Submitted by MailsDavis t3_10om1fh in personalfinance
Would this be a bad idea? I would essentially be taking the money out of my savings, so I wouldn’t be cashing out any investments or retirement accounts to do this.
The amount leftover would still leave me more than comfortable.
In some states is this not allowed and I don’t think it’s a good idea because if there is an issue and you have legal stance to decduct rent or break the lease you are screwed bc you already paid upfront.
In general no it isn’t. What is the benefit?
Both good points. I’m in NYC. The market is just so odd at the moment, that I’m trying to think of ways to make my application more attractive. Perhaps I could prepay each quarter if allowed, but I’m just thinking aloud now.
I’m in CA so it’s a different market (unsure how competiré NYC is) but when I was looking for rental I did something unconventional and would write a letter(like homebuyers do to homesellers) and include the link to my FB which was always professional and to my LinkedIn so the home owner would get a glimpse into who I was on a “personal” and “professional level”.
Technically speaking because of fair housing policies they can’t ask for anything of the sort but I found I got more call backs for tours when I did this than when I did not.
If that seems too personal an alternative may be simply making a 3-5 page Canva of what you are looking for in a rental, the type of tenant you’ll be and maybe references idk how non conventional you want to be - IF at all.
You might die before the next month of rent and then your slum lord will just have extra free money
Only if you can negotiate a reasonable discount for the upfront payment.
Offering to prepay rent will make your application more attractive in NYC. My daughter had to do this to qualify when she was just starting her new job.
Be sure to get everything in writing, documenting the prepaid rent.
This is a bad idea. NYC is very tenant-friendly, legally speaking. You have no real reason to do this, and no recourse if the apartment is uninhabitable.
Would your landlord give you a discount for prepaying?
If not, it's a terrible idea.
do you get a discount or something? otherwise, it makes no sense at all to even consider this, unless you're going to be tied up somehow and won't be able to actually pay it... going on a six-month trek in the amazon?
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Yup, this is stupid.
OP is better off earning a 3-5% yield in a savings account.
Time is money.
I put all of my taxes payable into a savings account to earn some kind of yield.
Bad idea.
Giving your land lord an interest free loan.
Forgoing any interest in those funds
Losing any leverage you may have had on your landlord should you need any work done in your appt.
Likely losing all your $ if you wind up needing to move early.
Losing access to those funds should you need them for something else
Put it in a savings account.
Why would you want to? If shit truly hits the fan with your landlord and repairs aren't being completed or you're put into a situation where your apartment has become inhabitable, you've lost any leverage since your landlord has your money up front.
I always prepay a month in advance, so in case if I somehow don't have access to the internet on 1st of the month, I'm sure I don't get evicted.
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Not a bad idea if they allow it. But there usually isn't a discount or anything so no reason. We don't allow tenants to prepay. If they make pre payments on the portal, we don't allow more than three months. If we need to evict them or they all of a sudden want the pre pay back, it's too much BS.
Most experienced landlords won’t accept this due to the legal perils.
Unless you get some sort of discount. Like paying 10 months rent for a year. Just pay month to month.
Never pay any bill before it is due, unless there is interest involved, and it's more than you're earning on the money.
Omg I get the NYC market lol. It’s not smart but I’m doing the same in a different state for different reasons…. just make sure you have a tight lease cause NYC landlords are sharks.
Edit: also get a NYC real estate lawyer just to double check lease if you’re going through with it.
Edit#2: because I’m still thinking about this and having dealt with a lot of NYC landlords.. no matter how many buildings they own, they will nickel and dime you over everything. Just be careful!
What if the home burns down?
I may be wrong but I thought this wasn’t allowed in NYC
We did this for the first year after relocating to a new city. It was the smart move for us as it allowed us to take the time to find the right jobs and the right location for home purchase.8 years later and everything worked out great
Depends on how confident you are in keeping your job. If you expect to be fired it's probably better to look for another job while having the next month covered. If you're good at your job there should be no reason to prepay. Also if you save at a bare minimum the equivalent of one months rent every paycheck you should be more than capable of weathering the proverbial storm.
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Ask your landlord if he would do a discount. If he does do like 5% it might make sense for you.
