As a Philadelphia landlord, you may be asking, “Should I collect first and last month’s rent?” Some landlords require first, last, and the security deposit, while others may just require first month’s rent and the security deposit. There are pros and cons to asking for first and last month’s rent. If you’re considering the best way to charge new tenants, weigh the pros and cons below and make a decision based on your Philadelphia property’s best interest.
Pros and Cons of Collecting First and Last Month’s Rent
Pros:
- Quality Tenants – Quality tenants who always pay rent in full and on time can be hard to come by. If a tenant is willing to pay first and last in full, then the chances of them missing other payments may be lower.
- Additional Protection – Hopefully, collecting last month’s rent ensures a qualified candidate, as we mentioned above. However, on the off chance, a tenant falls behind on a payment or vacates with a balance, collecting last month’s rent allows for some additional financial protection.
Cons:
- Limit Prospects – Requiring first and last month’s rent will limit your pool of potential tenants. Most people are expecting to pay month-by-month only. Requiring someone to pay two months of rent plus a security deposit upfront will only attract those with the savings substantial enough to do so.
- You can ONLY use the money for last month’s rent – Keep this in mind! Just because you have the cash in hand does NOT mean it can be used for just anything. It is not an additional security deposit but rent to for the last month only. This means it cannot apply to late fees, damages, maintenance, or utilities. Therefore, you may find it worthwhile to explore other fund types that can be used more flexibly if need be.
- Difficult Rent Increases – Higher upfront fees might hurt you later when considering rent increases at lease renewal.
What is the difference between the security deposit and first & last month’s rent?
Many landlords confuse the security deposit and last month’s rent collection. It’s essential to fully understand both of these terms before deciding how to charge fees for your tenants.
A security deposit can be used at the end of a lease to cover damages, unpaid fees or rent, and cleaning if need be. However, as we mentioned above, asking for last month’s rent means it can only be applied to the last month’s rent charges.
This confuses some landlords, as they may think that money in their account means it’s theirs to do with as they wish. To avoid any issues between you and the tenant, it’s important to outline both the security deposit and last month’s rent in the lease.
How is the last month’s rent used?
As an example, if the rent is $1200 a month, they’d pay $1200 x 2 ($2400) at move-in, and then resume their normal $1200 payments starting the month following. If the lease is for 12 months, the tenant will then have ten remaining payments throughout the lease term. Make sure you understand the laws surrounding how the last month’s rent can be used.
Consider a higher security deposit
If you’d like additional protection, but don’t want to deal with the limitations around collecting first and last month’s rent, consider charging a higher security deposit. A security deposit allows more flexibility in covering fees if a tenant decides to not pay or damages the unit. It’s a way to get more money to apply on the backend if needed without the legal restrictions that come with rent. In addition, a prospect is likely to be much more willing to pay a higher deposit as opposed to two months of rent upfront. This is because tenants aren’t eligible to receive a rent refund upon vacating. If their rent is in good standing and they maintain the property well, those funds are returned to them at the end of the lease. In this way, collecting a higher deposit can benefit both you and the tenant.
Are you a landlord looking for help navigating the payment process for your Philadelphia rental property? Bay Property Management Group Philadelphia can help by offering full-service property management and guidance on proper fees and deposits.