Payment of rent in advance isn't usually a gift horse, it's usually offered in exchange (as a bribe) for accepting something you wouldn't normally.
My letting agent (yes I know I should manage it myself) called me to say that the prospective tenants really liked the property, but, and its a big but, they are not in receipt of housing benefit, and have no income as they are relocating to Scotland and looking for work. The conversation went a little like this:
"So as I was saying they have no income yet, but they want it for at least 6 months while they look to buy a house." (letting agent)
"Ok, so why are telling me this, my requirements included tenants that can pay the rent and preferably stay long term!" (me)
"Ah, but I haven't told you the good bit." (letting agent)
"The 'good bit'?" (me, slightly dumbfounded)
"Yes, the good bit, they are willing to pay..... upfront." (letting agent)
"Ok....." (me, still dumbfounded)
Though I was genuinely dumbfounded at the time, this offer does in effect change everything. Payment up front or in advance, basically turns my PRS property holding into a risk free investment (in income terms) for six months. What's not to like?
Well still quite a lot actually, what happens if the tenants don't get new jobs and can't move into a new house? Might they end up staying, but not paying rent? On the other had, what if one of them gets a new job, but not the other, and so they decide to stay a bit longer?
Also, the flat was newly renovated, so I realised that I had once chance to rent it in its optimal condition, by accepting a known (theoretically) short term rent, I'm accepting that I will have a lesser product to take to market six months down the line due to wear and tear.
The problem is, there are to many unknown outcomes and the more you think about it, the more scenarios and permutations arise. So how to make a decision like this? Whilst it would be entirely possible to model the potential outcomes, this would be long winded and entirely arbitrary. Plus my brain has limited bandwidth and I really do not have the time nor the inclination to undertake such a task. So what did I do?
I did the rational thing and stalled for a week. I buried my head in the sand and awaited the arrival of a perfect, credit worthy, long term tenant with a cleaning obsession. When this didn't transpire? I took a years worth of study into decision making theory, threw it into the bin, and adopted the old maxim, 'a bird in the hand is worth two in the bush'. I let the flat in exchange for six months payment in advance. I simultaneously accepted the optimum investment outcome and 'kicked the can down the road'.
Of course the letting agent keeps the payment in advance and releases it on a monthly basis, why? Because that's how their "system works"! Clearly in reality they are simply enjoying the benefits of my future cash flow. I started to wonder about the implications of this, what if the tenant serves notice? Who is due the interest on the capital? And so on, but that's for another blog.
What happens next? I'll let you know when I know.
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