Otherwise, you want to be sure you will be there for x months ahead, otherwise it’s almost always better to stay liquid with money you know you’re going to need, whether it’s to your current landlord or a new one.
It’s a bad idea unless your goal is to make your landlord think he’s about to be scammed. Prepayment scams are one of the most common for landlords. What benefit do you purport to gain in this situation?
Terrible idea.
Let's say, god forbid, a tornado comes around and levels the place. You are left with nothing minus the prepaid rent.
It's basically loaning out money with no interest, maybe if the landlord gives you a discount for pre-paying, but otherwise - I would advise against it.
Pay off a debt you have, credit card maybe.. Or open a savings account.
Doing it for no reason is a bad idea. But if you believe doing it may get you an apartment that you may otherwise not get, it is a fairly cheap and easy way to potentially get a big benefit.
Two main issues:
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The smart idea is transferring this money to an account you control
Never pay before you need to
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Don’t do it. Forget about the lost opportunity cost of not gaining interest on that money, even if the landlord gave you a discount it’s still not worth it. It just increases the ways you can get screwed over: it’s a lot harder to get money back from someone than it is to just not pay them. If landlord does something to break your lease agreement, you could easily end up having to sue them to get your money back.
What else should they do with one months worth of money? You don’t invest it when you need it so quickly…
As a landlord I understand your logic of trying to make your application more attractive by paying so much ahead of time. To a landlord with a bunch of applicants it does add some measure of confidence (providing it's legal). So there is some value. If it isn't legal, perhaps a larger security deposit. All most landlords care about is getting long-term good tenants. Convince them of that and you'll be ahead of the pack. As for the suggestions of negotiating a lower rent, that's completely out of the question when it's a tight market and you want the place. The first thing the landlord is going to think is that you can't afford the place.
Edit: Another great idea would be to offer to sign a longer lease. That's attractive.
Is 0% somehow better than 3-5% to you?
I did this when I went back to college in my 30's. I paid 18 months cash up front and my landlord gave me a 10% discount.
Unless your credit sucks to where your landlord wants you to pay a certain amount up front don’t do it. Its better to have cash on hand just in case you want to do something. Plus if you prepay rent you can’t use it as a incentive for quicker maintenance.
If land lord will give you a discount greator then what you could earn in a HYSA then yes. If not then no.
What HYSAs are offering 5%?? I just opened one with discover at 3.3 and thought I was getting a good deal lol
It would be a fine idea, if whomever you're renting from is willing. Make sure you get it in writing that you've paid already for this many months.
Side tangent - I actually am in a situation where priority repairs aren’t being done (I live in California) and I’ve never broken a lease before but plan to. How successful is threatening legal action against a landlord (corporate landlord) when it comes to breaking a lease early? I have a letter that has been reviewed and edited by an attorney stating all the violations that the landlord has broken but I’m just anxious because I haven’t had to break a lease early before. How do you even claw your deposit back when it gets to that point?
Edit: typo
If you've got so much cash saved up that you could pay rent upfront for a long time, maybe it's time to look for a house?
Instead of rent money going directly to the landlords pockets, it would go toward a home you don't pay rent to live, ofc. there are maintenance costs and you'd have to do most of the work yourself, but it's something I did when I reached a position were I had enough to buy a small house.
Turns out it was the best thing I ever did, because the land + house appreciated so much over the last 10 years that it's now evalutated at 3x the price I gave for it, plus the fact I've lived rent free with just 3K in maintenance costs the last 10 years, so it can be a very lucrative investment.
I live in LA and a neighbor booked a commercial or something and wanted to pay 6 mos of rent in advance and the bldg mngmnt wouldn't let them. I wondered if it had something to do with taxes on their end.
You can get money orders to pay for your rent, save them somewhere safe, and drop off the rent when due. The money is already taken out of your account. Unless you cant pay that way, but I wouldn’t recommend it since you’re in NYC. My husband and I moved up and out of the Bronx/Manhattan.
If I was a landlord and a prospective tenant offered to prepay rent, that would be a huge red flag. There is no logical reason to prepay rent unless the applicant is up to something nefarious.
3.3 falls within the 3-5% I gave in my example.
