesn't have a job or verifiable income source (the company they listed may not even exist)
A resident doesn't plan to live in your rental properties in Detroit as their primary residence.
Any of these issues should raise caution against accepting prepaid rent. If a potential renter doesn't pass your standard screening process and criteria, no amount of upfront cash should convince you to allow them into your Detroit investments. Without a confirmed source of income, you can't be sure you aren't letting criminal activity into your property.
So, when should a Detroit investor accept prepaid rent for their rental property? There are some appropriate circumstances we can help define for you as Detroit rental property management experts.
When to Allow Prepaid Rent
Sometimes prepaying the rent is the most convenient way for a resident to make sure they never miss a monthly rental payment. If your renter is reliable but travels frequently, it might be helpful to allow prepayment when they know they'll be out of town when the rent is due.
Other residents might deal with fluctuations in cash flow. If they have a good track record of paying on time and following the rules of the lease agreement, prepaying a few months in advance can ensure that you have the rental income you need while helping them manage their own finances.
Show You the Money
Prepaid rent should never be a way for a new renter to 'buy' their way into any of your Detroit investment properties. However, with a trusted current resident, a clear background check, and proof that they have the cash to pay ahead, it can be a good relationship builder to allow prepaid rent on a case-by-case basis.
However, rental property owners should avoid offering prepayment as a standard rental payment plan. While it might be nice to have more available cash, that money is intended to cover several advanced months of rent.
Additionally, be sure your accounting expert can credit a renter correctly for months paid in advance. They must keep track of this cash flow and manage it across the property's expenses over several months.
Proceed With Caution
Detroit investors should never skip a thorough tenant screening process, and it's always wise to listen to your gut. If the offer of prepaid rent doesn't feel right, you don't have to accept it. Managing consistent monthly income versus expenses is easier when residents pay the rent each month through reliable rent collection methods.
However, with the right circumstances and a trustworthy renter, prepaid rent can be a win-win situation.
Detroit Rental Property Management Experts Process All Rent Payments
If you're not sure how to handle an offer of prepaid rent or set up consistent on-time rent collection processes, seasoned Detroit, Michigan property managers can help you figure out what's right for your investment portfolio in the Detroit rental market!
The Own It Detroit team has seen and worked through all that Detroit-area real estate has to offer. Our thorough screening process helps identify potential renters who shouldn't be allowed to prepay the rent. Then, as we build positive relationships with your residents, we learn who could benefit from paying the rent a few months in advance and which renters we can trust to follow through with prepayment.
No matter how we go about collecting rent for you as an investor, we'll never risk your cash-on-cash returns with our best-in-class service!
Choosing Own It Detroit means you have a local expert to help you grow your portfolio—one property at a time—to meet your financial goals and maximize your returns. We ensure all of your Detroit investments start and stay profitable as soon as they become a part of your investment holdings.
If you're ready to tap into more wealth through Detroit-area real estate, reach out to learn how we can help. Or, you can start by downloading our free expert resource: How to Grow Your Portfolio With a Property Management Company!