BROOKLYN — Paying a year’s worth of rent upfront was once the domain of those with poor credit or foreigners without documented credit history.
But increasingly, renters with cash on hand are hoping that advance payment will make them more attractive applicants — and potentially get them a discount off the listed price, brokers say.
It can be an appealing proposition to owners of small buildings or condos renting out their units. Landlords of large buildings, however, aren’t likely to consider it, real estate experts noted.
When does it make sense for renters to pay upfront?
Last month, an actor named Meng — who asked that his last name be withheld — had a bit of nest egg saved up and decided it was worth dipping into his savings to secure a light-filled two-bedroom in a three-unit building with a 1,000-square-foot shared garden.
The unit originally asked $3,400 a month and then was about to be dropped to $3,200 a month.
After offering the whole year’s rent, Meng got the unit, which he is sharing with his boyfriend Andrew, for $3,040 a month.
“To me, it’s like investing, not losing money, since we’re saving 5 percent,” said Meng, 32, noting that Andrew will be making monthly payments to him.
Even though Meng and Andrew would have qualified on paper for the apartment — most landlords require tenants earn 40 times the monthly rent — they felt the apartment’s listed price was still out of their comfort zone.
Still, they didn't want to walk away from an apartment they loved.
“I was saving the money to save it. I don’t have a 401k or retirement, so I have save the money for myself,” said Meng, adding, “It proves that even though rents are high there is room to negotiate.”
Andrew had actually paid a year upfront previously when he had just started a small creative agency and had no income to speak of but had cash on hand.
He was living in Crown Heights at the time and taking over the lease from a roommate — and he didn’t want to see his rent raised as it would be for a new lease.
“They said 'the only way we’d go for that was to pay more upfront,'” Andrew, 33, said. “Then I didn’t have to pay an increase.”
Mary Lou Currier, of BOND New York, was working with a couple a few years ago who wanted to rent a $7,250 a month two-bedroom unit from a condo owner in a building on Third Avenue in Gramercy but were getting stonewalled because the owner didn’t want to allow their small dog in the space.
“It was a little cockapoo and [the couple] made the mistake of saying she’s a puppy at the open house,” Currier recounted. Because of the dog, there were extra fees of about $14,000.
The couple offered to allay any concerns by paying everything upfront and got the apartment.
In the past few months, several potential renters — all retirees from the suburbs or West Palm Beach looking for pied-a-terres at a high-end rental on Central Park South — wanted to pay upfront for a discount, according to Lindsay Wirt, of FirstService Realty NYC.
“One said, ‘I don’t want to fool with writing checks each month since I have cash on hand,’” Wirt recounted. “Another woman wanted to pay so she’d know how much money she’d have for the rest of the year for fun things. Another guy, with no monthly income but an investment fund, wanted to withdraw just once.”
The landlord of this building, however, rejected all of the offers to pay in advance, but did, however, give one insistent renter a break regardless, dropping the monthly rent for an “oversized one-bedroom” from about $5,300 a month to $5,000, she noted.
But there are good reasons not to pay a year upfront: it could be hard to get money back if you have to leave your unit for some reason and if your landlord needs to make repairs, you’ll have less leverage.
When won’t landlords accept a year’s rent upfront?
Just like tenants worry about their leverage if they pay upfront, some landlords worry that by accepting rent in advance, it hurts any leverage they might have if they have issues with tenants unrelated to rent payments.
“When the tenant's account is current, the court system is likely to be less sympathetic with the landlord," said Douglas Wagner, of BOND New York.
Plus, most big landlords won’t lower their “face” rents — though they will make other concessions like a free month’s rent — because the value of their property is based on their rent roll as it’s officially recorded, he said.
Moreover, Aviv Zumin, owner of FirstService Realty, noted that many landlords are barred from accepting advance rent under the stipulation of their mortgage agreements.
Banks worry if a landlord collects all of the rent by January, he’s most likely going to spend it by June and then by July and for the rest of the year, he won’t have any money, Zumin said.
Also, landlords of rent-stabilized apartments can’t take upfront rent since they’re only legally allowed to ask for one month’s security and one month’s rent when signing a lease.
When do landlords like to get a year’s worth of rent in advance?
For the Greenpoint unit that Meng and Andrew rented out, the owner was amenable because the apartment had been languishing on the market, said David Kazemi, of BOND New York, who brokered the deal.
“We couldn’t really move the unit and they said, ‘Here, take the money,’” Kazemi told DNAinfo New York, noting that taking such a deal is less complicated for a small, manageable building where a potential vacancy for another month is a bigger hit than “trying to squeeze an extra $1,500 a year.”
BOND broker Fairry Bonner works with a landlord who for decades has owned a couple of buildings — where rents range from $1,900 to $6,000 a month — in the East Village. She prefers to get payment in advance whenever possible, especially since so many of her tenants are students or new hires.
“She says, ‘I don’t want to spend any time on the phone asking for $50 if they pay rent late or waiting for checks,'" Bonner said. “The less she has to do with tenants, the better."