Personally, my cash yields 5.89% but that's not in USA. The reason I gave a 3-5% estimate was for a rough estimation, and that's all.
3.3% beats 0%, regardless.
This is a terrible idea. You’re basically giving your landlord a free loan and putting that liquid at a much higher risk. Unless you’re getting a massive discount, definitely don’t do it.
I'd put any extra cash into an account and set up post dated online payments (e transfers, ETFs etc) so the money sits there and gets sent out early to the landlord. I tend to set it to send 5 days early each month so he gets it and I don't have to get about it. I get my email confirmation hes recieved the e transfer (email money transfer) and file it away.
If your cash yields 5.89% I would ask to compare the value of your currency against the US dollar, the euro, and check if you’re not actually getting a negative return due to currency devaluation
Sometimes is goon look like a smart move and other times you just end up regretting it. But it’s always a 60% chance super idea
If you do this, try to negotiate a discount. Some landlords will give like a 10% discount for this
No. There is no currency devaluation. I do not live in a developing country.
The yield is 5.89%, and that is it. As noted before, this isn't the US.
This is also irrelevant to the topic so I won't be responding further.
Edit: the yield of cash is 5.89% here. The currency is not weak relative to major economies USA/EURO/YEN. Not sure why I got downvoted. Pissy about the higher cash yield?
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Why? Rent is paid one month in advance already so why would you prepay? As another redditor said you could put money into an interest bearing instrument like a CD or T Bill. Or just keep it in your bank account for piece of mind.
Yep NYC is VERY tenant friendly. I have family in the Village who have been on rent control since the 40’s.
Do you know that currencies can devalue in developed countries? Do you know what inflation is?
If you can prepay you bills with a credit card sign up bonus, you can generate 10-20% savings. I have at times been able to get discounted Visa Giftcards from Giftcards.com when they run promos throughout the year for 5-10% off
Those would be only times I’d prepay bills as it generates tax free savings for you. If the landlord can give you an additional discount that may be of benefit as well.
Otherwise there are potential issues prepaying early that have already been outlined by other users.
I did for a few months. Was nice to have some peace of mind. It doesn't make financial sense because of interest, but it's not too much anyways.
Genuine question, but why wouldn’t this be allowed?
People always say this, but I always wonder where you would be earning interest in a short amount of time with 0 risks or restraints on withdrawing it in time to pay the rent when it's due?
Regardless of currency, 5.89% is 5.89%.
If you gain 5.89% bottle caps then if you trade those for USD you have 5.89% more bottlecaps, so will gain 5.89% more USD.
However, OP may also have no use for USD. Exchange rates fluctuate, both up and down, and it's not always predictable. This applies to many currencies, including both USD and EUR.
I’ve never heard of home buyers writing a letter to home sellers. I certainly didn’t do that when I bought my house. I could see how that would help with applying to rent, not so much for buying a place though.
That isn't prepayng as much as it is setting the payment period to a higher duration than a month. However, it still sounds like it serves little benefit to me, the only one being that perhaps you're less likely o be evicted for a period you've already paid, but if they really were the type of person (and had legal rights) to evict you quickly I think they'd do it anyway, and just refund you.
People do this in a competitive rental market to get a good deal or to beat out other prospective renters.
In many jurisdictions it is illegal to do this.
Your landlord could die and your rent could be tied up in probate. Rent money could then be used to pay debt
As an ex nyc renter, let me say It’s a good idea if you don’t want the landlord to have any reason to fix anything in your apt.
I’m a landlord and I stay away from people who try to do this. It’s just a hassle and than when they need to start paying again they usually don’t
My cousin works for a landlord in Upstate. He informed me prepaying in NY is illegal since I was looking to do the same in my state.
High yield savings accounts are paying over 3% right now they are protected up to $250,000 in the U.S.
Unless you negotiate an appropriate (for interest rates) corresponding decrease in rent, which we did one time.
In NYC as well. Simply showing you have the cash on hand in a bank account via submitting a statement or two in addition earning the 40x monthly should be attractive enough.
