Being a landlord is a great way to earn rental income. However, that income isn’t exactly passive. A recent report says nearly 80% of properties owned by individual landlords are self-managed.
Among the long list of jobs that come with property management, 84% of landlords cite rent payment issues as their top concern. Rent collection can be a time-consuming and stressful process. But it doesn’t have to be. In this article, learn how to make rent collection easier and faster.
How Do Landlords Collect Rent Payments Today?
Landlords have a variety of options for collecting rent from tenants. The most common methods include cash and paper checks. However, these payments can get lost or take days to clear.
Landlord rent collection methods:
- 34% cash payments
- 31% online rent collection
- 24% rent checks
- 12% credit card payments
While 75% of landlords require rent payments on the first of every month, getting paid on time is a common challenge. Recent data from the U.S. Census Bureau shows that 14% of households are behind on rent. Of that group, 44% are late by one month. That means landlords are chasing over three million tenants for late rent payments.
6 Tips For An Easy Rent Collection Process
If you’re struggling to get rent payments on time, here are six tips to smooth the rent collection process.
1. Thoroughly Screen Tenants
The best way to prevent late payments is to avoid renting to people who are likely to miss the due date. This starts with solid tenant screening and selection practices that will weed out applicants who can’t afford (or don’t want) to pay rent.
Think twice before renting to an applicant if:
- They have shaky credit: Look for missed payments and low credit scores.
- Their income doesn’t cut it: Housing costs, including rent and utilities, should be no more than 40% of a tenant’s income.
- Their references don’t add up: Watch for any indication of previous evictions and be critical of references that are too good to be true.
2. Learn Local City and State Laws for Rent Collection
Depending on where your rental property is located, local laws can have a big influence on your rights to collect rent. For example, while New York allows rent collection apps, you can’t force tenants to use them. It’s important to familiarize yourself with the local regulations to ensure your rent collection process is compliant.
Rent control laws can leave you on the hook for covering overdue payments if you’re not in a landlord-friendly state. For example, tenants in Oregon can sue landlords for three months of rent if the rent price is increased above the legal cap. In Florida, landlords have no restrictions on rent prices and can serve an eviction notice within six days of non-payment.
3. Establish a Bullet-Proof Lease Agreement
A lease agreement is a legal contract, so it’s important to make sure it clearly outlines your tenant’s responsibilities for paying rent. The more details you include, the easier it will be to enforce rules for late rental payments.
When it comes to rent collection, the lease should specify:
- The amount of rent and other fees (e.g., parking)
- When rent is due and who it should be paid to
- Which payment methods you will and won’t accept
- How much late fees are and when they are charged
- What overdraft fees will be charged if the tenant’s payment fails
The lease agreement should also specify that the tenant is liable in full for any missed rent payments and that your policy is immediate eviction for nonpayment of rent (in accordance with state laws).
4. Have a Clear Policy On Late Fees
Having a clear policy on late fees encourages tenants to pay on time and helps you recover the cost of late rent payment processing. Some local laws may dictate how to handle late fees. For example, New York limits late fees to 5% of the rent, up to a maximum of $50. Where no specific laws apply, 5% of the rent is a safe standard to stick to.
A few examples of typical fee structures include:
- A flat fee in the range of $25 – $100
- A flat fee equal to 5% of the rent
- A fee of $5 per day, to a maximum of $50
- A fee of $25 that rises to $75 when the rent is ten or more days late
You may wish to allow a grace period for your tenant to pay rent before fees apply. This can account for due dates that fall on holidays or state-mandated grace periods. In Texas, landlords are required to give renters two full days to pay overdue rent before charging fees.
In addition to charging late fees, you may also want to levy other penalties under certain circumstances. For example, you could charge a $50 fee for every returned check and $10 for each late utility payment.
5. Track Your Rent Payments and Records
Tracking rent payments will help you stay on top of tenants and keep your cash flow in check. This can also come in handy during evictions when accepting partial rent payments can stop the eviction process altogether.
Some landlords use a ledger or spreadsheet to stay organized. While there’s nothing wrong with these methods, they can be challenging if you have multiple rental properties. Online rent collection services automatically generate accurate, up-to-date records of payments from tenants. This gives you a real-time overview of what payments have been made and which ones are overdue.
6. Set up Automatic Rent Payments
Research shows that tenants who pay rent online are 20 times more likely to be up-to-date on payments. The best online rent collection tools let tenants set up automatic monthly rent payments using their preferred payment option and access receipts without bothering you.
Automated rent collection also gets money into your account faster. Rather than making a trip to the bank with cash or waiting a week for a check to clear, you can access your money in a few days. You can also set up automatic rent reminders and late payment notifications to ensure you get paid on time.
Collecting rent can be easier and faster when you have the right knowledge and tools. Set yourself up for success with thorough tenant screening and a strong lease agreement before anything is signed.
Consider using online rent payment services like Baselane to help automate your busy work and keep your tenants on track.
The best online rent collection tools are free and easy to use, deposit payments directly to your bank account, and automatically send reminders and apply late fees. The website Young and the Invested named Baselane one of the best platforms for free rent collection. Baselane also offers free bookkeeping and banking, and makes it easy to get the best deal on loans and insurance.
Zelle and similar apps like Venmo can be used for rent collection but lack landlord-specific features like automated recurring payments, receipts, late payment notifications, and automated bookkeeping.
According to recent surveys, the most secure payment methods for collecting rent include credit cards and ACH bank transfers, as well as digital wallet apps like Apple Pay.