Guide to Collecting First and Last Months’ Rent

Table of Contents

Collecting the first and last months’ rent from new tenants prior to giving them keys is a common practice among landlords nationwide. When executed correctly alongside a formal written agreement, collecting these fees means landlords and tenants have established legal and financial obligations to one another to help ensure a respectful relationship. 

Although simple on the surface, asking that tenants pay these expenses upfront creates transactional nuances that are worthy of attention. Familiarizing yourself with the information in this guide can help prepare you to more efficiently manage your rental property.

First Month’s Rent

first and last months' rent

Landlords often require payment of first month’s rent and a security deposit before tenants gain access to their rental properties. The practice is meant as a security measure, ensuring landlords have at least two months’ rent paid should a tenant decide he or she no longer wants to terminate the lease or early or otherwise stops paying. Here are a few tips to help you keep track of your obligations as a landlord.

Understand the State Laws

You should familiarize yourself with your state’s landlord-tenant laws — guidelines put in place to protect all parties engaging in the rental process — before crafting your rental agreement or listing your rental property. These rules dictate which fees you can assess — like first month’s rent, a security deposit, or other upfront charges — and provide broader guidance on how rent payment transactions should be carried out in the future.

Landlord-tenant laws also outline conditions like:

  • Whether a rental agreement is mandatory and which details must be present or excluded from the document
  • How much a landlord can charge for a security deposit, as well as requirements for handling this money during a lease and when a tenant moves out 
  • Ground rules for grace periods and late fees on monthly rent payments

Familiarizing yourself with the local and state laws surrounding rental properties will help protect you and your renters from potentially costly mistakes, some of which could land you in small claims court. If you need help to understand the information, seek legal advice or consult with a local real estate expert

Make Sure All Initial Payments Are in the Rental Agreement

The rental agreement is a contract signed by both landlord and tenant that lays out the lease terms. In most states, written agreements must contain details such as:

  • Name and address of landlord or property manager
  • Address and description of the rental unit, usually including the condition of the premises as signed off by landlord or tenant during an inspection before move-in
  • Amount and payment schedule for all fees being assessed — first and last month’s rent, security deposit, monthly rent, etc. 
  • Duration of the lease
  • Other clauses or addendums (applicability based on state landlord-tenant laws) that help to shield both parties from wrongdoing 

A critical component in avoiding legal ramifications is to include as part of the rental agreement detailed information about the upfront fees you plan to charge. You should record each item individually, being sure to include:

  • Purpose of the fee (first month’s rent, last month’s rent, security deposit, application fee, etc.)
  • Amount of each fee
  • Date each fee will be collected 

In the case of a security deposit or other refundable charge, it is best to refer to your local and state laws or a real estate expert for guidance on how to properly detail the management of these funds in the written agreement. 

Collect Separate Payments for Rent and Security Deposit

States that allow security deposits often have specific rules about how this money should be handled during and after the lease. State-specific stipulations may include things like: 

  • Security deposit limits (deposit cannot exceed one month’s rent, two months’ rent, etc.)
  • Circumstances that allow a landlord to withhold a deposit (late or unpaid rent, damage exceeding normal wear, a broken lease, etc.)
  • Guidance on managing money (where deposit should be stored, whether interest is owed to the tenant, etc.)

In addition to including the particulars of your security deposit and other fees, an essential step in protecting yourself from violations of security deposit law is to collect separate payments for non-refundable fees (like first month’s rent) and security deposits. Doing so will allow you to more effectively track and report on the status of each as well as any earnings or expenditures.

Many states also require that landlords include a receipt for the security deposit with the rental agreement. This is easier to provide with separate payments. 

Reviewing a rental agreement before signing to know what First and Last Months' Rent is
Woman reading rental agreement on tablet, photo taken from above.

Last Month’s Rent

“Last month’s rent” refers to the collection of money equivalent to the payment of one month’s rent that is intended to cover the end of the lease. Like first month’s rent and security deposits, many landlords require payment of the last month’s rent when the rental agreement is signed. There are several pros and cons to requesting last month’s rent at the start of a lease.

Improve the Quality of Tenants

One of the primary benefits of requiring payment of last month’s rent at the beginning of a lease term is that it can help to improve the quality of tenants applying for the rental property. If the rental listing clearly states that this and other fees are due upon signing of a contract, you’ll likely be consulting with financially secure applicants who are prepared to cover these expenses. 

More Coverage for the Landlord

Requiring that a tenant pay last month’s rent when the rental agreement is signed is one way to protect yourself against the financial implications of any change in tenant circumstances that could lead to late or unpaid rent. When writing a requirement for last month’s rent into your rental agreement, make sure you understand what is allowed in your area. Many states factor last month’s rent into the value of the maximum security deposit you can charge.

Fewer Tenants in the Applicant Pool

Although requiring a significant financial investment upfront may improve the quality of your applicant pool, it can also shrink that pool substantially. Even in high-demand areas, asking for too much too soon can be a turn-off for renters that would otherwise meet all your criteria

Rent Increase Dilemma

Another challenge that comes with asking that a tenant pay for the end of the lease at the start of the term is that it becomes your responsibility to recoup the cost as rental rates rise. If you increase their monthly rent from $1,200 to $1,500 over the life of the tenant’s lease, you have to collect the additional $300 separately. Otherwise, when the renter gives written notice of the termination of their lease, you have to apply the earmarked last month’s rent from the start of the lease — and they aren’t liable for the difference.

Work with a Professional Property Manager

Collecting first and last month’s rent can be complicated, but the experts at Nomadic Real Estate are here to help. Contact us today for more information on how our DC property management and leasing services can simplify these processes for you and help you make the most of your income property investments.

Frequently Asked Questions About Collecting First and Last Months' Rent

Collecting first and last months' rent establishes legal and financial obligations, ensuring a respectful relationship and providing landlords with financial coverage in case a tenant terminates the lease early or stops paying.

Landlords must familiarize themselves with state-specific landlord-tenant laws, which dictate permissible fees and guidelines for rent payment transactions, security deposits, and rental agreement conditions.

The rental agreement should clearly detail all initial payments, including first and last months' rent and security deposit, specifying the purpose, amount, and collection date for each fee.

Requiring last month’s rent upfront improves tenant quality and provides financial security for landlords but may reduce the applicant pool and complicate rent increases.

Landlords must collect the difference separately for any rent increases during the lease term, as the pre-collected last month's rent covers only the initial agreed amount.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.