As others have said don’t prepay, but showing the landlord you already have the funds will help
Only time I've ever done this is due to banks charging an international wire fee. I'd rather pay 3 months at a time if I can save 100$ in bullshit fees. But if you don't have an expensive overhead charge, then it's best to just pay for each month.
Viobank is back up to 4.7%.
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The point is that if you get 5.89% on a currency that devaluates, you are better off buying foreign assets. It's important because people come here and say they make an obscene amount of interest, but 100% is crap if you have 200% inflation. We need to compare apples and apples and interest rates alone don't mean anything unfortunately.
And as to the timing this is something universal that affects all types of investments. No investment is eternally and universally good.
I wouldn’t say it’s incredibly common but we did it. It definitely helped us, owners told us, since we were one of 15 offers and they picked ours.
Exchange rates that consumers get either have fees, or are not bank rates, so each currency conversion also has a cost. So a higher rate in a foreign currency, or a currency which has lower inflation still does not necessarily make a better investment, especially for something short term like in the scenario OP has.
Pretty much all currencies (with the exception of the Swiss Franc), over time, go down in value - that is simply inflation. The fact it's happening is not important, the important part would be about whether one currency has higher or lower inflation than another, and then factor in both and any fees and effort for the investment. Buying foreign currency could also bring tax and accounting implications too.
Your commnt reads as though the only important rate of inflation is the one of a foreign currency to the investor; but the investors local currency inflation rate is at least as important.
Over 10 years EUR has dropped agains USD, but over 6 months EUR is stronger against USD, and continuing in that path right now.
Based on your previous comment everyone should have their investments in Swiss Francs most likely.
Why not just pay when it’s due out of that account?
What state? Here in PA rent is "due" the 1st but there's a legal 5 day grace period so legally it's due on or before the 5th.
My online rent portal doesn't get updated with the bill until the 20th - 23rd. Couldn't pay in advance even if I wanted to.
Why is everyone assuming this poster is going to exchange their $$ for USD? If I earn 5.89% on Euros or Yen or some other currency because I live in a country that uses them, why would I convert that money to USD vs. just using it my own country as the native currency of that country?
I don't know that I would advise doing that. I have heard some horror stories about people doing things like this. Just pay monthly like you always do. You are better off investing the extra than giving to the landlord.
I am not assuming that. I was continuing what u/uski said, in my examples.
It could be any currency, but they chose to benchmark against USD and EUR.
I already pointed out in another comment that exchanging currencies would bring it's own issues, but Uski seemed to think it would be better to have foreign currency based on the inflation rate of OPs own currency. I think it's far too simplistic a view.
I even pointed out in my comment you replied to that they may have no use for USD.
The only time I’ve ever seen this happen is with people going through rough divorces where they want to sequester as much money from their spouse as they can. Sometimes it works, sometimes the attorneys get wise and ask about pre-paid expenses.
Maybe if they're knocking off $100 a month.
I paid my landlord 4 months at a time but it was because I was new to the country and couldn’t pass their equivalent of a credit check since I couldn’t open a local bank account yet. It was a compromise because he was worried about renting to a young foreign student in the country temporarily. He also gave me a slight discount in the process. Otherwise you are just giving them an interest free loan.
its a terrible idea unless theres a big benefit, and if theres a big benefit it's usually because it's a scam.
the only scenario where this makes sense for you is it you literally cant rent otherwise due to credit or evictions or something
it gives your landlord all the power and the capability to screw you
Best idea would be to move to literally any other city and invest the difference in savings.
And in most places, you could buy a house and start building equity for less than avg monthly rent in NYC.
Honestly it is a really stupid idea unless you have a good reason to justify it. I just pre-paid my rent for February and March but only because I was trying to hit a SUB on a new credit card I got this month. Any other reason for prepaying rent doesn’t make any sense.
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Just letting you know that attempting to prepay rent in NYC is how you never get approved. Landlords are prohibited from taking more than one months rent at signing.
It’s illegal to accept or require more than one months rent due at signing to stop slimy landlords from making outrageously expensive security deposits.
Ignoring any currency factors, 5.89% is not, in fact, 5.89%. A US HYSA comes with FDIC insurance. While it is possible I (and everyone else) is just not familiar with the instruments you are using, it seems extremely unlikely that you could get 5.89% yield with the same risk as a HYSA.
