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The Pros and Cons of Collecting Last Month’s Rent

Now that you have the perfect tenant for your Howard County rental property, you must decide how much money you would like to collect upfront before you tenant moves in.

While charging new tenants first month’s rent and a security deposit is commonplace, the question remains – should you charge last month’s rent as well?


Deciding whether to charge last month’s rent for your rental property is a decision that requires careful consideration.  There are some advantages to doing so, but as with everything, there are also significant disadvantages to consider.

While there is not one best way for property owners to collect rent from their tenants, let’s take a look at some of the reasons you may or may not collect last month’s rent from your tenants.  This way when you make your final decision regarding how much to charge you can be confident it is the right one.


Last Month’s Rent versus Security Deposit

It is not unusual for both landlords and tenants to confuse the terms ‘security deposit’ with ‘last month’s rent’.  Unfortunately, the amounts for each are usually the same which only adds to the confusion.

Before deciding whether collecting last month’s rent is right for you, it is important you understand exactly what that ‘last month’s rent’ means.  The same goes for the security deposit every landlord or property management company should include in their rent collection procedures.


Last Month’s Rent

Sometimes landlords would like to collect last month’s rent at the signing of the lease agreement.

But what does this mean? 

In short, last month’s rent is just that, a collection of money equal to one month’s rent that is to be used to pay for the monthly rent due during the last month a tenant resides in your Columbia rental property.  This money can only be applied to the monthly rental dues, whether collected directly from you or your property management company.

If a lease agreement dictates that last month’s rent is due at the lease signing, and the tenant pays accordingly, then no rent will be due at the end of the lease term.  If you decide to renew your tenant’s lease agreement, this payment of last month’s rent typically carries over into the new term and will be applied when the tenant is ready to move out.


Security Deposit

On the other hand, a security deposit collection is a much more complex payment made by the tenant at the beginning of the lease term.  Though much has already been discussed when it comes to security deposits, here is a refresher of what a security deposit is:

  • A collection of money made payable to the landlord directly or property management company that is usually equal to one month’s rent.
  • If the rental property is located in the Howard County area, property owners may request a security deposit equal to two month’s rent.
  • This money protects the landlord financially from things such as: non-payment of rent, breach of the lease agreement, or damage to the rental property.
  • Should any damages occur or rent payments go unpaid, this money can then be used to supplement the landlord’s financial loss.


So, Why the Confusion?

There are several ways landlords and tenants can confuse the two monetary collections.  Let’s take a look at the most common:

  • Landlords believe that a collection of ‘last month’s rent’ can be used for the same reasons a security deposit can (non-payment of rent and damage to the property). However, it can only be used to pay for last month’s rent if designated in the lease agreement as ‘last month’s rent’.
  • Landlords believe they can charge a new tenant first month’s rent, a security deposit up to the maximum amount, and last month’s rent. Most states consider last month’s rent collections to be a part of the security deposit when it comes to collection limits.  This means a landlord cannot collect first month’s rent, the maximum security deposit limit, and last month’s rent.  The security deposit maximum must be split between deposit and last month’s rent.
  • Tenants believe they can apply a security deposit to their last month’s rent. Unless expressly written into the lease agreement, this cannot be done.

To avoid any confusion when it comes to the security deposit and last month’s rent, it is important to thoroughly outline the collection of each in your lease agreement and make sure your tenant understands the uses for each.


Pros to Collecting Last Month’s Rent

Quality Tenants

If your rental property is located in the affluent area of Ellicott City, chances are your property has a significant amount of value to it.  working-with-howard-county-property-management-company

By collecting first and last month’s rent, in addition to a security deposit, you are more likely to gain a higher quality tenant.  By having that amount of money upfront, the tenant is showing they are financially responsible and the chances of missed rent payments are lower.


Additional Landlord Protection

By collecting last month’s rent, you add an extra layer of financial protection on yourself.  Should your tenant stop paying rent, you are already one month ahead of them.  Plus, you have the security deposit collected for issues such as non-payment of rent that you can now apply to any addition loss you are experiencing.

Some tenants will try to ‘live-out’ their security deposit by not paying for rent and just letting the security deposit pay for the non-payment.  By not collecting last month’s rent in advance, this leaves the landlord in a bind especially if the tenant owes any excess beyond the security deposit for additional non-payment or damages.  You are now looking at a day in court which every property owner tries to avoid at all costs.


Cons to Collecting Last Month’s Rent

Smaller Tenant Pool

First and last month’s rent plus a security deposit is a lot of money to ask for upfront, even in the well-to-do area of Elkridge.  Some tenants struggle to come up with first month’s rent and the security deposit, without last month’s rent added into the mix.  Plus, some tenants may not want to pay that amount of money all at once.  These things can lower your tenant pool.

While you may get a better quality tenant in your home by asking for last month’s rent, it may be more difficult for you to find a tenant with the proper funds, leaving your property vacant for longer than you wish.


Rent Increase Dilemma

Sometimes, you may want to increase the monthly rent your property management company collects on your Laurel rental property.  If your original ‘last month’s rent’ was $1000 and now you would like to charge $1200 a month, but fail to collect an additional $200 from your tenant to cover the ‘last month’s rent’ at the time you increase the rent, you will not be allowed to collect that additional amount when your tenant moves out at the end of their lease term.

This is why proper rent collection procedures by you or your property management company are essential.  Unfortunately, all of this extra money collection will probably not sit well with your current tenant either, which can strain the landlord-tenant relationship.


Final Thoughts

Last month’s rent is money that is paid by your tenant to live on your premises.  The security deposit is your financial protection against any unforeseen non-payment or damage.  Whether you choose to collect last month’s rent from your tenants at the start of their lease term is up to you.  Just make sure that you enlist the help of your favorite Howard County property management company, Bay Management Group, to help you draft a lease agreement that makes all of your rent collection procedures clear to avoid unnecessary confusion on both yours and your tenant’s part.