Why don't most unfurnished rentals in the US accept the option of paying rent upfront, instead of doing credit checks?

Question

In the US at least, if you want to rent a home found on a typical rental listing site like Trulia/Zillow/Apartments.com/Hotpads, the owner (an individual or a property management company) makes you jump through hoops and prove income, provide a credit report, undergo a background check etc. If you have the money to prepay the entire lease but don't have credit (e.g. are a foreigner), or have bad credit (but just got a loan or new job or inheritance or Bitcoin went to the moon etc.), the owner will most often flat out refuse to accept pre-paying rent. One reason I was given was that if you prepay rent and turn out to be a troublesome tenant, they can't legally evict you. Some apartment management companies only accepted 2 or 3 months of rent at a time.

At the same time, furnished vacation or corporate rentals (example, example) simply let you pay rent upfront, for months or even a year, without requiring any sort of credit check. This is despite a higher risk and value of having their property trashed, since the unit will include furniture and appliances you could damage, and the building typically has more amenities.

Why don't regular landlords accept prepaid rent? You could squat or cause trouble in both - but why would you be more likely to do so in an unfurnished apartment you'd prepay?

A related question asks how to show the landlord you savings. I'm actually offering to transfer the entire rent amount into the landlord's account, without even asking for a discount or an escrow account. They could easily screw me. But nope, no apartment management company accepted this (Texas), and individual landlords shied away from the agreement (Texas) or flat out refused me because my current credit score didn't meet their requirements (it was excellent pre-Covid) (Hawaii).

Answer 1

"An individual or a property management company makes you jump through hoops and prove income, provide a credit report, undergo a background check etc." for a couple purposes:

• Risk assessment: how likely are you going to hold up your end of the lease, leave the property in good shape, not open a meth lab, get arrested, be a nuisance to the neighbors/owner, etc.

• Recourse: how likely can they go after you if something goes wrong; do you have something to lose?

Why credit (might) matter:

• Indicator of payment history
• Indicator of other creditors' trust
• Something they can use against you if you fail to pay your debts, even after going through courts

The third is something that could apply even if you otherwise pay your rent on time, in case there's damage or you leave under undesirable circumstances. Note that damages can be much higher than just rent (consider: 1% of the property value in monthly rent is considered good). Also bank balances, assets, proof of money can change without notice to the landlord.

As for furnished vacation or corporate rentals, some will be in long-term contracts with businesses (and have recourse against deep pockets), but in general, the pricing for these units is higher and may roll in additional cost associated with risks not covered. Effectively, you may be in part paying extra for the convenience of not going through the normal lease application process. Think of them more like hotels (even higher cost / lower commitment and due diligence) than homes.

Ultimately it comes down to risk vs reward. While landlords might not be willing to forgo a credit check in lieu of payment up front, they may be willing to take a substantially larger deposit or increased rent instead (subject to state laws)

Answer 2

My gut feeling is that your premise is flawed. I would guess that the difference you're finding is not furnished vs unfurnished, but as you also mentioned, instead it's due to the types of landlords and tenants (vacation and corporate for example). In other words, I believe residential landlords that won't accept payment for the entire lease upfront won't accept it for both furnished and unfurnished. Similarly, landlords that do accept payment for the entire lease upfront will accept it for both furnished and unfurnished.

A few years ago I was renting a house, and I bought another house 3 months before my lease ended. My landlord told me if I found someone who would sign a lease for my remaining time plus 12 months, that he would let me out of the lease as soon as the new person moved in. I found him 3 potential tenants willing to sign a 14 month lease. Two of them he discounted because their credit was poor or their income was too low compared to the monthly rent. The third was a foreigner with no credit who offered to pay the entire lease upfront, and to my surprise the landlord declined that one too. I asked him why and he was very wishy washy about it, but the implication was that he didn't know where the money came from, and it's "weird" so he wasn't comfortable with it. Even after I pointed out the potential renter was from Korea (where paying upfront is the norm), he still didn't budge. The moral here is that some people are just not comfortable with it, and I supsect individual landlords oftentimes base their decision on who to rent to moreso on "feelings" than concrete metrics.

I also can think of one reason where a landlord would prefer a monthly payer over an upfront lease payment: in a good rental market where finding tenants is easy, it's possible that a monthly payer is more likely to be able to renew a lease than someone who pays in full. By this I mean that after the year is up, the upfront payer may still have bad or no credit, and no longer have another 12 months of rent to pre-pay, so this would put the landlord in an awkward situation potentially asking a current tenant to leave who doesn't want to.

That being said, I suspect if you look a little harder you'll be able to find individual landlords willing to accept the entire lease upfront without a credit check. Once you can convince them you aren't trying to scam them (the check will bounce or the FBI comes knocking after a month), it's too much of a no-brainer for every landlord to turn it down.