He will be out of work three days.
If you get a discount better than the interest rates of you investing the money, then it's a good idea. Or maybe, If you have a Job that has a variable income, and you have the fear of not being able to pay rent some of the months.
No. A dollar today is worth more than a dollar tomorrow.
In most countries the way that interest rates are advertised on accounts is regulated, so if it says 5.89% then it will indeed be 5.89%. Nobody said the 5.89% was a savings account, they said 3-5% was possible, and that their cash earns them 5.89%, but did not define how.
Making assumptions clearly doesn't help you.
Also, we're clearly NOT talking about a US HYSA here, they already said they are NOT in the US.
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Not without some sort of discount no.
There was a story I heard recently of a flipper doing this and saying they were a single mom, and negotiating a lower price.
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I think prepaying by quarter is certainly the better option.
As someone on both side of the rental market (I’m a landlord for a house that I still own, and I rent in a different city), prepaying would make you more attractive as a renter, mainly because it gives the landlord the security, not only that you can afford it, but that you’re not going to leave if you change your mind. But it also puts you at a disadvantage if something goes wrong. Most disputes are not resolved in court because it’s a pain to go through it, so whoever has the money ends up with a huge advantage. I still have two tenants who owe me rent after they broke the lease, and they still haven’t paid.
That money is better off in your savings account than it is in your landlords savings account. I’d keep the mo way in my possession for as long as possible
No, What if the house catches fire or floods or any number of things, you prepaid and it could be gone in the future
It’s been pretty standard for hot (re: coastal/urban-exurban) markets for at least 5 years. Does it make a difference - probably just a little on the margin. Won’t win you against a better offer but all things being equal if you can manage to make a connection in a letter, maybe gives you a slight edge.
Honestly, for a select few tenants I would probably consider this depending on my plans for that year. The issue with accepting prepaid rent from a tenant on the provider side is that it makes it a lot harder for us to evict the tenant in the case of lease violations. So if the provider is going to accept an overall decrease in rent plus the extra risk assumed by the tenant having already paid for 12 months of housing then it will need to be a very compelling reason and a very trustworthy tenant and no first year tenant is that trustworthy.
No, absolutely not. You'll have no leverage if something goes wrong.
Not just any savings account - a high yield savings account.
A savings account that doesn’t pay market rate interest is also forfeiting quite a bit of money.
If you want to make sure rent money for the next few months is taken care of, you can set up a treasurydirect account and buy some short term t-bills. It normally pays better interest than savings account with under 100k, and the money is taken out immediately and comes back with interest at the end of the specified period. Paying your landlord or landlady a few months worth of rent is not optimal
& you'll also make less than avg $ in most places outside of NYC. It's a double edged sword depending on OP's profession.
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I assume it isn’t a hysa, but the original context of the comment was “putting the money in a savings account” and this return was being directly compared to HYSA returns. So yeah, maybe a brokerage account is averaging better, but that would be an odd thing to bring into that conversation.
The point, however, is that you cannot just look at yield and say it is all the same - risk based return colors raw yield numbers.
Edit: Also - this is specifically referencing cash equivalent investments, which further colors that return as unusually high in the context of comparison to a 3.3% U.S. HYSA yield.
I tried this with previous landlords, looking for a discount, no one took it or expressed interest. They all looked at me as if I was crazy.
Alternative is you open something like a Fidelity CMA. You put a year of rent into it. You can buy yourself into SPRXX or similar money market fund. It will count as cash and be auto liquidated to cover checks. You have online bill payment automated to mail a check on your behalf every month to landlord. No need to get a debit card. No need to order paper checks.
4+% interest
Not only that, but your rent might increase mysteriously next cycle when your landlord realizes you’re living well below your means
The general rule of thumb is that you should hang on to your money for as long as possible when paying expenses, unless there is some advantage to pre-paying. For example, if your landlord offered an 8% discount for prepaying for 1 year, that might be worth it, because that's a guaranteed cost reduction versus a potential gain on investment value in the same period.
You don't want to turn over your money before you absolutely have to because you cannot predict the future.
In all of these scenarios, your position is improved by having the money in your possession.
