Collecting last month’s rent at the beginning of a lease term is an overlooked strategy that can really save and MAKE you extra money!  More and more investors are strapped for cash flow these days and here is one more little way you can keep an eye on your bottom line.  Here’s how:

When a tenant signs a lease, have them pay the first month’s rent, the security deposit, and the last month’s rent.  Yes, this likely means they are paying the equivalent of three months of rent all at once.

Who can afford such a large lump sum, you ask?  Tenants who can truly afford to live in your unit.  Tenants that are living paycheck to paycheck, and maybe even in the negative every month, may not be able to afford your terms.  Consider it part of your rental criteria, apply it across the board, and you have another built-in tenant screening mechanism.

Now one thing that you also can do is negotiate a short payment schedule for the last month’s rent.  For example, have the tenant pay the first month’s rent and the security deposit at lease signing, and then have them pay the last month’s rent over three months in three equal payments.  This spreads it out a little for them and you also receive it early in the tenancy (it is not likely they will move out before they pay it in full).

Aside from the tenant screening benefit, there are more direct money-making benefits from doing this.  It just happened to me.

I have a tenant who signed a one year lease last June 1.  She was planning to move out at the end of May.  My property manager was being proactive and checking in with all of our June 1 tenants 90 days before the end of their leases to learn their intentions.  This tenant said that she was going to be moving out of state and may leave a little early.

Sure enough!  She’s already gone and it’s not even May yet.  She had paid April rent on April 1, and she had paid May rent last year when she moved in.  She left mid-April, giving us about 45 days of PAID time to find a new tenant.  There’s a good chance we’ll re-rent the place before June 1, which means we get to collect double rent during the overlap time.  How cool is that?

How else does collecting last month’s rent help you?  It helps when a tenant skips, or breaks their lease and moves out early, possibly without even telling you.  You may not realize they are gone until they don’t pay their rent and you go looking for them.  You’ll eventually figure out they’ve left, and you’ll still have a month of pre-paid time to re-rent their unit.

Collecting money sooner rather than later is always a good thing.  Theoretically you get to sit on one month’s rent for a whole year, collecting interest on the dollars.

Disclaimer: be sure to check your state statutes to make sure the law allows you to collect last month’s rent.