>I assume it isn’t a hysa, but the original context of the comment was “putting the money in a savings account” and this return was being directly compared to HYSA returns
Except they said a savings account (they did not use the term HYSA, which I think is US specific) was 3-5%, then went to add that personally their cash yields 5.89%, and didn't mention a savings account, plus the rate is beyond what they said could be achieved in a savings account.... suggesting their money is in something else.
>The point, however, is that you cannot just look at yield and say it is all the same - risk based return colors raw yield numbers.
Why are you now suddenly assuming it's risk based investment? I don't think anyone suggested it is.
>Edit: Also - this is specifically referencing cash equivalent investments, which further colors that return as unusually high in the context of comparison to a 3.3% U.S. HYSA yield.
Why are you saying US again? The person who quotes 5.89% is specifically NOT in the US, and said that clearly in the same sentence even.
They said: "Personally, my cash yields 5.89% but that's not in USA."
On the flip side, seems like a good incentive for a landlord to offer a discount on prepaying rent. Maybe this is already a thing
All investment is risk based - that’s why the basis for comparison is the risk free rate of return (which is really conceptual but commonly US T-Notes and T-Bills are used). Since FDIC insured account are extremely low risk, they have lower return. If there is a competing yield 259 bps higher (or even 89 bps higher), it presumably comes with either greater risk or maybe is not a similar cash equivalent investment. Certainly one difference is that it could be denominated in a less desirable/useful currency than USD. It could also be that the non-US account they have it in lacks protection equivalent to FDIC insurance (so more risk).
Again though, the key factor is that not all yields are directly comparable. No financial institution gives away a free 289 bps with zero strings attached. If your non-us SA gets 5.89%, it is very likely that either currency differences or risk exposure or both are why. This is different from comparing the rate across competing US HYSA, which I believe is what was being questioned.
So to recap:
This concludes my TED talk.
<Wild applause from the gallery>
Yes, OK, but a savings account is pretty low risk - the bank would need to fail, and the government not bail them out, nor pay out for any form of insurance. In the UK for example the FCA protect bank accounts up to a certain threshold, I think £85k, for example.
Of cours,e the governmen could fail itself, too, but it's very unlikely.
> Since FDIC insured account are extremely low risk, they have lower return
No idea what this is, but sounds like US specific stuff, and the comment was made by someone not in the US, nor investing in the US.
>If there is a competing yield 259 bps higher
Higher... than what? Wheredid 259 come from?
>Certainly one difference is that it could be denominated in a less desirable/useful currency than USD
Percentages don't care about currency. As with a much earlier example, if you trade bottle caps for USD (or any other currency) then you get X back. If you have 10% more bottle caps then you would get 10% more USD (or whatever currency).
>If your non-us SA gets 5.89%, it is very likely that either currency differences or risk exposure or both are why.
It's much more important to talk about exchange rates over time, which you seem to not really be talking about. It could be that after over the year to earn the 10% more bottlecaps that the bottlecaps have suffered rom greater inflation than USD.... but it also might not be the case.
>This is different from comparing the rate across competing US HYSA, which I believe is what was being questioned.
Someone else in other comments mentioned a savings account at 4.7%, sure not the 5.89% but still high. Also, here it's definitely possible to get some pretty good introductory offers on savings account, and some people are happy to jump accounts to chase the offers.
As for your recap points:
I think we are just talking past each other. I feel like I’m reading your points, they all agree with everything both of us are saying, and yet somehow they are presented as responses to my comment as if we are not in agreement.
It could be that I’m just not hearing it clearly over the deafening applause. ;)
ETA: 259 comes from 5.89% (589 bps) - 3.3% (330 bps) = 2.59% (259 bps). Likewise, 89 bps came from just the difference between 5.89% and the top end estimate of 5.00%.
No assumptions have been made about whether the higher yield vehicle is a savings account, only that it is not a US savings account at a bank (I.e. FDIC insured).
Savings account that we normally think of with banks are pretty low risk (and in the US, which is not what commenter in invested in, don’t yield 5.89%). It is specifically the safety of savings accounts that lead them not to yield 5.89% (in the us, for usd investments) currently. If you could get a true equivalent investment across currencies with all the safety of a US savings account that DID yield 5.89%, that would attract a lot of investment, which likely would drive down the rate due to the high demand. Alternatively, it might not attract investment because it isn’t equivalent (currency conversion costs, access issues, risk differences, etc).
While percentages are independent of currency, one reason a vehicle could provide more return is because of the currency. USD is a highly fungible and useful currency with a strong history of stability and operates as the global reserve currency. Russian rubles are extremely difficult to spend, so an investment opportunity in Russian rubles would need to provide a much higher rate of return than an equivalent opportunity in USD. Getting 100% returns restricted to rubles is, for most people, probably not as attractive as getting 3.3% in a US savings account. As a result, we wouldn’t just say that the 100% yield is better - currency matters. To relate it to your example, if the value of bottle caps was highly volatile relative to USD, such that 100 bottle caps is 100 USD last week, 50 USD this week, and maybe 150 USD next week, you would need additional return on your bottle cap investment that would cover the cost of hedging against USD / bottle cap fluctuations to have the return be comparable to a USD denominated vehicle. A more real world example might be if you had a crypto denominated savings account.
Finally, the comment that started this specifically referenced getting 3-5% returns in a savings account for someone living in NYC (and paying rent in USD). Hence all the context about USD and US savings accounts. Skepticism is being expressed that a cash equivalent investment that can be converted to USD to pay rent with the safety of a US savings account would really return 5.89%. That sounds suspiciously high. The theory proposed is that some combination of currency exposure risk, default risk, liquidity risk, or other risk that is greater than a IS Savings account is driving the yield up that high.
Yes, there's a 5 day grace period here in WA as well, I even got a lease amendment about it, but I worry less about lapsing for 5 days and more about situation where I get into a car accident and am in a hospital for a week. The lease agreement language is very harsh - if you miss a payment, and lease office can decide to be shitty, they can "accelerate" the entire lease and make me pay 6+ months at once. I'd rather keep that month prepaid so there's less chance of this happening.
Issue I see is that management is not use to it and would forget you paid the rent since everyone else is month to month.
However, it worked out for Howard Hughes who built the Spruce Goose. He paid 50 years rent upfront for a warehouse to store it in long beach.
I was encouraged to do so when I purchased a home a few years back. The market wasn't as crazy at it's been the last couple of years but it was still competitive and starting to tip towards sellers with a lot of cash buyers around, so it was seen as an edge.
It’s not even about the interest, worse case is he loses it or disputes you gave it to him
I did this a few years ago in the summer in NYC because competition was high, we were three grad students, two of us had out of the country guarantors, and we needed to move in in less than a week. I would absolutely not do this now, I see zero reason unless you really think you're not going to get approved (i.e. no income, low credit score, an apartment above 40x your rent, etc.)
In NYC it’s illegal for a LL to ask for more than one month up front. Showing you have the cash in the bank should serve to make u more attractive.
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>I think we are just talking past each other. I feel like I’m reading your points, they all agree with everything both of us are saying, and yet somehow they are presented as responses to my comment as if we are not in agreement.
Peraps, to some degree, yes. However, you seem to be very focussed on US examples, which are not relavant. When the point about the 3-5% savings accounts was made the commenter we did not know (at least I didn't, and I guess they didn't) that OP was in the US. So, for all intents and purposes, the US is no more relevant than any other country as the benchmark.
>ETA: 259 comes from 5.89% (589 bps) - 3.3% (330 bps) = 2.59% (259 bps). Likewise, 89 bps came from just the difference between 5.89% and the top end estimate of 5.00%.
Where does 3.3% come from?
>No assumptions have been made about whether the higher yield vehicle is a savings account, only that it is not a US savings account at a bank (I.e. FDIC insured).
OK.
>Savings account that we normally think of with banks are pretty low risk (and in the US, which is not what commenter in invested in, don’t yield 5.89%). It is specifically the safety of savings accounts that lead them not to yield 5.89% (in the us, for usd investments) currently. If you could get a true equivalent investment across currencies with all the safety of a US savings account that DID yield 5.89%, that would attract a lot of investment, which likely would drive down the rate due to the high demand. Alternatively, it might not attract investment because it isn’t equivalent (currency conversion costs, access issues, risk differences, etc).
I think I pointed out already that other countries also have similar insurance schemes (I don't know much about FDIC, but in the UK the FCA insures up to something like £85k per individual, which should be more than a years rent. I would bet this is common in most developed nations.) In the UK I am pretty sure you could get roughly 5.89% in a savings account if you took advantage of introducory offers and things.
However, if the interest rate is only marginally better than the US then it would not make sense for a US investor to trade currencies to invest in foreign savings accounts, and have the hassle of management etc, plus the cost of the currency exchange - doing this twice could easily take away a significant portion of any gains. The effort and currency conversions are big enough that if the risk is equal it would not be worth the effort, and for a lot of people that would even be true if they were to make a small amount of extra money, and guaranteed to do so... it's simpy a lot of effort.
>While percentages are independent of currency, one reason a vehicle could provide more return is because of the currency. USD is a highly fungible and useful currency with a strong history of stability and operates as the global reserve currency. Russian rubles are extremely difficult to spend, so an investment opportunity in Russian rubles would need to provide a much higher rate of return than an equivalent opportunity in USD. Getting 100% returns restricted to rubles is, for most people, probably not as attractive as getting 3.3% in a US savings account. As a result, we wouldn’t just say that the 100% yield is better - currency matters. To relate it to your example, if the value of bottle caps was highly volatile relative to USD, such that 100 bottle caps is 100 USD last week, 50 USD this week, and maybe 150 USD next week, you would need additional return on your bottle cap investment that would cover the cost of hedging against USD / bottle cap fluctuations to have the return be comparable to a USD denominated vehicle. A more real world example might be if you had a crypto denominated savings account.
Yep, some good points. USD is widely used, of course, including for most foreign transactions, as I'm sure you know. There are of course other currencies in reasonably stable positions, for example GBP, EUR, CHF.
Of course, some currencies are more volatile, and that is important, but this is part of why people would typically not open foreign savings accounts, which is why the initial suggestion seemed odd. It would make sense if your home currency was volatile, or facing issues like high inflation, but most developed nations are not in that position - of course, there are plenty of places where it does make sense. Though, arguably in those places are people are less likely to have th emeans to take advantage of foreign investment opportunities.
Also, unless exchange rate volatility is particularly high then keeping to your own currency hasn't got a great risk - For example GBP to USD has changed quite a lot over he last 5-10 years, but on a day-to-day it's not had a vast impact.
I like the comparison of crypto to bottle caps I mentioned.
>Finally, the comment that started this specifically referenced getting 3-5% returns in a savings account for someone living in NYC (and paying rent in USD). Hence all the context about USD and US savings accounts.
Already mentioned, we did not know at the time, at least I did not, and maybe the person who made he 3-5% comment also did not.
> Skepticism is being expressed that a cash equivalent investment that can be converted to USD to pay rent with the safety of a US savings account would really return 5.89%
I fully agree that there is a risk to that conversion. The skepticism is that investment in a foreign savings account could be repatriated to your home country effectively to take advantage of likely minimal or equal interest rate benefits. However, I see no reason to link this to USD and I think doing so is making things muddy.
The 3-5% comment was made by someone not in the US, not using US savings accounts, and as far as I know unaware OP was in the US, and 'not in a developing country'.
I think that for someone to invest in a savings account in another country there would need to be quite a significant benefit, and 1-2% would not be enough at all, assuming they have a stable home currency, especially when only talking about the value of a years rent.
The benefit of a foreign savings account is greater to people with an unstable, or highly inflating currency - this is not the case for the person making the 3-5% comment. If someone did want a foreign savings account I'm not sure they'd want to pick a US savings account, due to complex US tax laws, particularly if there was any risk of the person gaining tax nexus in the US by having such an account (not sure if they would, but gaining US tax nexus sucks).
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Nope. Zero benefit. You are simply a revenue stream for your landlord. There's no good reason to give them a year's worth of rent.
Stay liquid. And if you wish, take that liquidity and earn some interest.
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Default87 t1_j6ffwi7 wrote
Giving an interest free loan to your landlord is rarely a good idea.